18Th Fl., DI&S Bldg. 27-3 Yeouido-Dong, Yeongdeungpo-Gu

18th Fl., DI&S Bldg. 27-3 Yeouido-dong, Yeongdeungpo-gu, Seoul, Republic of Korea, 150-705 Tel. 82 2 2002 1110 Home Page. www.hanafn.com HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 0 annual reportannual 2006 Leading Financial Group Financial Leading

To be a be To

LETTER TO SHAREHOLDER . 0 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 0 • • •

World’s Top 50 Financial Institutions in total assets and Tier-1 capital. capital. Tier-1 and assets total in Institutions Financial 50 Top World’s This past year was de facto the first business year for Hana Financial Financial Hana for year • • business first the facto de was year past lay to This efforts best its exerted Group the year, the Throughout Group. way our on well now are We growth. further for foundation a strong financial the a leading among becoming of goal ranked mid-term our being both of goal realizing to long-term our and Asia East in group LETTER TO SHAREHOLDER . 0 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 0

Corporate Governance Financial Section H a r m o n y E x p a n s i o n Company Profile Achievement Corporate Timeline MD&A Independent Auditors’ Report H R M a n a g e m e n t S y n e r g y H F G a t a GL l e a a n d c e e r s h i p Business Portfolio G l o b a l S t rRisk a t e g y Management RecognitionS h a r e I n f oCorporate r m a t i o n Information Financial LetterHighlights to Shareholders B o a r d o f DV i i r s e i c o t n o r & s MC i o s r s p i o o r n a t e C u l t u r e Commitment to Community - C o m m e r c i a l-Private B a n k i n g Banking- A s s e t M a n a- g I e n m v e e n s t t m e n t- B B r a o n k k e i r n a g g e - I n s u r a n c e -Credit Card-Consumer Finance-Tr u s t

6 4 9 5 2 9 3 2 3 4 3 8 5 0 5 4 5 8 6 0 6 2 6 3 C o n t e n0 5 t0 6 s 12 14 16 2 0 2 3 24 • • •

Achievements Delta-2 Project. The Group’s PPOP grew significantly, growing by 39 growing significantly, grew PPOP Group’s The Project. remained Delta-2 quality asset renowned our and 2005, to compared percent deterioration. of signs any showing without solid Hana Financial Group achieved sizable year-on-year asset growth of of growth asset • year-on-year • the sizable namely, achieved Group strategy, Financial growth Hana organic an deploying through percent 21

LETTER TO SHAREHOLDER . 0 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 0 * As of Dec. 31, 2006* As of Dec. 31, YoY+39% % 1546.9 % 173.4 128.0 YoY+22% 118.4 1114.2 (Unit : KRW in Billions) 96.8 2005 2006 NPL Coverage Ratio * Hana Bank % % % % % 0.98 47.8 CI Ratio 0.89 0.77 0.69 118.4 Trillion won Trillion 118.4

) % 2005 2006 2005 2005 2005 2006 2006 2006 PPOP NPL Ratio Delinquency Ratio* Total Sales Total EPS 5,202 won , Tier2 3.41 % YoY+21% YoY+8% BPS 128.6 36,815 won 36,815 (Tier1 7.93 % % % (Unit : KRW in Billions) % 106.3 1026.7 951.4 11.34 Precautionary 1.21 Substandard & Below 0.69

147.67 %

ROA 1.00 83,983.8 Billion won 128.6 Trillion won Trillion 128.6

% % ROE 14.94

Nomal 98.10 2005 2005 2006 2006 2. Profitability Profitability 2. Consolidated Net Income 1. Business Volume Volume Business 1. 5. Major Indices Indices Major 5. Equity Capital Ratio (HFG) BIS CAR (Hana Bank) 4. Capital Adequacy Ratio Ratio Adequacy Capital 4. 3. Asset Soundness Asset 3. Credits Total Total Assets Total Letter to Shareholders

• • The past year was our first full year as a financial holding company, a year full of challenge and opportunity for us. We are pleased to inform our shareholders that the business and financial performance was strong in the fiscal year 2006. And we could stand as a leading financial company in Korea, providing our customers with comprehensive financial services. • • LETTER TO SHAREHOLDERS TO SHAREHOLDERS LETTER .

0 HANA FINANCIAL GROUP GROUP FINANCIAL HANA

ANNUAL REPORT 2006 REPORT ANNUAL

Right > Seung-Yu Kim Chairman & CEO

Left > Kyo-Joong Yoon . 0

President & CEO Letter to Shareholders

It is a great pleasure to report to our shareholders the business and financial performance of the Hana Financial Group in fiscal 2006. It was our first full year as a financial holding company. The past year was a year of challenge and opportunity for us. It was challenging for us because the market was competitive in all areas in which we are involved. As the Korean financial market is still evolving, we see tremendous opportunities for growth in both banking and non-banking sectors.

When the Hana Financial Group was founded, our goal was to emerge as a strong financial company providing our customers with comprehensive financial services, which would include retail and consumer banking, corporate finance, investment banking, stock brokerage, asset management and retail insurance. We are pleased to inform our shareholders that the business and financial performance was strong in the fiscal year that ended on December 31, 2006. The Group reported KRW 128 trillion in total assets, including those held in trust accounts. Net income amounted to more than KRW 1 trillion. We posted a ROA of 1.00% and a ROE of 14.94%, both of which were relatively strong compared to our peers in the market. Even more important was the fact that the soundness of the Group was indicated by a low NPL ratio of 0.69% and a NPL coverage ratio of 173.23%.

As a holding company, 2006 was a year when we undertook several steps that we expect will ultimately contribute to enhanced qualitative performance of the Group and of its subsidiaries. We took several managerial and operating decisions that are expected to contribute to an improved corporate valuation, which would ultimately benefit the shareholders. Some of the steps that we took towards improved valuation were:

Hana Bank, a wholly owned subsidiary, successfully implemented Delta-2 project, which called for an organic growth strategy aimed at achieving a 2% increase in our share in the banking market. We are pleased to report that we achieved that target, recording an increase in outstanding loans, deposits and retail sales of our investment products.

Daehan Investment & Securities increased the stability of its operations and earnings through improved performance in the selling of funds and other investment products, as well as an increase in brokerage commission earnings. LETTER TO SHAREHOLDERS TO SHAREHOLDERS LETTER

Hana Capital made a sound entry into the retail auto lease market in Korea. The company pursued aggressive marketing strategies to gain market share in this very competitive market. .

0 Hana Life Insurance, combined with nationwide network of Hana Bank, fully exploited the rising demands for insurance products in the market. The life insurer recorded a signifi cant increase in its sale of bancassurance products in 2006.

To enhance synergies, cut overlapping costs, share marketing expenses and improve customer service, the Group launched “virtual business units” encompassing specifi c functions—stock brokerage, investment banking and institutional investment between Hana Bank, Daehan Investment & Securities and Hana Securities.

Hana Securities was included as a subsidiary of the Group in 2006. We made a functional rearrange- ment by transferring the Group’s retail brokerage business from Hana Securities to Daehan Investment & Securities. We intend to turn Hana Securities into an investment bank focusing on corporate non-bank fi nancial services.

All in all, we made a solid start in 2006 to emerge as a comprehensive fi nancial group and we are confi - dent that our future steps would help us become a market leader in Korea.

Going forward, we expect tougher times ahead as battle for the banking market domination heats up among the top four fi nancial groups in Korea. We have already seen entry of two global players into the local banking market, and we expect our local competitors to fi ght to raise their market share in various segments of the non-banking fi nancial market. We also expect legal and regulatory changes in the Ko- rean capital markets with the enforcement of a new law called “Capital Market Integration Act,” which is expected to provide the overall regulatory framework of the capital market and its players.

Facing these shifts in the market and regulatory environment, we will continue to adjust ourselves to the changing market dynamics in order to keep increasing our earnings and our market share. We know that we have the ability to do so, but we will need to continue responding effectively and effi ciently in order to HANA FINANCIAL GROUP GROUP FINANCIAL HANA achieve our medium-term to long-term goals of becoming a global player.

We have identifi ed several areas where we need to focus our attention on. We are still too dependent on interest and commission incomes from our banking business, and therefore we must increase the

ANNUAL REPORT 2006 REPORT ANNUAL proportion of operational revenues coming from our non-banking segment. This will require making better use of our capabilities in such areas as retail investment, credit card, investment banking and other . 09 Letter to Shareholders

fee-generating financial services offered to corporate sectors. Especially, we will run most of our efforts in organic growth of our credit card business for better profitability next year. We also intend to cut costs further by integrating our customer services through virtual business units and also to strengthen joint marketing of our services.

To emerge as a leading bank, we cannot keep our operations within our country’s political borders. Therefore, we are gradually expanding our operations overseas. We have set up branch operations in China, Japan, Singapore and the US. We intend to provide our services not only to Korean companies operating in these countries, but also to local clients. The Group has already secured its strongholds for the business in China, including services to Qingdao and Yantai through Qingdao International Bank. In addition, Hana Bank offers services through its own branches in Hong Kong, Shanghai and Shenyang. To strengthen our presence in China, we are considering setting up a banking subsidiary in Beijing in 2007.

Going forward, we plan to preserve the consistent growth in earnings that we posted during the Hana Bank era. We have proven over many years that our performance can remain solid even during conditions of market volatility, because of our strong and effective risk management system. We will continue to rely on our current risk management system, while incorporating new risk factors as they emerge. Through a proper balance between risks and rewards, we intend to keep our asset quality as good as ever.

We do see some unwelcome developments on the horizon. The sub-prime mortgage issue in the US is an important factor to watch, as it may induce volatility in the real estate prices there, and consequently on the broad US economy. In Korea, we are also anticipating greater volatility in the real estate sector, as the government continues to introduce new regulations intended to control the escalating real estate prices. One major development to notice going forward will be the repayment capability of Korean homeowners, who borrowed heavily to buy properties over the past few years. We will be constantly monitoring the local housing market and household loans, in order to nip in the bud any unwanted risks that may arise in the coming months. We are confident that the local small and medium sized companies should remain relatively stable, despite volatility in the prices of oil and energy. LETTER TO SHAREHOLDERS TO SHAREHOLDERS LETTER While our business performance remains strong, we cannot remain complacent about our success. We realize that we need to have continuous infusion of the best human talents into our operations. Our goal is to provide each and every employee with the best working environment so that these talented employees .

010 can perform to the best of their capability. In early 2007, we launched a new program in the human resources management division which will ensure that we secure the best talents from the market and that these talents will be able to contribute to our future growth. We are also making sure that the company’s culture cannot be an obstacle to those who perform strongly. Through the Corporate Culture Manage- ment Team, which we set up in early 2007, we will try to instill a commonly shared corporate core values into all our employees. We know that our strong future will depend on sound human resource management policy and an employee-friendly cultural environment will ensure our strong future.

Last, but not the least, we would like to put our emphasis on corporate social responsibility. We made an endowment of KRW 30 billion in October 2006 to set up the Hana Financial Group Foundation, through which we will be able to meet our obligations as a good corporate citizen.

All in all, we have delivered a strong performance in 2006 and we plan to do likewise in 2007. We will continue to seek the support of not only our valued shareholders but also other stakeholders in our continued success.

Thank you. HANA FINANCIAL GROUP GROUP FINANCIAL HANA

Seung-Yu Kim Kyo-Joong Yoon

ANNUAL REPORT 2006 REPORT ANNUAL Chairman & CEO President & CEO . 011 Corporate Governance

Shareholders’ Meeting

• • • Steering Committee of BOD HFG’s BOD and subordinating committees • Audit Committee • Outside Director Nomination Board of Committee are operated with respect to professional- Directors • Risk Management Committee ism, independence, and transparency to • Management Development & Compensation Committee ensure their effectiveness in realizing the Group’s mid- to long-term business objec- tives and creating greater value for our • Management Strategy Chairman Committee shareholders. & CEO • Talent Management Committee • •

• Financial Planning Team • Strategic Planning Team • Subsidiary Management Team • Risk Management Team President & CEO • Communication Team • Audit & Compliance Team • Synergy Integration Team • Operation & Support Team • Global Business Strategy Team • HR Management Team • Corporate Culture Management Team • Strategic Information Team CORPORATE GOVERNANCE GOVERNANCE CORPORATE .

012 Governance structure of Hana Financial Group Inc. is de- Audit Committee signed to enable its shareholders’ substantial governance The Audit Committee performs internal audits on account- through shareholders’ meetings. ing and operation as well as any ancillary functions thereto; approves the appointment of independent auditor and Shareholders have delegated the managerial right to the evaluates its audit activities; executes countermeasures Board of Directors (BOD) through the shareholders’ meet- regarding matters pointed out during the audit; handles ing. And the BOD, in order to secure a balance between matters as provided by the relevant laws and ordinances management functions, entrusts its subcommittees with or the Articles of Incorporation and other matters entrusted part of its rights and responsibilities. Such subcommit- by the BOD. tees include the Steering Committee of the BOD, Audit Committee, Outside Director Nomination Committee, Risk Outside Director Nomination Committee Management Committee, and Management Development The Outside Director Nomination Committee performs the & Compensation Committee. functions of searching, evaluating, and nominating candi- dates for outside directors whose qualifications best fit the Hana Financial Group Inc. believes that the true difference Group’s strategic goals. in corporate governance comes from how we make the system work rather than the way we organize a company. Hana Risk Management Committee Financial Group Inc., as clarified in its Articles of Incorpora- The Risk Management Committee determines and ap- tion, will serve as the strategic architect of the Group, to proves the policy and basic management plan for dealing proactively support the autonomy of its affiliates and coor- with the various types of risks which may occur in the dinate their business activities for the sound growth of the course of group management. Group as a whole. Management Development & Steering Committee of BOD Compensation Committee The Steering Committee of BOD deliberates and resolves The Management Development & Compensation Commit- matters regarding the realization of reasonable corporate tee is formed to improve the performance of the Group as governance; matters regarding effective operation of the well as contribute to a fair and meritorious reward culture by BOD and its subcommittees; as well as other matters en- evaluating performances of the registered officers of Hana trusted by the BOD. Financial Group Inc. and the representative directors of its affiliates. HANA FINANCIAL GROUP GROUP FINANCIAL HANA

ANNUAL REPORT 2006 REPORT ANNUAL . 013 Board of Directors

1. Jong-Yeol Kim 1, 4 President & CEO, Hana Bank 2. Alfred Baldes Ph. D. 3, 4 Sustainability Investment Management, Allianz Insurance Management Asia Pacific. 3. Jung-Tae Kim 4 President & CEO, Daehan Investment & Securities Co., Ltd. 4. Seung-Yu Kim 1, 3, 5 Chairman & CEO, Hana Financial Group Inc. Chairman of the Board of Directors, Hana Bank 5. Hae-Wang Chung 1, 4 Outside Director, Hana Finanacial Group Inc. 6. Il-Hyun Suk 2 Standing Member of Audit Committee, Hana Financial Group Inc. 7. Jae-Chul Kim 3, 5 Chairman, Dongwon Group BOARD OF DIRECTORS OF BOARD DIRECTORS .

Subcommittees of the Board of Directors 014 1. Steering Committee of BOD | 2. Audit Committee | 3. Outside Director Nomination Committee | 4. Risk Management Committee | 5. Management Development & Compensation Committee Advisor, POSCO Sang-Boo Yoo 2, 3, 5 .18 Attorney at Law, Partner, Lee & Ko. Mee-Hyon Lee 1 .19 Banking Advisor, IFC Global Banking Consulting Roy A. Karaoglan Ph.D.4 .10 President, Sejong Center for the Performing Arts Joo-Song Kim 2, 3, 5 .11 President & CEO, Hana Financial Group Inc.Non-Standing Director, Kyo-Joong Yoon 1, 4 .12 Daehan Investment & Securities Co., Ltd. Non-Standing Director, Hana Securities Co., Ltd. Finance Division CEO, Dongbu Group Ki-Che Chang 1, 2, 3 .13 Professor, Korea University Yoon-Dae Euh 1, 4 .14 Managing Director, Goldman Sachs Henry Cornell 5 .15 HANA FINANCIAL GROUP GROUP FINANCIAL HANA

ANNUAL REPORT 2006 REPORT ANNUAL . 015 Vision & Mission

• • Hana Financial Group has established a vision to become the Premier Financial Ser- vices Network with a focus on guarantee- ing customer satisfaction, creating shareholder value, and establishing a pleasant work environment for employees, and contributing to communities. • •

Hana Financial Group (HFG; the Group) aims to provide Hana Financial Group has established two strategic goals the “Premier Financial Service Network” ultimately tailored on the road toward achieving our vision. First, the Group will around the needs of our customers. With close coopera- become a leading fi nancial group in East Asia with 200 tril- tion among the Group’s affi liates, partners, and employees, lion won in total assets, 20 percent or higher ROE, and 1.3 HFG will establish an organic network that offers one-stop percent or higher ROA by 2009. Second, we will emerge as service. a global fi nancial group in Asia with 450 trillion won in total assets by 2015. To reinforce our leading position, the Group has established a vision to become the “Premier Financial Services Net- In all of our efforts, Hana Financial Group will work diligent- work” focused on achieving four missions: ly to attain two signifi cant values: Quality Excellence and Global Competitiveness. And further, by enhancing non-in- • Provide customer satisfaction as a trustworthy fi nancial terest revenue streams, expanding into overseas markets, partner; and implementing international risk management methods, • Maximize shareholder value as a business partner; the Group will be on the right path to seeing all of our stra- • Satisfy employees by creating a pleasant and encourag- tegic goals, and ultimately our vision, realized. ing work environment; and • Contribute to communities as a leading fi nancial group. VISION & MISSION & MISSION VISION .

016 Premier Financial Vision Services Network Mission

Target 2009 Customer Provide customer satisfaction as a Leading Financial Group in East Asia fi nancial partner • World’s Top 100 Financial Institutions Employee Satisfy employees empowerment • Quality Excellence as a great work place Shareholders Maximize shareholders’ value as a Target 2015 business partner Global Financial Group in Asia Community Contribute to communities as a • World’s Top 50 Financial Institutions leading fi nancial Institution • Global Competitiveness

Organization

Product Development Engine

Hana Securities DIMCO Hana Life Insurance Platform for Derivatives & World Class Optimized Insurance Portfolio Capital Market Products Asset Mgmt. Company for Customer Needs

Credit Card Hana Capital Combined Product of Consumer Finance Retail and Finance Product Development

Distribution Channel

Hana Bank DI&S Main Distribution Open Architecture Channel of HFG Fund Store HANA FINANCIAL GROUP GROUP FINANCIAL HANA

Hana Finacial Group Inc. Hana Institute of Finance Hana INS Group Planning Strategy Think Tank of HFG & Shared IT Support & Financial Management Knowledge Center for HFG

Strategy & Shared Services

ANNUAL REPORT 2006 REPORT ANNUAL . 017 Vision & Mission

• • Hana Financial Group will leap forward to become world-class financial group through the establishment of synergy between business sectors and regional offices, and the creation of new financial businesses based on advanced technology. • •

Vision Road Map

After the launch of Hana Financial Group Inc. in December The goal to become the leading financial group in East Asia 2005, the year 2006 was its first as a holding company. is set for 2009 at which point we will have achieved market HFG’s aim in 2006 was to expand the business network cap of 20 trillion won, share of non-interest revenue of 40 and establish the groundwork to strengthen Group-wide percent, and share of revenue earned overseas of 8 percent competitiveness. through the establishment of risk management criteria that meet international standards. In 2007, HFG will focus on firmly establishing the platform for growth. Along these lines, our business structure will be And from 2010 to 2014, HFG will leap forward to become reorganized centered around core and promising sectors a world-class financial group through the establishment of and talented employees will be nurtured, thereby bolstering synergy between business sectors and regional offices, and the inner capability of the Group and maximizing synergy. creation of new financial businesses based on advanced Efforts will also be made to advance into markets through- technology. At the same time, the Group will rise to the out the world including advanced countries, Asia, and top in South Korea’s financial sector, a position it will attain emerging markets. through productivity and operational soundness.

In 2008, the Group will aim to achieve strong profitability By 2015, the Group will be ranked among the world’s Top and growth by securing a leading market position in major 50 financial groups, with market cap of 60 trillion won, share business sectors through profit diversification and vigorous of non-interest revenue of 50 percent, and share of revenue entry into overseas markets. earned overseas of 20 percent. VISION & MISSION & MISSION VISION .

018 [ Strategic Assignments ]

Execution of Organization, Product, Channel and Brand Strategies is Required to Leap toward Global Financial Group

• Provide customized products • Strengthen core function of and services the holding company n Pr io od • Provide innovative products at u • Maximize synergy effect via iz c n t responding to financial envi- matrix structure a g ronment changes r

• Execute integrated brand

d strategy • Establish distinctive channels C n ha ra • Preserve unified group for each customer segmen- nn B el brand, while using dif- tation ferentiated brand for each • Expand global network customer segment and business line

Talent Cultivation Corporate Culture Risk Management Technology

[ Vision Road Map ]

2010 2007 Establish 2008 Substantiate 2009 Leading Financial -2014 Substantiate 2015 Global Financial Growth Platform Growth Momentum Group in East Asia Growth Momentum Group in Asia

• Restructure around core • Achieve growth with profit- • World’s top 100 financial in- • Create cross-regional and • World’s top 50 financial in- businesses and prospec- ability stitutions by market capital inter-business synergies stitutions by market capital tive cashcows - Secure meaningful profit • Quality Excellence • Obtain advanced earning • Globally competitive finan- • Establish competitive edge sources - Non-interest revenue: structure cial group - Maximize the group syner- - Seek opportunities in 40% • Localize overseas business • Sophisticated earning

gies specialized business or - Overseas revenue: 8% • Pursue new opportunities structure GROUP FINANCIAL HANA - Improve competencies of in areas with competitive - Global standard risk under ubiquitous environ- - Non-interest revenue:50% the group advantages management ment - Overseas revenue:20% - Foster talents and ex- • Secure market leadership in - Global standard risk man- change personnel within core business agement the goup • Diversify income sources - Pursue opportunities in

areas with ample growth 2006 REPORT ANNUAL potentials • Expand overseas business - Asia and emerging markets - Advanced countries . 019 Corporate Culture CORPORATE CULTURE CULTURE CORPORATE .

020 • • HFG corporate culture is built on four pillars of management principles: People-centered, Customer First, Market- driven, and Performance-oriented. These principles are always considered when drawing up policies, procedures, and protocols for the Group. • •

HFG takes pride in its unique and powerful culture that has ing innovative services that meet the changing needs of led to distinguished successes throughout the Group’s his- customers tory. - Agility to cope with changes and decisiveness to create opportunities In today’s rapidly changing market and business environment, the Group faithfully abides by its fundamental values. 2. Integrity Our core values define the characteristics of the Group and Integrity is the quintessence of the Group. Our uncompro- are practiced by our members in both their personal and mising integrity is the key to preserving and enhancing our professional lives. most valuable asset, our reputation.

As financial experts, members of the Group understand Values of the Group: Founders’ Philosophy that to have integrity means always prioritizing customers’ and Integrity interests, and working in an honest, straightforward, and transparent manner. 1. Founders’ Philosophy; Entrepreneurship, Autonomy, and Innovative Spirit Entrepreneurship, Autonomy, and Innovative Spirit are the Premier Financial Services Network core values of the Group and also comprise the founders’ philosophy. These values are the heart of the Group’s culture and set the standards to be reached by our members. All employees, including executives, are assessed using Global Financial Group in Asia these values as criteria. Diversity Openness

• Entrepreneurship

- Independent leadership that shapes the future and in- Globalized Professional cludes pioneering new markets, expanding existing HANA FINANCIAL GROUP GROUP FINANCIAL HANA market shares, and introducing new business models Management Principles of HFG - Partnership that encourages all members to take the People Centered, Customer First, Market Driven, Performance Oriented initiative in any business as part-owner of HFG Values of HFG Founders’ Philosophy (Entrepreneurship, Autonomy, • Autonomy Innovative Spirit) + Integrity

- Self-discipline in both professional and personal life 2006 REPORT ANNUAL - Strong responsibility corresponding to employee ownership and partnership

• Innovative Spirit .

- Exercising the spirit and tradition of the Group by devis- 021 Corporate Culture

Hana Management Principles Hana Action Guide: Actualizing Values and the Vision HFG’s corporate culture is built on four management principles: People-centered, Customer First, Market-driven, The Hana Action Guide was recently devised and intro- and “Performance-oriented”. These principles are always duced to the members of the Group to help them actualize considered when drawing up policies, procedures, and our values and vision in their daily work and life. After a protocols for the Group. series of intense discussions at various levels, the Group formulated our approach as “CORE + EF”. 1. People-centered HFG encourages our members to take pride in and enjoy [ Action Guide of Hana Members ] their work. The Group does not ask its employees to toil for the Group but to strive to bring out their best values. In return for their effort, HFG endeavors to provide the best CORE+EF working environment for its employees, appreciating and C ommunicate We talk and share our Vision, and understand rewarding them for their excellent performance. how each member can contribute to achieve it. We enhance efficiency and strengthen bonds between our members through straightforward and mannered communication. 2. Customer First Open We collaborate proactively across business units to meet The Group is proud of our extensive programs to deliver en- our customer’s complex needs for ‘One-stop’ financial services. hanced services to our customers in the regional markets. We value creative ideas, and respect new approaches to solve problems and deliver better services. Under our motto, “We only pursue customer satisfaction”, R un We pursue fast implementation of our market sensitive strate- we do our utmost to gain trust from our customers. gies. We decide and empower each other based on practical results rather than theoretical ideas. 3. Market-driven E thics We build networks of ‘trust’ with our customers, share- While achieving economy of scale, the Group stresses holders, inside members, and community. “Speed”. In other words, we are known for our prompt and We preserve and raise our reputation through our disciplined conduct. timely responses to the market and customers. As a grow- + ing company, HFG strives to expedite its services through active knowledge management and horizontal decision E nergetically Spirit and determination to meet targets making. F un Create a pleasant working environment

4. Performance-oriented We offer our members various opportunities to assume Today, change itself is an integral part of our business. With more responsibilities, enabling them to advance faster than this in mind, the Group will continue to respond flexibly to

CORPORATE CULTURE CULTURE CORPORATE their counterparts in rival groups. Evaluation, compen- the demands of the times, creating the best work practices sation, and advancement in the Group solely depend on that produce extraordinary results. individual merits. .

022 Human Resource Management

• • HFG’s employees hold the key to achieving our goal of joining the ranks of the world’s Top 50 financial groups by 2015. With our vast pool of talented and knowledgeable In the 21st century global business environment, Hana Fi- nancial Group’s success in achieving our strategic business employees who are capable goals lies on discovering and training gifted employees. of communicating globally,

The Group’s members hold the key to achieving our goal of we will surely see this goal joining the ranks of the world’s Top 50 financial groups by realized. 2015. Indeed, a vast pool of talented and knowledgeable employees capable of communicating globally is needed to • • realize our aim. Amid a fast changing financial environment with a thin line between financial institutions and “one-stop” financial service, there is growing competition to secure creative leaders who can turn crisis into an opportunity. From now, the competitiveness of a company will be de- Through the process of solving strategic tasks assigned, termined by how many talented individuals it has, and its these talented employees will contribute to bolstering their ability to train them systematically will influence future value own capacity as well as the Group’s. And the Group will creation. grant sufficient rewards for their contributions, thereby pro- tecting its intellectual capital. The year 2007 will be the first to systematically implement Top Talent Management at the Group-level. The Talent Furthermore, HFG will always welcome skillful talents Management Committee will be responsible for carrying from outside. In particular, the Investment Banking, Global out systematic development of talented members who can Corporate Banking, Asset Management, and Risk Manage- fill the Group’s core positions. ment sectors will open their doors to talented individuals from across the globe. To foster these talents, future leaders will be provided with opportunities to take part in various training programs fo- Entrepreneurship, Autonomy and Innovative Spirit are the cused on expanding leadership capacities. Furthermore, Group’s fundamental principles shared by our members they will be equipped to become global leaders under the as they prepare to become key players in shaping the future systematic Succession Plan within the Group. of Hana Financial Group. HANA FINANCIAL GROUP GROUP FINANCIAL HANA

ANNUAL REPORT 2006 REPORT ANNUAL . 023 Commitment to Community

• • As a member of the community, HFG will continue its philanthropic activities in a systemized and diversified way, doing our utmost to provide our less-privileged neighbors with the help they really need. • • COMMITMENT TO COMMUNITY TO COMMUNITY COMMITMENT .

024 What are the effects of the social contribution Hana Family’s Kimchi Donation made by businesses? Every year the Group donates handmade seasoned cab- bage (Kimchi) to those less fortunate. Female employees What does society look for in businesses in the and employees’ wives participate in this annual event, sea- 21st Century? soning 1,500 cabbages to be distributed to various welfare organizations. As businesses assume a larger role in society, their social contributions change from philanthropy to participation and Volunteering with Hana Employees’ Children then from participation to investment. The current era de- The Group also encourages employees’ children to take mands genuine social contributions in the form of active part in semi-annual voluntary activities for people with dis- participation, rather than perfunctory charity. Hana Finan- ability and for those less-privileged during their summer and cial Group has consistently made social contributions in winter vacations. response to such need. Ski Camp for Children at Social Welfare Fa- The Group’s social contribution activity is based on the cilities belief that those who are neglected from our society and At the ski camp we offer children protected at social welfare abandoned from our conscience should be embraced facilities, they are able to forget the hardships of their lives warmly. for just a little while to enjoy the thrill of the ski slopes. And after a day of skiing, the children then enjoy making bubble Hana Financial Group’s community activities began in the art and soap, and sing songs and experience team spirit 1980s along with a program to help our less privileged around the campfire. This program was designed to foster neighbors. In the mid-1990s aids were given in the areas the hopes and dreams of these children. of social welfare, culture/arts, education/research and envi- ronmental conservation as the focus turned to companies’ The Group’s employees also make donations to the Korea corporate responsibility towards society. Welfare Foundation and the Korea Association of the Wel- fare Institute for the Disabled every month. The money is In September 2004, the “Hana Sarang Volunteer Corps” donated to the young heads of under-privileged households was launched to enable more efficient systematic social and to people with disability. contribution activities. Relevant in-house systems were then overhauled, encouraging employees to participate in In addition, the Group’s employees volunteer to spend the voluntary activities. In October 2006, the Group became the second and fourth Saturday of every month at welfare facili- first financial institution in South Korea to launch its own ties, cleaning and spending time with residents there.

social welfare corporation, the “Hana Financial Group Foun- GROUP FINANCIAL HANA dation.” This has been a key factor in upgrading our social Hana Financial Group assists branches to help them orga- contribution activities and as a result, the Group’s total ex- nize voluntary activities smoothly by providing them with penditures for social contribution activities were more than relevant information in collaboration with social welfare or- 48 billion won in 2006. ganizations.

ANNUAL REPORT 2006 REPORT ANNUAL HFG’s social contribution activities in 2006 are summarized As a member of the community, the Group will continue below. philanthropic activities in a systemized and diversified way, and employees will do their utmost to seek ways to share with our less-privileged neighbors with a warm heart. . 025 Commitment to Community

1. HFG’s Social Contribution Organizations

Hana Bank

Education for more Professional systematic voluntary voluntary activity activities organizations

Hana Securities DI&S

Creation of Various social contri- synergy for HFG bution program

Other Affiliates

2. Road Map of HFG’s Social Contribution Activities

2006 2007 2012 2017 Laying the basis of social Stabilization of social Systematization of social Completion of mid- contribution activities contribution activities contribution activities and long-term vision

• Establishment of groups • Development of represen- • Development of differenti- supporting social contribu- tative programs for HFG ated models of social tion activities Foundation contribution activities

COMMITMENT TO COMMUNITY TO COMMUNITY COMMITMENT • Establishment of volunteer • Linking with corporate • Development of and par- groups/Development of strategies ticipation in global C&R network of social contribu- • Spread of image as a busi- • Positive participation by tion activities ness engaged in social HFG employees and cus- • Construction of facilities for contribution activities tomers senior citizens and children .

026 3. Photographs of Our Social Contribution Activities

1 3

1. Employees and employees’ wives making kimchi (seasoned cab- bage) for people less fortunate. 2. Employees’ children engaging in voluntary activities.

3. Employees donating their blood. GROUP FINANCIAL HANA 4. Employees engaging in voluntary activities. 5. Establishment of Hana Financial Group Foundation.

ANNUAL REPORT 2006 REPORT ANNUAL . 027 - - • • •

Harmony strategic approach reflects our client focused corporate values. strategic approach reflects our client focused corporate values. kerage, investment kerage, banking, investment and to investment, institutional re alize tangible synergy at the Group level. Such an innovative • • • of the effort joint through Unit the HFG Business Virtual launched of bro areas business lapped the over of Group the affiliates three

LETTER TO SHAREHOLDER . 028 Synergy

HFG’s Strategy for Synergistic Sales

Synergy Creation Factors Synergistic Sales Anticipated Effects and Goals

Creation of tion of Affi liates’ Core Quantitative Effects liza ti Function/Capacity Group Synergy U • Increased number of customers

• Multi-business line • Expand customer asset • Risk in group’s profi tability Product / Channel • Improved synergy index Service • Vastly extended -Cross-selling index customer base -Customer maintenance rate Reinforcement of Affi liates’ Position

• Cross-selling Corporate CRM opportunities Culture Qualitative Effects

among affi liates • Improve customer relations

Driv • Strengthen loyalty toward our cus- e Forth with Sales Achieving tomers Linked to Affi liates the Group’s Vision

Strategic Points on HFG’s Synergistic Drive

Strategic Point • Mutual sharing of Revenue core competencies Synergy 1 • Cross-Selling Based on the (Business “Comprehensive Customer Information Oriented) • Achievement of complete • Active Referrals among Affi liates sales of the Group’s prod- Financial Group

• Co-Marketing ucts to customers Creating Maximum GROUP FINANCIAL HANA Synergy” Effi ciency • Integration of the Common • Optimum distribution of Synergy Function and Management resources and functions 2 (Function of the Shared Service within the Group

Oriented) 2006 REPORT ANNUAL . 029 Synergy

• • Hana Financial Group is creating synergy by developing and differentiating the core capabilities of its affiliates and their business characteristics to the maximum. • •

Hana Financial Group (HFG; the Group) has established a These efforts were as follows: synergy basis which serves to satisfy the specific needs of all of its customers in the banking, credit card, securities, • Establishing new and diversified multi-sales channels eas- asset management, insurance, and consumer finance sec- ily accessed by customers; tors. Our synergy basis is comprised of multi-business lines • Sharing customer information among affiliates for easier and teams of top-notch Private Bankers, Wealth Managers cross-selling; and Relationship Managers. • Implementing customer-centered marketing to facilitate joint marketing; and In this environment, the Group generates synergy by devel- • Integrating operation of securities related IT system and oping and differentiating the core capabilities of its affiliates Integrating operation of the securities-related IT system and their business characteristics to the maximum. and the purchase of consumables.

Our focus now is on boosting the Group’s revenue synergy, HFG will push forward with its strategies to maximize syn- with Hana Bank and Daehan Investment & Securities Co., ergy in 2007 through the following: Ltd. (DI&S) at the center of this plan. These two firms play a core role as major distribution channels for fund products at • Expanding financial complex channels and revving up Daehan Investment Trust Management Co., Ltd. (DIMCO), sales; insurance products at Hana Life Insurance Co., Ltd. (Hana • Bolstering cross-selling among affiliates by expanding the Life), investment bank products at Hana Securities Co., Ltd. customer base through overlapping transactions; (Hana Securities) and consumer financing products at Hana • Implementing customer management based on integrat- Capital Co., Ltd. (Hana Capital). ed CRM; • Boosting the Virtual Business Unit (VBU) to enhance cus- Moreover, the Group is endeavoring to reduce expenses tomer-oriented management and sales capacity; and by accomplishing economy of scale through integration of • Promoting sales and creating multifunctional products overlapped functions and joint purchase of supplies. that meet customers’ specific needs.

In 2006, efforts were made to lay solid groundwork in various sectors as part of the Group’s plan for synergy creation. SYNERGY SYNERGY .

030 [ HFG’s Revenue Synergy ] Maximize synergy by leveraging the core competencies of each affi liate

Customer

Ha na O Life MC In DI su ra nc e

Fund Supply of supply insurance products

Capital market Hana Bank DI&S Alternative investment

Corporate fi nancing Credit card sales/Supply solution GROUP FINANCIAL HANA of consumer fi nancing derivatives/ products Structured fi nancing l ita H p a a na C S na ec Ha

u / rit rd 2006 REPORT ANNUAL ies Ca Hana . 031 Hana Financial Group at a Glance

HFG (Unit: KRW) Total Assets: 128.6Tn, Total Sales: 118.4Tn, Total Credits: 84.0Tn, Equity: 8.0Tn

HIF is engaged in research and analysis on domes- Hana tic and overseas economy, various industry sectors Institute of including fi nancial industry, and domestic and over- Finance seas capital market. 100%

Hana INS is engaged in developing and Hana Financial Group Inc. maintaining software used in fi nancial Hana INS 100% services industry. Hana Financial Group Inc. was incorporated on December 1, 2005, under the Financial Hold- ing Company Act by means of the stock exchange from shareholders of Hana Bank, Daehan Invest- ment and Securities Co., Ltd. , Hana INS Co., Ltd., and Hana Institute of Finance. The Company DI&S is engaged in business providing added Hana Securities Co., Ltd. as a sub- service in securities investment, benefi ciary certifi cates savings, securities 100% sidiary on October 13, 2006. investment savings, trust-type securities savings, underwriting as permitted under the Securities and Exchange Act. Total Assets: 1.5Tn, DI&S Sale of Benefi ciary Certifi cate : 18.0Tn, Stock Brokage : 19.3Tn, Equity : 492.9Bn 100% 100%

DIMCO HANA FINANCIAL GROUP AT GROUP A GLANCE FINANCIAL HANA DIMCO is engaged in business providing service Hana in indirect investment asset management, invest- Securities ment advisory and discretionary investment as permitted under the Indirect Investment Asset Management Act. Hana Securities is engaged in business providing AUM : 19.7Tn, Trust & Management Fee : 31.7Bn service in trading, brokerage, underwriting, securities savings, indirect investment securities sales, corporate restructuring, and advisory on fi nance as permitted under the Securities and Exchange Act. .

032 Total Assets : 2.2Tn, Stock Brokerage : 19.3Tn, Equity:373.5Bn HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 033 Hana Life Insurance Hana Capital QIB mercial Bank of China and Hana Bank. It is engagedis It Bank.Hanaand China mercialof Bank in business providing service nancing andin local fi Korean nancing companiesto branchesand tradefi in China. Qingdao Int’l Bank cehas and a head offi ces in Qingdao.two branch offi Hana Life Insurance, a joint venture between Hana Bank and the Allianz AG, one of insurance world’s companies, leading was launched in February, 2003 and provides insurance products to Hana Fi- nancial Group. Assets:Total 644.6Bn, EquityBn, : 23.4 Solvency Margin Ratio : 170.9% Hana Capital was registered as an installment - nancing fi company providing service in leasing, installment nancing, fi corporate loans, credit loans and secured loans as permitted under the Credit- Specialized Financial Business Act. Assets:Total 550.5Bn, Equity : 53.1Bn QIB is a joint venture between Industrial and Com- Hana Funding LTD. Hana Funding Limited, a special was purpose incorporated entity, on December 17, 2002 Cayman in Islands the for the purpose of acquiring subordinate the bonds with the par value of US$200 million issued by Hana Bank. 50% 100% 79.17% is engaged in business 50.13% Total CreditsTotal : 83.3Tn, DepositsTotal : 89.7Tn, Equity BIS CAR 11.34%, : 6.9Tn, NPL : 0.69% consumer banking, foreignexchange, investment trust, currencycredit card business,bancassurance linked with life insurers,andother related operations as permitted under the Bank Act, the Trust Business Act and the Insurance Act. AssetsTotal : 123.9Tn, Hana Bank providing service in commercial and Hana Bank Hana 100% Leadership

1. Jong-Yeol Kim President & CEO, Hana Bank 2. Sam-Deuk Kim President & CEO, Hana Capital Co., Ltd. 3. Michael Jeung-Sae Lee President & CEO, Hana Life Insurance Co., Ltd. 4. Young-In Kim President & CEO, Hana INS Co., Ltd. 5. Chang-Sup Rhim President & CEO, Hana Securities Co., Ltd. 6. Ha-Won Jang President & CEO, Hana Institute of Finance 7. Joon-Sang Shin CEO, Daehan Investment Trust Management Co., Ltd. 8. Jung-Tae Kim President & CEO, Daehan Investment & Securities Co., Ltd. L eadership

034 1. Jong-Yeol Kim President & CEO, Hana Bank

2. Sam-Deuk Kim President & CEO, Hana Capital Co., Ltd. GROUP FINANCIAL HANA 3. Michael Jeung-Sae Lee President & CEO, Hana Life Insurance Co., Ltd. 4. Young-In Kim President & CEO, Hana INS Co., Ltd. 5. Chang-Sup Rhim President & CEO, Hana Securities Co., Ltd. 6. Ha-Won Jang President & CEO, Hana Institute of Finance CEO, Daehan Investment Trust Management Co., Ltd.

7. Joon-Sang Shin ANNUAL REPORT 2006 REPORT ANNUAL 8. Jung-Tae Kim President & CEO, Daehan Investment & Securities Co., Ltd. . 035 LETTER TO SHAREHOLDER . 036 Expansion • • Opening up a new page for the Korean Financial Industry • • Business Business Portfolio

LETTER TO SHAREHOLDER . 038 Business Portfolio Commercial Banking

• • The Retail Banking Division of Hana Financial Group recorded solid growth in 2006 due to active implementation of market expansion strategies and CRM-based target marketing. • •

Retail Banking 1. Reinforcement of the Customer Base Hana Financial Group’s Retail Banking Division has over The focus here will be on expanding low cost deposit, credit 5,800 employees at 512 branches. Each of these branches card and installment deposit-type beneficiary certificates. offers comprehensive financial service that includes deposits, loans, credit cards, foreign exchange, insurance (1) The number of customers using the bank for handling and indirect investment products to over seven million retail their monthly salaries, payment of apartment manage- customers. Despite fierce competition in the domestic re- ment expenses and securities transactions will be set tail banking market in 2007, the Retail Banking Division has as a criterion for evaluating branch performance. recorded solid growth due to systematic and differentiated marketing strategies based on CRM. (2) CRM-based target marketing will be reinforced toward the bank’s existing credit card customers, while con- From the Group’s active implementation of its market ex- tinued efforts will be made to increase the number of pansion strategy in 2006, Hana Bank posted 46.7 trillion new customers. won in household deposits, a 5.7 trillion won increase from the preceding year, and 38.3 trillion won in household (3) A greater number of employees qualified to sell in- loans, a 5.9 trillion won year-on-year increase. The amount stallment deposit-type beneficiary certificates will be of increase in the bank’s household deposits and loans in recruited through offering diversified educational pro- 2006 doubled from 2005, and the number of newly effec- grams. tive customers rose by 300,000 as well. 2. Enhancement of Profitability CRM-based systematic marketing also took root in the Re- Efforts will be made to increase the Return on Risk Ad- tail Banking Division in 2006. Under this system, a list of justed Assets (ROAA) of loan customers. target customers for each core business sector was distributed to branches and a sales process established in which (1) Package products including bank deposit, loan, credit promotion records are reviewed each month. This kind of card and installment deposit-type beneficiary certificate target marketing system is used to analyze customer life will be offered cycles and investment propensities and helps branches to provide optimal products and timely service. Moreover, (2) Additional cross-selling opportunities will be created sales promotion events suited to customer trends and mar- under the CRM system through analyzing the number ket situations are also more easily and efficiently carried out of products held by existing customers and their finan- under this system. cial needs depending on life stage. COMMERCIAL BANKING COMMERCIAL In 2007, the Retail Banking Division of the Group will work (3) Retail package products will be offered to business em- toward solidifying the groundwork for sustainable growth ployees through teaming up with Relationship Managers by expanding customer and sales bases through the fol- from the Corporate Banking Group and by providing ex- lowing initiatives. planatory sessions on financial planning.

. 039 Business Portfolio Commercial Banking

• • For 2007, the Corporate Banking Group will expand its fee-based business to achieve higher revenue, setting the target of total assets under management at 33.5 trillion won. • •

3. Supplementation of Sales Infrastructure Corporate Banking (1) More sophisticated customer management techniques will be adopted based on customer life cycles. Hana Financial Group’s Corporate Banking Group is com- (2) Customized educational sessions will be offered to em- prised of the Large Corporate Finance Division, the Small ployees based on sales capability to ensure the best and Medium Corporate Finance Division, and the Credit possible results. Division.

The Large Corporate Finance Division provides services such as structured fi nancing, fi nancial consulting, import/ export support, fund management consulting, and deposit and loan products, to large-sized businesses. It operates 11 Relationship Manager (RM) teams and 10 branches.

The Small and Medium Corporate Finance Division promotes sales strategies for each region and sector based on customer analyses, selects and oversees promising SMEs, and conducts surveys and manages information on SMEs. It operates 42 RM teams and 80 branches.

Household Deposits The Credit Division establishes regulations and systems 48 Balance : Growth Rate : 16 Trillion won 46.7 % related to corporate loans; provides support for loan mar- 46 14 13.8% keting; and carries out corporate credit risk management 12 44 in close cooperation with the Corporate Finance Marketing 10 42 Division. 41.0 8 40 39.5 6 38 4.5% In 2006, the Corporate Banking Group expanded its market 4.0% 4

36 2 share in the domestic corporate loan market by 1.6 percent

34 0 from 8.3 percent in 2005 to 9.9 percent or 12.5 trillion won 2004 2005 2006 in 2006. The reasons for the increase in market share were Household Loans due to: 45 Balance : Growth Rate : 20 • Strengthening its presence in structured fi nancing and Trillion won 38.3 % 18 40 18.3% project fi nancing; 16 35 32.4 14 • Increasing long-term facility loans to SMEs;

COMMERCIAL BANKING COMMERCIAL 30 29.1 12 • Supplementing the sales basis through expansion of im- 25 12.8% 11.2% 10 20 portant channels; and 8 15 6 • Improving its asset portfolio through exploration of turn- 10 4 around businesses. 5 2

. 0 0

040 2004 2005 2006

Business Portfolio Commercial Banking

In profit-making sectors, the Corporate Banking Group Third, the Corporate Banking Group will also endeavor to focused on sales related to investment banking using the inincrease the amount of low cost deposits in 2007. To do ter-Group network to increase commission revenue. Much this, target customers for Cash Management Service (CMS) effort was put in to diversifying sources of commission will be further segmented, and CMS products will be of- revenues in business related to project financing, financial fered for each target group suiting their specific needs. consulting, M&A and Asset-Backed Securities (ABS). Last, but not least, systematization and specialization of In 2007, the domestic corporate finance market is expected manpower management is another of our goals for 2007. The to make only modest growth due to the overall sluggishness Group’s manpower management strategy in the Corporate of the economy. Therefore, the Corporate Banking Group Banking Group will focus on fostering the individual capa- will expand its fee-based business to achieve higher rev- bility of RMs and implementing more stringent standards enue, setting the target of total assets under management in capability assessments. Employee training programs at 33.5 trillion won, a 10 percent increase from the previous will be bolstered in specialty products such as derivatives year. and structured financing, and education programs will also be carried out for development of global-minded RMs in Details of the Corporate Banking Group’s key initiatives for connection with the Group’s plan to advance into overseas 2007 are below. markets.

First, the Corporate Banking Group will strive toward expanding the customer base by attracting new business customers. The customer base will be reinforced by prop- ping up a relationship with corporate borrowers with low transactions and by attracting financially sound SMEs. Corporate Banking Group Additional efforts will be made toward actively attracting customers by expanding channels in emerging industrial complex areas and in regions where our market share is Large Corporate Small and Medium relatively low. Credit Division Finance Division Corporate Finance Division

• Large-sized Companies • SMEs • Close Cooperation with Second, the Corporate Banking Group will increase com- - Provides structured - Promotes sales strate- Finance Marketing Divi- mission revenue by strengthening loyalty from business financing solutions gies for each region and sion customers and expanding business transactions based on - Offers deposit and loan sector - Establishes and amends the following: products - Selects and manages regulations and systems • Lifting export/import market share from 8.4 percent in

- Provides financial con- promising SMEs related to corporate BANKING COMMERCIAL 2006 to 9.0 percent in 2007 in order to increase commis- sulting - Conducts surveys and loans sion revenue from foreign exchange transactions; and - Offers support related to manages information on - Supports loan marketing • Expanding the investment banking business including import and export SMEs - Carries out corporate BTL, Project Financing, M&A, ABS and SOC, which are - Provides fund manage- credit risk management in steady demand, particularly among large-sized com-

ment consulting .

panies. 041 Business Portfolio Private Banking

• • HFG will strengthen its services for High Net Worth customers through nurturing expert employees, upgrading products and services for Gold Club Members, and maintaining compliance. • •

Hana Financial Group’s history in private banking dates 1. Nurturing Expert Employees back to the days of Korea Investment Finance Corp., the Highly skilled employees engaged in private banking will former name of Hana Bank. The Group engaged in the as- be further trained as the keys to successful operation, spe- set management business for wealthy customers in 1995 cialized education programs will be provided to nurture the even before the concept of private banking was introduced skills and abilities of employees, and a pleasant working in South Korea. Indeed, the Group has played a leading environment will be guaranteed to strengthen loyalty and role in localizing the private banking model. As a result of motivation among employees. such efforts, Hana Bank was selected as the “Best Private Bank in Korea” by Euromoney magazine in 2005, 2006, and 2. Upgrading Products and Services for Gold Club Mem- 2007. bers The competitiveness of products for Gold Club customers In an effort to strengthen competitive edge in private bank- will be upgraded further. With detailed analysis of customer ing in 2006, Hana Bank redefined the definition of “Private portfolios, a more diversified product mix will be offered to Bank Target Client” as those with at least 500 million won in satisfy the particular demands of Gold Club members. Sub- total deposits. At present, 14 “Gold Clubs” are operated in sequent management of products will also be carried out, Seoul to provide differentiated asset management service and educational sessions and seminars for customers will for Ultra-High Net Worth (UHNW) customers. The High Net be offered. Worth (HNW) market in South Korea is making the most rapid growth in the world, and Hana Bank will continue to 3. Upgrading Advisory Service strengthen its services for these customers through its Gold To upgrade services, the role of the Advisory Team, which Clubs. is composed of tax accountants and real estate experts, will be reinforced to meet the financial needs of HNW cus- While 2006 was the year for Hana Bank to focus on quanti- tomers. The Life Care Service, designed to provide life-long tative growth amid fierce competition in the private banking service to HNW customers, will be segmented to meet the industry in Korea, in 2007 the bank will seek qualitative specific needs of different generations of people and their growth by providing comprehensive asset management lifestyles. service toward HNW customers. For 2007, Hana Bank will put its utmost efforts to bolster Gold Club services through 4. Maintaining Compliance the following: Efforts will be made to strengthen compliance in private banking. The frequency of notices of deposit balance de- ‘Gold Club’ Total Asset Management signed for safe and transparent management of assets of “Total Asset Management” provides the service not only to increase the total asset amount, HNW customers will be increased from twice to four times a but also to manage the liability for “Gold Club” members year. Moreover, the PB Compliance Report will be given out from four to six times a year and PB-related special audits will be increased from once to twice a year. Finally, a record- Subsequent Customer Trend/ Management Needs Analysis ing system will be established for the Gold Club in an effort Asset to step up the level of compliance in the entire process. Allocation • Real Estate Consulting • Private Banker • Legal Consulting • Portfolio Manager • Life Care PRIVATE PRIVATE BANKING Portfolio • Tax Consulting Rebalancing Optimum Monitoring Portfolio Results

Proposal

042 Business Portfolio Asset Management

• • DIMCO will strengthen its corporate value to become a leading asset management company in East Asia in 2007 by introducing new marketable products which will generate profit and place it within the Top 30 percent in the industry. • •

Daehan Investment Trust Management Co., Ltd (DIMCO), system for MMF in the retail business; the entry of non-life engaged in the asset management business, recorded as- insurance companies into the asset management business; sets of 19.7 trillion won at year-end 2006, accounting for and the implementation of the Capital Market Integration 8.4 percent of the market and ranking third in terms of the Act slated for 2008. At the same time, there will be other size of assets under management. Notably, it boasts the variables that will positively affect the asset management highest level of know-how in the investment management sector and these include the need for proactive asset man- business, accumulated from over 37 years of experience, agement from clients, a possible halt to the rise in interest and risk management is carried out based on an in-house rates worldwide, and the continued growth of new deriva- credit-rating system. tive products and overseas funds that will ameliorate the environment for the asset management sector. In 2006, DIMCO posted a more than 185 percent year- on-year growth rate in net profit and showed steady rise DIMCO will strengthen its corporate value while striving to in equity (growth) fund rate, ranking fourth among 30 do- become a leading asset management company in East Asia mestic businesses. Utilizing Hana Bank and DI&S as major in 2007 through the following measures: channels, sales of indirect investment products amounted to 25.6 trillion won. • Reaching a profit level that will place it within the top 30 percent in the asset management industry; In 2007, intensified competition is forecast in the asset • Introducing new marketable products such as stock management sector attributable to various factors such funds and alternative funds; and as the anticipated opening of the financial market follow- • Implementing marketing strategies that will enhance the ing the ongoing FTA negotiations between South Korea and quality of services related to the sale of funds. the United States; the introduction of the forward pricing

AUM Size in the Market & DIMCO Market Share

(Unit: KRW in Billions) Equity Hybrid Bond MMF Others Total 2001 6,919 48,548 64,167 35,402 - 155,036 2002 10,483 52,617 61,592 49,482 - 174,174 2003 9,401 39,109 54,394 42,052 - 145,037 2004 8,551 34,552 75,887 59,801 8,200 186,991 ASSET MANAGEMENT ASSET 2005 26,178 42,458 51,433 64,846 19,420 204,335 2006 46,546 47,953 50,416 57,153 32,583 234,606 YoY Growth rate 77.8% 12.9% △2.0% △11.9% 67.5% 14.8% DIMCO 1,578 4,974 4,857 6,495 1,786 19,689 .

Market Share 3.4% 1.4% 9.6% 11.4% 5.5% 8.4% 043 Business Portfolio Investment Banking

• • The Investment Banking Group will continue to provide the best possible financial service to customers through closer cooperation among the Investment Banking Sectors of Hana Bank, Hana Securities, and DI&S. • •

The Investment Banking Group (IBG) has played a leading Major activities carried out in 2006 include the listing of role in developing the Korean financial industry over the past Jooyon Tech on the Korea Stock Exchange; taking on the decade. Recently, it has focused on such corporate finan- task as lead manger of project financing related to the Multi- cial service as M&A, structured finance, real estate project Purpose Apartment Project in Seocho-dong; and issuance financing (PF), social overhead capital (SOC), asset-backed of ELS (equity-linked securities) based on overseas individ- securities (ABS), initial public offering (IPO) and over-the- ual stocks (e.g. Motorola and Starbucks), the first of its kind counter derivatives, through the network comprised of carried out in South Korea. Hana Bank, Hana Securities and DI&S. IBG of DI&S has been widely recognized in the areas of IPO In 2006, IBG of Hana Bank posted a solid performance amid and capital increase. In 2006, it acted as a lead manager for ever-fiercer competition among banks to secure a higher the listing and capital increase of Mogem, and the capital market share. It displayed particularly outstanding ability as increase of Sangsin Brake. In 2007, it will reinforce activities a financial lead manager in the cross-border LBO deal; SK related to principal investment, IPO, and capital increase. Gas Station’s ABS deal worth 630 billion won; project financing for real estate development in Shenyang, China; an In 2006, IBG concentrated on offering differentiated pro- SOC project in Daegu; and air financing for Korean Air. IBG fessional financial services to its clients by flexibly coping of Hana Bank also expanded its geographical business ter- with and responding to rapid changes in the business ritory by establishing strategic partnerships with Sumitomo environment. And through the dedication displayed by its Trust Bank of Japan and Tiantai Group, a real estate invest- experienced members, the talented researchers at Hana In- ment business in China. stitute of Finance, and our strong cooperative network with world leading financial institutions, IBG was able to meet all IBG of Hana Securities helps to fulfill the diverse needs of of its customers’ diverse needs. corporate customers by providing a wide range of financial services, including bonds, stocks, foreign currency-denom- For 2007, IBG will continue to provide the best possible inated securities, over-the-counter derivatives, real estate financial service to customers through closer cooperation and international financial consulting, while focusing on un- among the Investment Banking Sectors of Hana Bank, derwriting and consulting related to equity/debt financing Hana Securities, and DI&S. It will also work diligently to se- and the over-the-counter derivatives business. cure its position as a leader in the nation’s financial industry, making preparations for the implementation of the Capital Market Integration Act slated for 2008. INVESTMENT BANKING INVESTMENT

044 Business Portfolio Brokerage

In 2006, the domestic brokerage market recorded an • • approximate 9 percent year-on-year growth in trading vol- The integration of the retail branch busi- ume and 4 percent growth to 4.8 trillion won in brokerage ness at Hana Securities and DI&S will commission. But total domestic brokerage commission lead to the creation of synergies and the remained at 3.9 trillion won, a level similar to that of the pre- launch of new businesses. With the inte- ceding year, amid the shrinkage of the individual market and gration, we will carry out aggressive mar- the growth of institutional and foreign investors. keting strategies to promote our services, and become a securities company with the With the exception of some on-line securities companies highest growth potential and profitability offering discounted commissions, most domestic securi- in South Korea. ties companies, including Hana Securities Co., Ltd. (Hana • • Securities) and Daehan Investment & Securities Co., Ltd. (DI&S), posted an average 15 percent decrease in brokerage commissions earned.

Hana Securities and DI&S are the two brokerage houses Furthermore, Hana Securities and DI&S will focus on of the Group. In 2006 Hana Securities centered on off-line creating synergies on the Group level by diversifying busi- individual customers, while DI&S specialized in corporate ness channels, including implementation of cost-effective business and asset management. The retail branch divi- “branch-in-branch” (BIB) approaches using the bank’s sions of the two companies were integrated on February 5, branch network and formation of branches which offer top- 2007 to produce the maximum synergistic effects. rated service in the securities business.

Hana Securities has a high share of off-line individual inves- In 2007 with the newly established e-Business sector, DI&S tor customers. It maintains a higher level of commission rate will begin offering new and improved on-line services. In (0.3 percent) than the average (0.2 percent) of others in the particular, DI&S will upgrade the stability and speed of the industry, taking up a high share of the on-line business. In on-line transaction system for individual investors and pro- 2006, the company posted 56.2 billion won in brokerage vide more advanced contents with an aim at being the best commission, inclusive of 5.9 billion won from institutional service provider in the industry. In addition, VIP customers sales. will be provided with premium service through alliances with other financial institutions. DI&S boasts a high share of institutional investors and ranks third among other domestic securities businesses in institu- Under the guidance of Mr. Young-Ick Kim, the well-reputed tional sales. In 2006, DI&S posted 46.2 billion won, inclusive Head of the Research Center, the research capability of of 17.2 billion won in the corporate sector, in brokerage DI&S will be enhanced and corporate business boosted. In commission earned. 2007, DI&S will make a fresh start as a large-sized securities company in pursuit of general asset management of cus- Hana Securities and DI&S aim at becoming leading se- tomers by recruiting experts in direct investment consulting curities companies in the domestic securities industry by and by launching an in-house program for development of the end of 2009, i.e. two years after the integration of the such experts. Group’s branch brokerage businesses, reaching a target of 5 percent market share of brokerage commission earned. The integration of the retail branch business at Hana Se- Proactive and comprehensive financial service will be pro- curities and DI&S will lead to the creation of synergies and vided through Hana Financial Plaza which is designed to the launch of new businesses. With the integration, Hana offer diversified financial products including installment Financial Group will carry out aggressive marketing strate- BROKERAGE deposit-type beneficiary certificates, overseas funds, and gies to promote client services, and become a securities

stock brokerages, as well as household financial services company with the highest growth potential and profitability . such as deposits, insurance, credit cards and loans. in South Korea. 045 Business Portfolio Insurance

• • After the opening of the bancasurance market in 2003, we are confident that the insurance business—by offering a variety of products that assist customers in constructing the perfect asset portfolio—will become a major new source of revenue for the Group. • •

With an aim to become a top-rated “Total Asset Manage- plans for 2007 will be put in place to ensure continued ex- ment” company that supports customers’ prosperity, pansion in customer number and profitability. Hana Financial Group will provide insurance services as a pillar of its “Total Life Care Service.” Through a joint ven- First, through the company’s unique computer system, cus- ture between the Group and Allianz AG of Germany, Hana tomers will be classified into VIP, middle and mass, and will Life Insurance entered the life insurance business after its then be reclassified according to age as a way to most ef- founding in February 2003. In September of that same year, fectively implement target marketing and meet the specific when the bancassurance market fully opened, Hana Life needs of each group. took the lead with steady growth and developed as a synergy creator for the Group. Second, in order to satisfy surging customer demands outright, efforts will be made to manage service quality. Hana Financial Group generated growth written premium Subsequent management of concluded customer con- of 310 billion won and fee income of 61.5 billion in 2006 tracts will enable us to minimize customer complaints and through expansion of products available for sale and accu- avert civil appeals in advance. mulated sales know-how at retail branches. These numbers accounted for a 13 percent share of the bancassurance Third, differentiated insurance services will be provided market and certainly paved the way for Hana Life to create through continuous development and sales of new prod- a firm foothold within the Group. ucts with high value. In addition, in April 2008, when sales of protection-type products will be allowed with the opening of The insurance product sales business was undertaken by the bancasurance market, an aggressive market expansion Daehan Investment & Securities starting in 2006. As a re- strategy will be put in place. sult, the company earned growth written premium of 15.3 billion won and commission income of 5.8 billion won, a Fourth, the insurance business demands more expertise record in the securities industry. compared to other businesses. Hence, talented employees will be supported and training programs offered to fully nur- To overcome limitations on the composition of products ture the strengths of each member. that can be sold through bancassurance channels, Hana Life utilized telemarketing channels that provide low-cost After the opening of the bancasurance market in 2003, we protection-type products such as accident insurance, can- are confident that the insurance business—by offering a va- cer insurance and juvenile insurance targeting Hana Bank’s riety of products that assist customers in constructing the credit card members, and as a result generated growth perfect asset portfolio—will become a major new source of written premium of 12.1 billion won. As part of its chan- revenue for the Group. nel diversification strategy, insurance sales agencies were in full operation, signing sales alliance contracts with 22 Bancassurance Fee Growth Written Premium of (Unit:KRW in Billions) Hana Life agencies. Hana Life is gradually expanding its sales bases (Unit: KRW in Billions) CAGR outside the Group channel, and through its active growth CAGR 84.0 345.7 30.4% 38.6% efforts, it managed to rebound from a loss of 4.9 billion won 67.3 in 2005 to a profit of 5.8 billion won in 2006.

49.6 204.7 180.0 Compared to 2006, in 2007, the life insurance market en- INSURANCE vironment is forecast to see overall profit erosion due to intensifying competition, and government regulatory mea-

. sures are expected to be tightened to protect customers.

046

Despite such a difficult market environment, key action 2005 2006 2007(F) 2005 2006 2007(F) Business Portfolio Credit Card

• • The credit card market in 2006 saw fierce competition for HFG pushed forward with its credit card market share with the finalization of the takeover of LG business in 2006 by fully utilizing the Card by Shinhan Financial Group and the intensified card Group’s channels, and continued to sup- marketing among credit card companies. But despite this port the Credit Card Division in their de- challenging environment, the Group posted handsome velopment of distinguished products and profit and improved its financial soundness and capital ad- services for specific markets. equacy in the credit card business. • •

Indeed, HFG pushed forward with its credit card business in To prepare for such a challenging environment, the Credit 2006, taking bold steps to increase members and transac- Card Division will enhance market share and expand its tion volume. credit card infrastructure based on the following.

First, the Credit Card Division continued to develop dis- First, the focus will be on creating new credit card members tinguished products and services for specific markets. to accomplish economy of scale by means of cross-selling, Impressively, the number of members increased by 20 the inter-Group network, call centers, on-line media and af- percent in 2006 to 3,013,000 through full utilization of the filiate marketing. Group’s channels and PR activities that considered customer life stage. Second, a unique brand image of Hana Card will be created that lives up to our status as a leading financial group Second, thanks to VIP marketing and promotional events for in South Korea. Competitive products and effective brand various customer groups carried out seasonally, the sales advertisements will lift the image of Hana Card and a wide volume of the credit card business jumped by 20 percent range of credit card benefits will improve customer loyalty. from the previous year to 10.6 trillion won in 2006. Third, the infrastructure will be enhanced not only by ex- Third, various steps taken to ensure higher efficiency in risk panding the card and the IT system but also by training management and user-oriented convenience included: specialists. The Group will devise a system that can accom- • Overhauling the price system; modate advanced information technology and meet diverse • Improving the screening process; customer needs. • Establishing the CSS system for corporate members; and Through these steps, the Credit Card Division will take root • Supplementing relevant systems and infrastructure. as a key player in the Group and lay down the foundation for As a result of continued efforts for risk management, the producing revenue. default rate remained at a stable level of 1.09 percent at year’s end.

In 2007, unfavorable factors such as the slowdown of domestic consumption, the sluggishness of the real estate market, and more stringent control by the financial supervisory authorities are all expected to have a negative impact on the credit card market. And with the finalization of the sale of LG Card, competition between credit card businesses will grow even fiercer. CREDIT CARD CREDIT . 047 Business Portfolio Consumer Finance

• • In 2006, Hana Capital showed a remarkable growth rate of 184 percent in the installment financing/lease industry. The company’s credit rating on corporate bonds was also raised from BBB in 2005 to A- as of February, 2007. • •

Hana Capital Co., Ltd. (Hana Capital) became a subsidiary tal’s main customers are derived from subordinate secured of Hana Bank in August 2005. The main business of Hana loans, retail credit loans, installment financing, and auto Capital consists of facility lease and installment financing, loans. The company has been focusing on strategically in- and as an ancillary business, it is engaged in providing loan creasing the Sub-Prime Loan. In addition, lease products service. At present, imported automobiles account for a in connection with imported automobiles and other equip- substantial part of the lease/installment financing business. ments are being provided, adding and fortifying assets that Other assets such as construction and medical equipments are difficult for banks to obtain. These efforts have contrib- are also increasing in proportion. As for the loan service, it uted to stabilizing the Group’s portfolio. is equivalent to the Sub-Prime Loan offered by commercial banks. In 2007, our top priority will be to solidify our platform for high-return retail sales. In regard to the imported automobile lease market, the market size for imported automobile sales has grown sharply. First, the network between the agent and on-line sales will As for the lease market excluding imported automobiles, be reinforced and this will be applied not only to imported over 4.5 trillion won was leased and out of this amount, do- automobiles, but also to general lease, installment financing mestic automobile lease is estimated to have reached 1.2 and loans. trillion won. In the loan service sector, due to tightened government regulations on property loans, the market size for By strengthening the agent and on-line linked sales, the the Sub-Prime Loan grew. However, the government is now number of employees and equipments will be maintained in the process of applying additional regulatory measures at minimum level and sales will be conducted with greater on the Sub-Prime Loan market. efficiency.

Under this environment, Hana Capital’s imported automo- Second, in liaison with the Group, installment retail products bile lease/installment financing business sharply increased will also be expanded through business cooperation with to 118.5 billion won, achieving around 7.7 percent market manufacturers and vendors. To this end, a plan to manage share (based on the lease amount) in 2006. The company’s agents as partners of retail sales is currently being drawn competitive edge has clearly been secured in the imported up. We will also seek to expand our business alliances with automobile lease/installment market, which has performed on-line shopping companies in order to roll out joint prod- better in terms of price and credibility compared to domes- ucts. As well, the monitoring system and CSS have already tic automobile lease. been renovated in order to increase credit loans in the retail sector. Looking at Hana Financial Group’s asset portfolio which concentrates mainly on prime loan customers, Hana Capi- CONSUMER FINANCE FINANCE CONSUMER

048 Business Portfolio Trust

• • The Trust Business Division is committed to providing clients with a broad spectrum of quality asset management services, reinforcing profitability through developing various trust-related businesses, and realizing a ‘sharing bank’ with the public trust. • •

Hana Bank’s Trust Division is comprised of the Trust Depart- ing real estate secured trust; reinforcing comprehensive ment and the Trustee and Custodian Services Department. property in trust centered on PB and Wealth Management The Trust Department carries out total asset management (WM); and strengthening money bond trust by fortifying for customers in the areas of monetary and non-monetary sales linked with Relationship Managers (RM). assets Second, efforts will be made to realize a “sharing bank” The department is strong in providing specialty asset man- through: agement services to private banking (PB) and corporate • Strengthening the role of the public trust business as a customers through the bank’s solid sales network. As of foundation of national welfare improvement; year-end 2006, the Trust Division’s trust operation business • Changing the fund system from fund collection at spe- recorded 8.5 trillion won of money in trust and 5.1 trillion cific times to fund collection anytime through cooperation won of property in trust amounting to a total of 13.6 trillion with related divisions; and won. • Ensuring that the funds thus collected are distributed fairly, so that more organizations and individuals in need The Trustee and Custodian Services Department is the of assistance can receive the benefits. most respected in Korea and provides securities custody management services for domestic and overseas investors. Lastly, as for the Trustee and Custodian Services Depart- The department achieved custody of 27.3 trillion won. It also ment, efforts will be made to: secured ISO9001 from SGS with regard to overall custody • Diversify the customer base by attracting insurance funds management services for both domestic and foreign secu- such as life insurance companies and government-relat- rities companies. ed funds such as pensions aside from investment trust companies and asset management companies; The Trust Division’s key initiatives for 2007 are outlined be- • Foster expert employees and set up the infrastructure low; needed to attract foreign investment funds; and • Strengthen business capacity as a profit center by focus- First, the focus of the division will be on profit-based expan- ing on the custody business for foreign investors. sion through: • Providing comprehensive asset management service to PB customers centered on specific money trust; Trust Division Business Mission • Reinforcing the marketing capacity of retirement pension trust through securing pension actuary and diversifying Total Asset Management Service that Meets Customer Needs management products; and • Increasing the profitability of property in trust by expand-

Upgrade Asset/ Platform Product Provide Various Development Management Product Portfolio for Asset Capability Management TRUST

Grasp Customer Needs through Reinforced . Relationship with Distribution Channel 049 Global Strategy

• • Our strategic objective is that by 2015, Hana Financial Group’s overseas operations should represent 15 percent of total assets and 20 percent of net profit. • •

China Target Emerging Countries Markets

Niche Markets GLOBAL STRATEGY GLOBAL .

050 Background

The successful restructuring undertaken by South Korea following the Asian financial crisis enabled the financial industry in the nation to experience sustained growth until recently. As the ongoing consolidation within the banking sector is likely to face setbacks, however, it has become more important for Korean banks to develop differentiated strategies to ensure long-term growth and build a global portfolio to diversify their sources of revenue and profits from not only the domestic economy but also the overseas market.

We believe that these changes in the global financial environment will allow Korean financial institutions to take a more active role globally. As developing countries join the World Trade Organization (WTO), the process of financial liberation is continuing, and financial markets around the world are rapidly opening up to foreign investors. Concur- rently, in response to pressures from globalization, financial institutions in developing countries are seeking ways to enhance their competitiveness through consolidating with local financial institutions and inducing globally renowned financial institutions as their strategic partners.

Strategic Objective

In line with these trends, HFG has increased its commitment to analyzing potential business opportunities outside South Korea. We consider these activities complementary to our existing commitment to exploring new business areas in GROUP FINANCIAL HANA South Korea, developing prosperous financial markets, and readjusting the Group’s business structure to increase efficiency and profitability.

Our strategic objective is that by 2015, the Group’s over- 2006 REPORT ANNUAL seas operations should represent 15 percent of total assets and 20 percent of net profit. The appropriate mechanism for entering specific overseas markets varies according to the . 051 Global Strategy

particular country’s local situation and the business oppor- incorporated subsidiary will oversee the whole and be uti- tunities which may be available. Depending on the situation, lized as a driving force for securing our long-term growth in the Group may open a representative office or branch, es- China. Our Chinese business operation will give us the op- tablish a local corporation, make an equity investment in portunity to become the most successful Korean financial a local financial institution; or establish a strategic alliance institution in China. with a local financial institution. If the business opportunities are principally in the local retail sector, then we would The second target group is emerging countries and re- more likely make an equity investment in a local financial source abundant countries. This group includes India, institution. If the business opportunities are mainly in the Vietnam, Cambodia, Indonesia and Malaysia and resource corporate sector, particularly with Korean corporate clients, abundant countries like Russia, Kazakhstan, Uzbekistan, then we would more likely create a branch or a local sub- the Ukraine and the United Arab Emirates. The financial sidiary. sectors of these countries are supported by ample growth potential and many of these countries are in the process Target Countries of opening their financial markets. Some of these countries have delivered noticeably high GDP growth rates, and we Our target countries can be divided into three groups, believe certain countries with abundant resources could China, emerging markets and niche markets in developed grow their GDPs at an even faster rate. Some of the gov- countries. ernments of these countries are reforming their regulations to reduce or remove geographic and business restrictions China has been one of the major overseas target markets of in order to promote competition and/or meet requirements the Group since the mid-1990s. We believe that China will imposed by entry into the WTO. continue to serve as a growth engine for the world economy and Chinese financial market, and while its market is still not The third group covers niche markets in developed countries fully open to foreign participation, the country still holds am- such as Europe and the United States. In these countries ple growth potential for investors around the world. Hence, where the pace of economic growth is slower, the focus we took over Qingdao International Bank (QIB) in 2003 and would be mainly on serving the various needs of local eth- opened a branch in Shenyang located in the northeastern nic Koreans. More specifically, the Group should be able to provinces of China in the following year, the first such action benefit from using the techniques of customer service and taken by a Korean bank, thus forming a financial business retail banking which have been developed in South Korea, umbrella covering Hong Kong, Shanghai, Qingdao and in order to become a provider of asset management ser- Shenyang. vices for ethnic Koreans living in these countries.

Moreover, pursuant to the “Regulation of the People’s Re- Strategic Focus and Capabilities public of China on Administration of Foreign-funded Banks,” Hana Bank is taking the necessary steps to establish a lo- We are confident that these strategic initiatives will help to cally incorporated subsidiary in Beijing and transform QIB strengthen HFG. The Group has shown strong performance

GLOBAL STRATEGY GLOBAL and its branch and sub-branch, in addition to Hana Bank’s during its 36 years of experience in the financial sector, even Shanghai and Shenyang branches, into branches and sub- during the Asian financial crisis of 1997. We have consis- branches of this newly incorporated subsidiary. This locally tently sought to break away from existing banking business .

052 practices, creating differentiated products and services Group in the future. This training process will introduce local and implementing innovative strategies driven by our skilled members to the corporate culture of the Group, strength- management and highly trained and diligent workforce. We ening their readiness to become local leaders within the believe that the Group has all the necessary qualities to ex- Group. At the same time, Korean employees working in tend its successful track record to overseas markets. other countries will be fully trained in the local language and culture of their host country. In fact, our 100 percent owned With regard to private banking and asset management, Ha- subsidiary Hana Bank already boasts the largest number of na Financial Group’s 100 percent owned subsidiary Hana Chinese-speaking employees among all Korean banks, and Bank is the leading provider of private banking services in also provides linguistic and other support for employees South Korea. Another subsidiary, Daehan Investment Trust engaged in research on the financial markets of Southeast Management Co., Ltd. (DIMCO) is a leading asset manage- Asia. In order to improve HFG’s global competitiveness, ment operator in South Korea, offering solid products and several departments are already employing foreign profes- excellent services. We believe that from this foundation, the sionals, and we are planning to increase their number in Group is well positioned to compete in asset management the very near future in preparation for our expansion into services for high net worth customers in overseas markets. overseas markets. Particularly in the case of developed countries, we intend to strengthen asset management services for ethnic Koreans.

With regard to retail banking, the Group is one of the leading operators in the domestic market. We believe that in many overseas markets, there should be excellent opportunities to use this expertise to improve efficiency. Hana Bank has a solid understanding of diverse products and services as well as an excellent credit rating, effective customer relationship management, and credit cards that meet the needs of all our clients. The bank also has profound experience in information technology and risk management, essential to enhance competitiveness. We believe that this combination of expertise and experience will help the Group to compete effectively in rapidly growing countries whose financial in-

dustries are often underdeveloped by comparison with GROUP FINANCIAL HANA South Korea. Where necessary, we will provide assistance to financial institutions with which we have a strategic alliance, or in which we have made an investment.

Finally, in order to strengthen the Group’s ability to com- 2006 REPORT ANNUAL pete in overseas markets, HFG has made a commitment to various programs for training talented local employees who have the ability to become key local managers of the . 053 Risk Management

• • Hana Financial Group’s Risk Management Committee and its subcommittee periodically review credit risks since one of the goals is to minimize the difference in the level of monitoring adopted by affiliates within the shortest period of time • •

Efficient and Consistent Detailed action plans for improvements as a result of the diagnosis are then adopted through mutual consultation be- Risks occur in the course of business activities and should be tween HFG and its affiliates. controlled from a diversified perspective. Our risk management is carried out efficiently and consistently through active Risk Governance discussions between the holding company and its affiliates. [ Risk Management Organization ]

Group-wide risk management is undertaken through the Group Risk Subsidiary Risk Management Management continued screening and diagnosis of the risk management Committee Department activities of our affiliates. The following comprehensive analy- Group Risk Subsidiary Risk Subsidiary Management Group CEO Management sis framework is used in the diagnosis: Board of Directors Subcommittee Committee • Identification of potential risks; may recommend • Measurement, monitoring and control; what to improve Group CRO Subsidiary CEO • Capital adequacy management; and • Report system and crisis analysis. Risk Management Subsidiary CRO Team of the group

In case of Hana [ Roles of Risk Management Organizations ] The Group Risk Manage- Capital, Planning Subsidiary Risk ment Subcommittee Department is re- Management comprises of Group CRO sponsible for risk Department and CROs of subsidiaries. management Group Risk Management Subsidiary Risk Management Committee Committee • Group risk strategy and policy • Subsidiary risk strategy and policy • Allocation of investment limit, loss in compliance with group risk strat- limit, and risk capital at the group egy and policy Credit Risk Management level • Allocation of investment limit, loss • Resolution of other important mat- limit, and risk capital at a subsidiary ters level • Resolution of other important mat- In 2006, efforts were made for more controlled measure- ters at a subsidiary level ment of credit risk. Concerning both the corporate and retail Group Risk Management Subsidiary Risk Management Subcommittee Subcommittee sectors of Hana Bank, propriety validation was undertaken (Core communication channel of • Discussion on details of key risk group risk management) issues for the credit rating models. Overhaul of the data mart was • Deliberation on the issues to be • Periodic risk monitoring brought up in the GRMC • Limit setting, monitoring and con- carried out for the estimation of Loss Given Default (LGD) • Discussion on the details of risk trol of certain risks capital allocation and limit setting • Management of the issues delegat- and Exposure at Default (EAD). Besides the existing Default • Discussion on the details of group ed by risk management committee risk regulations Mode (DM) –based economic capital measurement sys- • Management of the issues delegated by GRMC tem, a Marked-to-Market (MTM)-based economic capital measurement system has been implemented and, on the Risk Management Team Subsidiary Risk Management of the group Working-level Department basis of MTM-based economic capital, a group-level alloca-

RISK MANAGEMENT MANAGEMENT RISK • Administration of GRMC and deliberation, • Administration of risk management GRMS reconciliation, committee and subcommittee tion of economic capital limits for 2007 has been executed. • Working-level deliberation with and information • Management of risk regulations in risk management departments of sharing compliance with group standards With these systems firmly in place, we are able to pursue subsidiaries • Management of risk management • Management of group risk man- systems more advanced credit risk management practices including agement systems • Deliberation with risk management • Diagnostics and validation of risk team of the group Group-wide capital adequacy management, portfolio analy- management framework of sub- .

054 sidiaries sis, and prompt Basel II compliance. Market Risks Operational Risk Management

Each affiliate is obligated to strictly adhere to its internal Hana Bank launched the Basel II Task Force Team and trading policies and risk limits based on analysis of the ap- became the first Korean financial institution to establish propriateness of profit against risks by carrying out periodic an operational risk management system based on interna- profit-loss analysis. tional best practices. Under the newly established system, Hana Bank can now recognize, monitor, measure, manage Each affiliate, if relevant systems are in place, establishes and report operational risks in a way conducive to their de- and monitors risk limits on investment, loss, and Value at crease. Risk (VaR). The status of observance of these limits is reported to the Group Risk Management Subcommittee of Other affiliates have also started to accumulate loss data HFG on a monthly basis and monitored by the Group Risk in accordance with the roadmap agreed to with HFG for Management Committee on a quarterly basis. Market VaR establishment of the Group-wide risk management system. as a key risk indicator of market risk is estimated on the ba- Basic infrastructure is also being gradually established for sis of 10-day VaR with 99 percent confidence level at both application of such advanced techniques as Risk and Con- bank and securities subsidiaries. trol Self-Assessment (RCSA), Key Risk Indicators (KRI) and scenario analysis for measurement of operational risks. Interest Rate Risk Basel II Although there are differences in managing interest rate risk by affiliate, all affiliates are mandated to report to the Group In the market risk sector, Hana Bank’s Internal Models Ap- Risk Management Subcommittee the interest rate gap ra- proach won supervisory authorities’ approval in August tio for both won and foreign currency assets based on the 2006, bringing us one step closer to Basel II compliance. outstanding balance at the end of each month. Hana Bank In the credit risk sector, the system for calculation of Ba- sets up interest rate risk management strategies based on sel II Risk Weighted Assets (RWA) was recently completed. relevant materials collected from sources both in and out of Further efforts are being made for system stabilization and the country. It also operates a system that can measure in- enhancement of the compatibility of calculated values of terest rate risk more effectively by analyzing the interest rate RWA. In the operational risk sector, a system adopting the maturity structure, the results of NII (Net Interest Income) Basel II Advanced Measurement Approach is being op- simulation, duration, interest rate Earning at Risk (EaR) and erated. In addition, systems are being improved to meet the market situation. In 2006, other affiliates also improved quantitative requirements. Similar efforts are being made for their interest rate risk management by computing interest improvement of processes and internal control to meet the rate VaR in accordance with the BIS standardized frame- qualitative requirements for Basel II compliance. work.

Liquidity Risk GROUP FINANCIAL HANA

Hana Bank and other affiliates of HFG manage the liquidity ratio concerning target assets and liabilities divided into won/foreign currency assets and liabilities on a monthly basis. Hana Bank sets the lowest rate at 100 percent for

ANNUAL REPORT 2006 REPORT ANNUAL domestic currency liquidity ratio and 85 percent for foreign currency liquidity ratio under supervisory regulations. In the fourth quarter of 2006, the Group Risk Management Com- mittee has set limits of liquidity ratio on affiliates for 2007. . 055 LETTER TO SHAREHOLDER . 056 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 057 Company Company Profile Corporate Timeline

Feb Acquired an AA rating in all categories from bank management evaluation of the Banking Supervisory Authority

Apr Total deposits reached 10 trillion won within a record- breaking 3 years and 9 months

Jun Opened Hana Finance Asia Ltd. in Hong Kong as a Jun Recognized as “Korea’s Jul Received “Korea's Best local subsidiary Best Bank” by Finance Asia Bank Award” by Euromoney Dec Received “Best Cus- tomer Satisfaction Award” Dec Best Bank in Customer Nov Total deposits reached 5 from Korea Management Satisfaction, ROI’s on Con- Jul Established Hana Bank trillion won Association(KMA) sumer Survey 1991 1993 1995 1997

1992 1994 1996 1998 Jul Nov Won the 3rd runner up of May Signed for alliance with Apr Named “Korea’s Best En- Started credit card business “Korea Advertisement Award” American International Group terprise” by Asiamoney

Dec Aug Started “Global One Jun First Korean bank to at- Total deposits exceeded 3 Calling Service”, to provide tract USD152 million from IFC trillion won a discounted international during the financial crisis phone calls Jun Hana Godanwi Plus cho- sen as “The Best Financial Product” by KMA

Sep Received “Customer Sat- isfaction Award” from KMA

Oct Started Chung Chong Hana Bank operations

CORPORATE TIMELINE TIMELINE CORPORATE Nov Received the “Human Resources Development Award” from KMA

Dec Net income reached 110 billion won, the highest among Korean banks .

058 Feb Established Hana Allianz Jan Merged with Boram Bank Investment Trust Management and initiated the PMI process Company

Mar Named “The Most Cus- Mar Opened the largest PB tomer Friendly Bank” in the center for VIP customers in Jan Recognized as “Best Ison C&CI Survey Korea Private Bank in Korea” by Eu- Became the first Korean bank romoney Apr Completed the post- to post positive net incomes Feb Established Hana Life merger integration of EDPS, and dividend payouts for 30 Insurance Mar President Jong-Yeol Kim Obtained an AAA rating from consecutive years inaugurated Korea Investors’ Service and May Completed integration Korea Ratings Jun Celebrated the 30th year of IT systems in the shortest May Acquired Daehan Invest- anniversary since the incep- period of time ment & Securities Co., Ltd. May Received "IR Grand tion of Korea Investment Prize" from the Korea Eco- Finance Corporation, Hana Jul Opened Wealth Manage- Dec Hana Financial Group Inc. nomic Daily Bank’s forebody ment Center established 1999 2001 2003 2005

2000 2002 2004 2006 Jan First Korean bank to Sep Signed the contract for Jan Acquired Qingdao Inter- Jan Recognized as “Best establish Night Time Banking the merger between Hana national Bank in China Private Bank in Korea” by Eu- Center Bank and Seoul Bank romoney Apr Signed strategic alliance Feb Successfully increased Dec Merger with Seoul Bank with the Industrial & Commer- Oct Established HFG Foun- capital and signed strategic - Launched Hana Bank cial Bank of China dation alliance agreement with Allianz AG, the world’s largest insur- Dec Hana Bank posted a ance group record-high net income of 1.3 trillion won GROUP FINANCIAL HANA Mar Started “Magic Bank” operations (multi-purpose ATM within convenience shops)

Apr Initiated Bancassurance joint operation with Allianz First Life

ANNUAL REPORT 2006 REPORT ANNUAL May Acquired a BBB rating from Fitch IBCA, highest rating among Korean banks . 059 Recognition

• • What clearly sets Hana Financial Group apart from our competitors is our outstanding ability to make full use of the opportunities. • •

Euromoney 1993 Best Bank in Korea

Finance Asia 1997 Best Bank in Korea

Asia Money 1998 Best Managed Company in Korea

The National Customer Satisfaction Index 1999 No.1 in the Banking Sector

Euromoney 2000 Best Domestic M&A House in Korea

The National Customer Satisfaction Index

RECOGNITION RECOGNITION 2001 No.1 in the Banking Sector .

060 Euromoney Finance Asia Best Bank in Korea 2002 Best M&A in Asia

Finance Asia CNN Best Bank in Korea 2003 New Century Leader in Asia

Asia Money The Korea Customer Satisfaction Index Best Managed Company in Korea 2004 No.1 in the Banking Sector

The National Customer Satisfaction Index Euromoney No.1 in the Banking Sector 2005 Best Private Bank in Korea HANA FINANCIAL GROUP GROUP FINANCIAL HANA Euromoney Euromoney Best Domestic M&A House in Korea 2006 Best Private Bank in Korea

The National Customer Satisfaction Index Euromoney 2006 REPORT ANNUAL No.1 in the Banking Sector 2007 Best Private Bank in Korea . 061 Share Information

[ As of Dec. 31, 2006 ]

1. Major Shareholders 2. Share Ownership

Foreign 80.2% AngelicaInvestmentSpte.Ltd 9.6%

Domestic GsdejakooLlc(Fdi) PledgeAccount 8.6% 19.8%

Allianz FinanceB.V. 4.7% Msilp-Pledgeeof11305 4.2% TempletOnForeignFund 2.5% Posco 2.2% Euro-pacificGrowthFund 2.0% Korea Investment Holdings Co., Ltd 2.0%

Artisan 1.9%

3. Per Share Data

2001 2002 2003 2004 2005 2006 Dividend Per Share (Cash) 200 500 500 750 400 900 (Stock - Shares) 0.04 - - - 0.01 - EPS 2,457 2,304 3,167 7,728 4,310 5,202 BPS 12,692 15,863 19,155 27,656 30,940 36,815 Share Price (High) 17,050 22,450 24,100 29,900 50,100 52,300 Share Price (Low) 5,550 14,350 7,700 20,150 24,150 38,200 PBR (Times) 0.4~1.3 0.9~1.4 0.4~1.3 0.7~1.1 0.8~1.6 1.0~1.4 PER (Times) 2.3~6.9 6.2~9.7 2.4~7.6 2.6~3.9 5.6~11.6 7.3~10.1 * The figures from 2001~Nov. 28, 2005. represents per share data of Hana Bank. Cash dividend for 2006 includes HFG’s interim dividend of 350 won per share, which was declared by resolution HFG BOD meeting dated July 28, 2006

4. Share Information

1) Type : Registered Common Share [211,851,593]

SHARE INFORMATION INFORMATION SHARE 2) Stock Listing : KRX (Korea Exchange) 3) Register & Transfer Agent Hana Bank : Register&Transfer Agency Service Dept., 43-2 Yeouido-dong, Yeongdeungpo-gu, Seoul, Korea .

062 Corporate Information

Hana Financial Group Inc. Investor Relations

27-3 Yeouido-dong, Yeongdeungpo-gu, Seoul, Tel_822) 2002 - 1740 Fax_822) 2002 - 1407 Republic of Korea, 150-705 [email protected] Tel_822) 2002 - 1110 Fax_822) 2002 - 1401 Homepage_http://www.hanafn.com

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_www.daetoo.com Homepage_www.hanabank.com Hana Securities Co., Ltd. Hana Bank Correspondent Banking Hana Securities Tower, 23-3 Yeouido-dong, Yeoungdeungpo-gu, Seoul, Republic of Korea, 150-010 Treasury & Management Department., Treasury Division, Tel_822) 3771 - 3000 Fax_822) 3771 - 3899 Hana Bank Homepage_www.hanastock.co.kr Tel_822) 2002 - 2544 Fax_822) 775 -7472

[email protected] Daehan Investment Trust & Management Co., Ltd. 27-3 Yeouido-dong, Yeongdeungpo-gu, Seoul, Republic of Korea, 150-705 OVERSEAS branches Tel_822) 3771 - 7114 Fax_822) 3771 - 7951 Hana Bank Hong Kong Branch Homepage_www.dimco.co.kr Suites 3314-3316 33/F Two International Finance Centre

No. 8 Finance Street Central, Hong Kong Hana Life Insurance Co., Ltd. Tel_852) 2522 - 3646 Fax_852) 2526 - 2999 17th Floor, 101-1 Euljiro 1-ga, Chung-gu, Seoul, Republic of Korea, 100-191

Tel_822) 3709 - 7300 Fax_822) 755 - 0668 Hana Bank Singapore Branch Homepage_www.allianzhana.com PWC Building # 23-6, 8 Cross Street Singapore 048424

Tel_65) 6438 - 4100 Fax_65) 6438 - 4200 Hana Capital Co., Ltd.

7th Floor, Nara Bldg., 1328-3, Seocho-dong, Seocho-gu, Seoul, Hana Bank Shanghai Branch Republic of Korea 137-858 Room 3302-3303, Bank of China Tower, 200 Yin Cheng Road Tel_822) 2037 - 1111 Fax_822) 2037 - 1130 Central, Pudong New Area, Shanghai 200120, P.R.China Homepage_www.hanacapital.co.kr Tel_8621) 5037 - 2121 Fax_8621) 5037 - 2110

Hana Institute of Finance Hana Bank New York Agency 27-3 Yeouido-dong, Yeongdeungpo-gu, Seoul, Republic of Korea, 150-705 650 Fifth Avenue New York, NY 10019, U.S.A. Tel_822) 2002-2200 Fax_822)2002-261 Tel_1212) 245 - 4346 Fax_1212) 245 - 4479 Homepage_www.hanaif.re.kr

Hana Bank Tokyo Branch Qingdao International Bank

1st Floor, New Nisseki Bldg., 4 - 2 Marunouchi 3 Chome, GROUP FINANCIAL HANA C.Full Hope Mansion 12, Hong Kong Middle Road, Qingdao, P.R.China. Chiyoda-ku, Tokyo, Japan Tel_86532) 8583 - 1111 Fax_86532) 8502 - 6221 Tel_813) 3213 - 0901 Fax_813) 3213 - 0975 Homepage_www.qibank.net

Hana Bank Shenyang Branch Hana INS Co., Ltd. 3rd Floor, Fangyuan Bldg., 1 Yuebin Street, Shenhe District, 115-8, Junggok 4-dong, Gwangjin-gu, Seoul, Republic of Korea, 143-889 Shenyang 110013, P.R. China

Tel_822) 447 - 0021 Fax_822)447 - 0029 2006 REPORT ANNUAL Tel_8624) 2250 -1111 Fax_8624) 2250 -5151 Homepage_www.hanains.com . 063 Total Assets Total Sales

Summary of Business Performance Daehan Investment Trust Management(DIMCO) Group BusinessPerformance PerformanceNon-Interest of Affiliates General Income & Administrative Expenses H a n a B a n k Daehan InvestmentH a n a S e c u& r iSecurities(DI&S) t i e s Hana CapitalHana Life QingdaoInsurance International Bank(QIB) Business Volume _ Performance Results of Affiliates Overview Summary of Financial Condition Business Volume _ Asset SoundnessCapital Adequacy

. . .

. Ⅰ Ⅱ Ⅲ Ⅳ

0 6 7 0 6 8 0 6 9 0 8 8 0 9 0 0 9 1 0 9 2 0 9 3 0 9 4 0 6 5 0 6 6 0 6 6 0 7 0 0 7 0 0 7 6 0 7 6 0 7 1 0 7 2 0 7 3

Management Discussion & Analysis & Discussion Management

FINANCIAL SECTION FINANCIAL MD&A

LETTER TO SHAREHOLDER . 064 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 065 ------% 7.9%

YoY YoY 892 20.7% 75.3 75.3 5,875 5,875 19.0% 276.8 276.8 27.1% 526.3 526.3 21.6% -476.3 -476.3 -2.4% 1

(Unit: KRW in Billions, %) 2005 951.4 951.4 4,310 4,310 1.07% 1.07% -0.07%p 0.98% 0.98% -0.29%p 9.30% -1.37%p 0.89% -0.12%p 21.40% 21.40% -9.64%p 14.98% 14.98% -0.04%p 13.29% 13.29% -1.95%p 54.28% 54.28% -6.48%p

2006 7.93% 7.93% 0.77% 0.77% 1.00% 1.00% 5,202 0.69% 0.69% 11.76% 11.76% 11.34% 11.34% 47.80% 47.80% 14.94% 14.94% 36,815 36,815 30,940 1,297.3 1,297.3 1,020.5 1,026.7 1,026.7 2,963.2 2,436.9 507.51% 507.51% 550.06% -42.55%p 147.67% 147.67% 164.99% -17.32%p 170.91% 170.91% 146.26% 24.65%p 218.31% 218.31% 178.07% 40.24%p 173.35% 173.35% 128.04% 45.31%p 376.48% 376.48% 223.66% 152.82%p 89,772.9 89,772.9 72,961.4 16,811.5 23.0% 19,689.8 19,689.8 20,166.1 84,328.3 65,514.0 18,814.3 28.7% 128,647.4 128,647.4 106,308.5 22,338.9 21.0% 118,368.2 118,368.2 96,922.3 21,445.9 22.1%

• Hana Securities Ratio of Equity Risks to - DIMCO Solvency Margin Ratio - Hana Life Adjusted Equity Capital Ratio - Hana Capital (Total Deposits) CreditsTotal Operating Income Consolidated Net Income ROA ROE EPS(Unit:KRW) Cost Income to Ratio Coverage against Substandard & Below Credits Delinquency Ratio(Hana Bank) Ratio of the Equity Capital the to Requisite Capital BIS CARHana - Bank • Tier 1 Ratio - Hana Bank Net Capital Ratio • DI&S Assets Under Management SalesTotal BPS (Unit: KRW) 2 Substandard & Below Ratio Assets Total General Operating Income

Overview

Figures1. are based on the pro forma income statement, which assumed the Group’s operation in full year during 2005 Capital2. adequacy ratios of DI&S, Hana Securities, DIMCO, and Hana Life are as of the end of 2006 and 2005 Capital Adequacy Asset Soundness tability Profi [ Table 1. Summarized 1. [ Table Financial Information of The Group ] Business Volume • Exchanging information on liates customers through between integrated CRM affi • Implementing positive and customer-oriented marketing at each of our Hana 52 Financial Plazas • Carrying out joint liates campaigns for brisk business among affi relatedto credit cards, bancassurance products and securities-linked accounts • Enhancing ciency operational and reducing expenses effi through integration of the informationtechnology (IT) liates infrastructure of affi nancial group, we garnered synergisticAs a fi effects of 84.8 billion wonbillion and1,026.7 posted won in net income. As a resulta As suchof efforts, ourasset sizeincreased trillion 22.3 by trilliontrillionwonfrom 106.3 theendthe2006.endwonatwon2005 by 128.6 of of to The substandard and below loan rate dropped by 0.29 percentage points from 0.98 throughpercent rigorous andat systematicthe risk management.end of 2005 to 0.69 percent by the end of 2006 In 2006, we concentrated on the following for maximization liates: of synergy among affi tion Act. As well, fi nancial businessestion Act. As well, ercely fi viedfi withthan ever toeach otherenhance more their share in the market for loans to SMEs and mortgage loans on the back of expectations of economic recovery. challengingthis In environment,nancial focusedcross-sellinglaunching productsonby we establishment the and one-stop shoppingthe of structurefi for additional Hana Financial Plazas. alsoWe poured effortscation of revenue into diversifi sources through developing new products in the on-line and off- line markets and expansion of operational size through the Delta-2 Project designed increase to market share in each sector at by least two percent. Many opportunities and risk nancial factors existedmarket in2006in the local after fi the launch of Hana Financial Group Inc. in December2005. of particularIn ercerfi domesticamid thethe blurred nancialeconomyboundaries showedindustrysignsrecovery of between grew andcompetition fi thein differentbanks,insurancesectors, i.e. companies securitiesand companies, connectionin forthcomingthe with CapitalenactmenttheMarketIntegra- of Ⅰ % 7.1% 4.4% 9.5% 7.9% 7.9% 0.7 0.7 4.3% -0.8 -100.0% 11.1 11.1 YoY YoY 79.6 79.6 76.0 76.0 75.3 93.6 -61.8 -61.8 -27.6% 130.4 130.4 157.1% 215.0 215.0 17.3% 214.2 214.2 17.2% 155.9 155.9 166.4% 432.7 432.7 38.8% 276.8 276.8 27.1% 304.9 17.3% 138.2 49.8% 526.3 21.6% 1 (Unit: KRW in Billions) 0.8 16.4 16.4 93.7 83.0 2005 277.5 277.5 951.4 951.4 967.8 967.8 224.0 224.0 839.4 -252.0 -252.0

- 17.1 17.1 2006 415.7 415.7 213.4 213.4 919.0 919.0 249.6 249.6 162.2 162.2 -240.9 -240.9 2,071.5 2,071.5 1,766.6 1,416.3 1,416.3 1,322.7 1,297.3 1,297.3 1,020.5 1,026.7 1,026.7 1,459.5 1,459.5 1,459.5 1,244.5 1,245.3 1,043.8 1,546.9 1,114.2 2,963.2 2,436.9

) △ ) △ ) △ ) △

Summary of Business Performance Business of Summary

. securities held by Hana Bank at the time of establishment of the Group. Thus, our net income grew by more than 25 percent from the previous year, taking year, previous the from percentsecurities 25 than heldmore Hana by Bankestablishment thetimeby atof grew income net our theGroup.Thus,of aforementioned non-ordinaryaccountthe wiped-out income.that into factors showing a slightly lower growth rate than that of pre-provisioning income. In addition, 43.7 billion won worth of non-operating income was wiped out due to a change in the calculation of acquisition value of available-for-sale ance (adding 57.5 billion ancewonother of (adding allowance 57.5 that were previously recognized asother operating billionincome, total144.2 a of won were additionally reserved FSS revised guideline) set aside additionally due to the FSS guideline; expansion of items subject to loan loss reserve and upward adjustmentof the minimum reserve ratio in December 2006. Thus, operating income recordedbillion 1,297.3 won in 2006,percent a year-on-year27.1 increase, 7.1 percent year-on-year rise as a result7.1 of employees’ concerted efforts for expense reduction and enhanced ciency. operational effi Theamount loanof loss reserve billionincrease came 249.6 to won, 166.4% a from the same period last including year, billion 86.7 won loan loss allow- securities, particularly those of SK and POSCO, and derivatives. Whilebolsterstrove we to sales capability tability, generaland maximize and administrative billionprofi won, showing expense1,416.3 a meager stood at result of cross-selling efforts made maximize to synergy within the Group Gain on disposition and valuation recorded a billion130.4 won increase from the preceding year on the back of gain on valuation of bank-held trading As for commission income, in addition to banking commission, the net growth amount reached billion 31.4 won, mainly drivenness. by Non-bankingthe credit cardfee busi-posted a phenomenal growth billionof 46.1 won, owing to a commission from catestheciary sale and thecertifi of benefi asset management service which increased billion by 26.1 won and 16.8 billion won, respectively. Bancassurance commission rose by 18.2 billion won as a Netinterest billionincome drastic a due wonincreasedto rise theaveragein balancebillion304.9 by 2,071.5 interest-earning to wonof assetsresult a as of the positive promotion of the Delta-2 Project, despite year-on-year a 1bp drop in NIM (net interest margin). 1. Figures1. are based on the pro forma income statement, which assumed the Group’s operation in full year during 2005 Looking at the foregoing by item, general operating income came to 2,963.2 billion won, a 526.3 billion won increase from 2,436.9 billion won in 2005. Income before Consolidation Adjustments Minority Interest Income ( Consolidated Net Income Extraordinary Income Income before Income and Taxes Consolidation Adjustments Income Expenses Tax ( Non-Operating Income Ordinary Income Pre- Provisioning Income Provisioningfor Loan Losses ( Operating Income GainsGeneral on Disposition & Administrative & Valuation Expenses ( Other General Operating Income General Operating Income Net Interest Income Fee and Commission Income [ Table 2-1. Comprehensive 2-1. [ Table Income Statement of The Group] provement in gain on disposition and valuation, we made balanced growth in interest and commission. However, externalrevised one-off Financial factors, Supervisorysuch as the Service (FSS) guidelines on loan loss allowance and changes in accountingnon-operating standards income, acting negatively as a critical factor t 2006.in affected for the decrease operating in the net profi and Group Business Performance Business Group In 2006, the Group posted net income amounting to billion1,026.7 won, a percent7.9 year-on-year increase. In addition to making a remarkable im- Ⅱ

MD&A . 066 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 067 2

(Unit: KRW in Billions)

. Performance liates. Results of Affi Ⅳ Capital Securities

------9.6 9.6 9.6 9.6 9.6 9.6 2.9 2.9 2.9 2.9 2.9 2.9 ------3.7 3.7 3.7 3.7 3.7 3.7 0.9 0.9 0.9 0.9 0.9 0.9 ------17.1 17.1 17.1 17.1 17.1 17.1 180.3 180.3 180.3 180.3 180.3 180.3 180.3 5.8 5.8 5.8 5.8 5.8 5.8 26.4 26.4 26.4 26.4 26.4 26.4 0.2 0.2 0.2 0.2 0.2 0.2 ------0.3 -0.3 -0.3 -0.3 -0.3 -0.3 0.9 0.9 0.9 0.9 0.9 0.9 ------213.4 213.4 213.4 213.4 213.4 213.4 642.0 642.0 642.0 642.0 642.0 642.0 642.0 170.8 170.8 170.8 170.8 170.8 170.8 75.9 75.9 75.9 75.9 75.9 75.9 ------31.3 31.3 31.3 31.3 31.3 31.3 0.8 0.8 0.8 0.8 0.8 0.8 1.1 1.1 1.1 1.1 1.1 1.1 ------919.0 919.0 919.0 919.0 919.0 919.0 249.0 249.0 249.0 249.0 249.0 249.0 249.0 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 0.1 0.1 0.1 0.1 0.1 0.1 ------0.4 -0.4 -0.4 -0.4 -0.4 -0.4 1.1 1.1 1.1 1.1 1.1 1.1 ------249.6 249.6 249.6 249.6 249.6 249.6 266.9266.9266.9266.9266.9266.9 12.4 12.4 12.4 12.4 12.4 12.4 -1.8 -1.8 -1.8 -1.8 -1.8 -1.8 1.2 1.2 1.2 1.2 1.2 1.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 1.4 1.4 1.4 1.4 1.4 1.4 0.1 0.1 0.1 0.1 0.1 0.1 ------162.2 162.2 162.2 162.2 162.2 162.2 396.5396.5396.5396.5396.5396.5 ------12.7 12.7 12.7 12.7 12.7 12.7 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 5.4 5.4 5.4 5.4 5.4 5.4 ------1.3 1.3 1.3 1.3 1.3 1.3 ------415.7 415.7 415.7 415.7 415.7 415.7 -261.0 -261.0 -261.0 -261.0 -261.0 -261.0 -261.0 8.3 8.3 8.3 8.3 8.3 8.3 1.0 1.0 1.0 1.0 1.0 1.0 3.3 3.3 3.3 3.3 3.3 3.3 ------0.1 0.1 0.1 0.1 0.1 0.1 ------7.5 7.5 7.5 7.5 7.5 7.5 -240.9 -240.9 -240.9 -240.9 -240.9 -240.9 Bank Hana DI&S Hana HanaLife DIMCO Hana QIB Other Group 1,110.1 1,110.1 1,110.1 1,110.1 1,110.1 1,110.1 1,110.1 155.8 155.8 155.8 155.8 155.8 155.8 81.6 81.6 81.6 81.6 81.6 81.6 16.5 16.5 16.5 16.5 16.5 16.5 14.9 14.9 14.9 14.9 14.9 14.9 7.6 7.6 7.6 7.6 7.6 7.6 2.0 2.0 2.0 2.0 2.0 2.0 7.1 7.1 7.1 7.1 7.1 7.1 1,416.3 1,416.3 1,416.3 1,416.3 1,416.3 1,416.3 1,175.4 1,175.4 1,175.4 1,175.4 1,175.4 1,175.4 1,175.4 45.7 45.7 45.7 45.7 45.7 45.7 47.6 47.6 47.6 47.6 47.6 47.6 4.5 4.5 4.5 4.5 4.5 4.5 18.9 18.9 18.9 18.9 18.9 18.9 6.1 6.1 6.1 6.1 6.1 6.1 5.6 5.6 5.6 5.6 5.6 5.6 0.5 0.5 0.5 0.5 0.5 0.5 1,297.3 1,297.3 1,297.3 1,297.3 1,297.3 1,297.3 1,973.1 1,973.1 1,973.1 1,973.1 1,973.1 1,973.1 1,973.1 16.4 16.4 16.4 16.4 16.4 16.4 25.9 25.9 25.9 25.9 25.9 25.9 17.5 17.5 17.5 17.5 17.5 17.5 2.5 2.5 2.5 2.5 2.5 2.5 12.7 12.7 12.7 12.7 12.7 12.7 6.6 6.6 6.6 6.6 6.6 6.6 0.1 0.1 0.1 0.1 0.1 0.1 2,071.5 2,071.5 2,071.5 2,071.5 2,071.5 2,071.5 1,424.4 1,424.4 1,424.4 1,424.4 1,424.4 1,424.4 1,424.4 45.5 45.5 45.5 45.5 45.5 45.5 47.7 47.7 47.7 47.7 47.7 47.7 4.5 4.5 4.5 4.5 4.5 4.5 18.9 18.9 18.9 18.9 18.9 18.9 5.7 5.7 5.7 5.7 5.7 5.7 6.6 6.6 6.6 6.6 6.6 6.6 0.5 0.5 0.5 0.5 0.5 0.5 1,546.9 1,546.9 1,546.9 1,546.9 1,546.9 1,546.9 1,442.3 1,442.3 1,442.3 1,442.3 1,442.3 1,442.3 1,442.3 1,442.3 1,442.3 1,442.3 1,442.3 1,442.3 1,442.3 1,442.3 1,442.3 58.0 58.0 58.0 58.0 58.0 58.0 58.0 58.0 58.0 58.0 58.0 58.0 58.0 58.0 45.8 45.8 45.8 45.8 45.8 45.8 45.8 45.8 45.8 45.8 45.8 45.8 45.8 45.8 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 18.7 18.7 18.7 18.7 18.7 18.7 18.7 18.7 18.7 18.7 18.7 18.7 18.7 18.7 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 7.5 5.6 5.6 5.6 5.6 5.6 5.6 5.6 5.6 5.6 5.6 5.6 5.6 5.6 5.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 1,459.6 1,459.6 1,459.6 1,459.6 1,459.6 1,459.6 1,459.6 1,459.6 1,459.6 1,459.6 1,459.6 1,459.6 1,459.6 1,459.6 1,442.3 1,442.3 1,442.3 1,442.3 1,442.3 1,442.3 1,442.3 58.0 58.0 58.0 58.0 58.0 58.0 45.8 45.8 45.8 45.8 45.8 45.8 5.7 5.7 5.7 5.7 5.7 5.7 18.7 18.7 18.7 18.7 18.7 18.7 7.5 7.5 7.5 7.5 7.5 7.5 5.6 5.6 5.6 5.6 5.6 5.6 0.5 0.5 0.5 0.5 0.5 0.5 1,459.6 1,459.6 1,459.6 1,459.6 1,459.6 1,459.6 1,045.81,045.81,045.81,045.81,045.81,045.8 58.0 58.0 58.0 58.0 58.0 58.0 23.5 23.5 23.5 23.5 23.5 23.5 2.9 2.9 2.9 2.9 2.9 2.9 13.3 13.3 13.3 13.3 13.3 13.3 3.8 3.8 3.8 3.8 3.8 3.8 3.4 3.4 3.4 3.4 3.4 3.4 0.5 0.5 0.5 0.5 0.5 0.5 1,026.7 1,026.7 1,026.7 1,026.7 1,026.7 1,026.7 2,534.42,534.42,534.42,534.42,534.42,534.4 201.3 201.3 201.3 201.3 201.3 201.3 129.3 129.3 129.3 129.3 129.3 129.3 21.0 21.0 21.0 21.0 21.0 21.0 33.8 33.8 33.8 33.8 33.8 33.8 13.3 13.3 13.3 13.3 13.3 13.3 8.6 8.6 8.6 8.6 8.6 8.6 7.6 7.6 7.6 7.6 7.6 7.6 2,963.2 2,963.2 2,963.2 2,963.2 2,963.2 2,963.2 ) ) ) ) ) ) △ ) ) ) ) ) ) △ ) ) ) ) ) ) △ ) ) ) ) ) ) △ revenueand dividend payment are offset in consolidation adjustment. Hana I&S and Hana Institute of Finance are excluded from tionsconsolidation allowing exclusionsin accordance for smallwith regula- sized subsidiaries nancial underaccounting the fi standards for the preparation nancialfi of consolidated Hanastatements. Life, the operatingSuch as in caseresults of of the 2 subsidiaries were booked as if they were subject consolidation, to but offset by consolidation adjustment. million 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 for under the Equity Method nancialin the statementsfi of the Group resultsandwere Hanabooked as if the insuranceBank. company In thewere subject Comprehensiveconsolidation to help to investors’ Incomebetter understanding. Statement In above,order prevent to expenseshowever,misleading, Hana of Hanasuch Life revenues Life’s are offset operatingand by consolidation adjustments be to reconciled the to result of the Equity Method.

For more details on the management liates, please resultsreferto of the affi Group’s Hana Bank holds a largerliates in shareentire income. than other affi Income billionof 52.7 won earned from disposal of the stocks of HFG out of Hana Bank’s net income, and income of 43.7 billion won due in theto a calculationchange of acquisition value of available-fore-sale securities held by Hana Bank at the time of establishment of HFG, were referred as to capital surplus and capital adjustment, respectively, at the time of drawing nancial up the consolidatedstatement for HFG. fi Thus, they were not recognized as consolidated net income for HFG. Other affi liates engagedOther affi in the securities and asset management sectors, that is, Daehan Investment & Securities, Hana Securities and Daehanment Invest- Trust Management, also recorded a net income of billion104.4 won, a billion15 won jump from 89.4 billion won recorded in 2005. liatesHana also followedCapital,QIB and othersuit, affi posting billion a net income won,18.1 compared of to six billion won 2005,in showing solid growth. tability revenuenon-banking the in cation of sources takingwill continueenhancementpourand account efforts into sector, We that to diversifi profi into of Looking liates,atincome Hana Bankgarnered posted net affi by income worth1,045.8 billion 139.0 billion won, a won increase from 906.8 billion won in 2005,exerting decisivea impact on income growth for the entire Group. Interest and commissions posted balanced growth as resulta anof increase in net interest income following the rise in the interest-earning asset balance and commissions cates. ciary from credit certifi card and benefi ConsolidatedConsolidatedConsolidatedConsolidatedConsolidatedConsolidated Net Net Net Net Net Net Income Income Income Income Income Income Hana Life is not consolidatednancial statement1. into the of fi the Group since it is the 50:50 joint venture between Hana Bank and AllianzAG. Thus, Hana Life is accounted Othersinclude operating 2. results Hanaof Funding Hana Ltd., I&S,and Hana Institute Finance.of Hana Funding IsHanaLtd. ownedBank’s 100% SPV that issued USD 200 ExtraordinaryExtraordinaryExtraordinaryExtraordinaryExtraordinaryExtraordinary Income Income Income Income Income Income Income before Income Taxes andandandandandandandandand Consolidation Consolidation Consolidation Consolidation Consolidation Consolidation Consolidation Consolidation Consolidation Adjustments Adjustments Adjustments Adjustments Adjustments Adjustments Adjustments Adjustments Adjustments Income Expenses( Tax IncomeIncomeIncomeIncomeIncomeIncome before before before before before before Consolidation Consolidation Consolidation Consolidation Consolidation Consolidation Adjustments Adjustments Adjustments Adjustments Adjustments Adjustments Minority Interest Income( 1,045.8 1,045.8 1,045.8 1,045.8 1,045.8 1,045.8 58.0 58.0 58.0 58.0 58.0 58.0 33.1 33.1 33.1 33.1 33.1 33.1 5.8 5.8 5.8 5.8 5.8 5.8 13.3 13.3 13.3 13.3 13.3 13.3 7.5 7.5 7.5 7.5 7.5 7.5 4.3 4.3 4.3 4.3 4.3 4.3 0.5 0.5 0.5 0.5 0.5 0.5 1,043.8 1,043.8 1,043.8 1,043.8 1,043.8 1,043.8 General & Administrative Expenses( Pre-Pre-Pre-Pre-Pre-Pre- Provisioning Provisioning Provisioning Provisioning Provisioning Provisioning Income Income Income Income Income Income Provisioning for Loan Losses( OperatingOperatingOperatingOperatingOperatingOperating Income Income Income Income Income Income Non-OperatingNon-OperatingNon-OperatingNon-OperatingNon-OperatingNon-Operating Income Income Income Income Income Income OrdinaryOrdinaryOrdinaryOrdinaryOrdinaryOrdinary Income Income Income Income Income Income GeneralGeneralGeneralGeneralGeneralGeneral Operating Operating Operating Operating Operating Operating Income Income Income Income Income Income Net Net Net Net Net Net Interest Interest Interest Interest Interest Interest Income Income Income Income Income Income Fee Fee Fee Fee Fee Fee and and and and and and Commission Commission Commission Commission Commission Commission Income Income Income Income Income Income Gains Gains Gains Gains Gains Gains on on on on on on Disposition Disposition Disposition Disposition Disposition Disposition & Valuation & Valuation & Valuation & Valuation & Valuation & Valuation Other Other Other Other Other Other General General General General General General Operating Operating Operating Operating Operating Operating Income Income Income Income Income Income Performance of Affi liates liates Affi of Performance Comprehensive 2-2. [ Table liates Income ] Statement Affi by % 7.3% 1.9% 3.6% 3.8% 8.2% 0.7 0.7 2.5 2.5 32.9% 2.3 2.3 9.8 9.8 62.8% 3.3 -5.6 -5.9% -3.3 -5.9% 11.1 11.1 4.4% YoY YoY 11.3 11.3 28.2% 31.4 31.4 20.1 20.1 26.1 26.1 18.4% 46.1 46.1 13.2% -15.6 -15.6 -15.3% 16.8 16.8 94.9% 18.2 18.2 36.8% -32.1 -32.1 -50.5% 79.6 79.6 9.5% 36.5 31.4% 221.1 221.1 33.0% 130.4 130.4 157.1% (Unit:KRW in Billions) 7.6 7.6 17.7 17.7 40.1 40.1 15.6 15.6 49.4 49.4 36.4 85.9 56.2 63.5 83.0 2005 -95.3 -63.6 427.8 427.8 -116.3 -116.3 142.2 142.2 102.2 102.2 245.6 245.6 670.4 670.4 348.0 839.4 -252.0 -252.0

37.1 37.1 10.1 10.1 67.6 67.6 51.4 51.4 52.9 52.9 25.4 25.4 34.5 86.6 65.8 89.2 -79.8 -79.8 2006 -95.7 -95.7 394.1 394.1 919.0 919.0 213.4 213.4 265.7 265.7 891.5 891.5 168.3 168.3 -100.9 -100.9 459.2 -240.9 -240.9

Summary of Business Performance Business of Summary

. purposes, it is recognized as banking commissions. income for comparability purpose.

Gains on disposition and valuation recorded 213.4 billion won, a 130.4 billion includingwon gainrise on valuationfrom related to thebank-held tradingpreceding securities, year particularly cientthrough those fund effi of SK and management, POSCO at 63.6 billion won andbillion respectively.19.4 won of gain, ance business amounted to 67.6 billion won, an 18.2 billionincrease won precedingstrengthenedbillion18.2 resultthefrom an of a won, cient asyear ancesales businesscapability 67.6 amounted to effi and utilization of the sales network. sale generate to synergy for the Group. Investmenttrust and management fees also increased billion 16.8 by won year-on-year billion34.5 to won. Moreover, commissions from the bancassur- Non-banking commissions amounted billion to 394.1 won,billion a 46.1 won or percent13.2 increase from 348 billion won in 2005. In detail, billion 168.3 cates billion fees to won came 26.1 increase a ciary won, from from certifi the precedingthesales benefi of ayear as result of increased efforts for their The size of the trust asset account grew around by trillion 2.5 won from 2005 on the back ofthe solided moneyTrust operation trust. commis- of specifi sion stood at 65.8 billion billion won, a 2.3 won year-on-year increase. As for banking commissions, credit card-related commissions amounted to billion265.7 billionwon, a 20.1 won jump from 2005 as a result of ongoing marketing efforts. Loans increased drastically due to the impact of the Delta-2 Project and as a result, total banking commissions stood at billion459.2 billion wonwon, a 31.4 rise from 2005, billion including won of loan 51.4 related billion commission, won year-on-year a 11.3 increase from 2005. In 2006, non-interest income increased 33.0 percent billion to 891.5 won, compared billion to 670.4 won in 2005, on the back of a solid rise in gaindisposition on and valuation and fees related loans. to 1. Due to a changeaccountinga in Dueto standards 2005,commissionin from creditrecognized card1. is interestas foregoingtheincome. in However,administrative fordatadrawn up Total The income from card Others 1. loan and cash advance has been recognized as interest income from 2Q 2003 in Hana Bank’s income statement. ed However,it we asclassifi fee Insurance Fees on Deposits Contribution Fund to Provision Other to Allowance Other General Operating Income Dividend Income • BancassuranceGains on Disposition & Valuation • Others cates ciary Certifi • Sales of Benefi • Investment Trust/Management Fee • Brokerage Fee • Others Fees Trust Non-Banking Fees • Fees from Credit Card Business • Fees Related Loans to • Fees in Foreign Currencies Fee and Commission Income Banking Fees Non-Interest Income Non-Interest 3. Non-Interest[ Table Income ] Ⅱ

MD&A . 068 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 069 - % 7.1% 4.6% 0.0% 8.3% (Unit:KRW in Billions) 1.1 1.1 0.1 0.1 57.1 57.1 11.8% YoY YoY -14.1 -14.1 -19.7% 49.5 49.5 93.6

71.5 71.5 23.8 2005 146.8 146.8 484.0 596.5

57.4 57.4 24.9 24.9 2006 541.1 541.1 146.9 146.9 646.0 47.80% 47.80% 54.28% -6.48%p 1,416.3 1,416.3 1,322.7

tion of information technology-related items. Lookingsalariesat andwages,formerthe recorded billion646.0percent 8.3 anwon, increase t fromsamethe period 2005connectioninin withprofi the billionyear-on-year won 57.1 billionsharinga reaching employeesforwon,reward annualmadeto a theas target. Equipment expense 541.1 amounted to increase associated with expenses for business promotion, including ads and PR, for products and the brand Group’s image. The cost-income ratio dropped by 6.48 percentage points from 54.28 percent in 2005 percent to 47.80 structurein attributable 2006, members’ showingto concerted an efforts improvementreduce to expenses andingarner higherincome income andsynergistic effects from theGroup-wide integra- In 2006, the Group paid general and administrative expenses billion worth 416.3 won, a 1, 93.6 billion won increase billionfrom the won1,322.7 paid in 2005. We posted a 526.3 billion won year-on-year increase in general operating income, expensecient management whilepercent, strategiesshowingsuccessour effi thethe for of amount paid 17.78 cost-incomebillionThus,additionallytheat remainedstood won.ratio93.6 at to garner such an income carried out throughout the year. Salaries and Wages ts Retirement Benefi Equipment Expenses DepreciationC/I Ratio and Amortization and Taxes Dues General & Administrative Expenses & Administrative General General 4. [ Table & Administrative Expenses of The Group ] General & Administrativie Expenses in deposit average balance. billionother theoperatingin won income sectors, reducingyear-on-yearresult,posted a increasea we amountAstransferthe other11.1 reservesof of to cient36.5 by billion managementwon through of theeffi unused credit billionline, despite won additionally57.5 set aside in accordance with changes in the FSS guideline regarding provision of other allowance. Other general operating income is comprised of income accounts such as dividend income from stock insuranceinvestment fees and on deposits,expense contributionsaccounts inclusive to credit guaranteeof funds that are mainly related to operation, and other reserves intendedof contingent for losses.the prevention In 2006, the Delta-2 Project led an to increase in loans, which in turn billion resulted won in rise a 32.1 in expenses related loans to subjectcontribution to theKoreaCredit to Guarantee Fundandincreasean billion 5.6 of depositinwon insurance premium associated withtheincrease % 2.3% 2.3% YoY YoY 41.4 41.4 41.4 10.9% 10.9% -60.2-60.2 -26.7% -26.7% 212.9 212.9 212.9 343.9% 343.9% 740.2 740.2 740.2 31.3% 31.3% 810.6 810.6 810.6 15.1% 15.1% 628.7 628.7 628.7 95.6% 95.6% 365.4 365.4 333.3 333.3 16.7% 16.7% -222.6 -222.6 -222.6 -16.6% -16.6% (Unit: KRW in Billions)in KRW(Unit: 61.9 61.9 61.9 2005 657.3 657.3 657.3 378.5 378.5 378.5 225.2 225.2 225.2

2006 419.9 419.9 419.9 274.8 274.8 274.8 524.3 524.3 524.3 1,882.9 1,882.9 -1,358.6 -1,358.6 -72.2% -72.2% 165.0 165.0 165.0 1,114.5 1,114.5 1,114.5 1,337.1 1,337.1 6,176.9 6,176.9 6,176.9 5,366.3 5,366.3 3,103.3 3,103.3 3,103.3 2,363.1 2,363.1 7,992.6 7,992.6 7,992.6 6,616.1 6,616.1 1,376.5 1,376.5 20.8% 20.8% 1,286.0 1,286.0 1,286.0 2,328.2 2,328.2 2,328.2 1,994.9 1,994.9

16,156.4 16,156.4 16,156.4 15,791.0 15,791.0 77,301.3 77,301.3 77,301.3 62,048.3 62,048.3 15,253.0 15,253.0 24.6% 24.6% 11,234.9 11,234.9 11,234.9 10,089.6 10,089.6 1,145.3 1,145.3 11.4% 11.4% 21,156.3 21,156.3 21,156.3 17,367.2 17,367.2 3,789.1 3,789.1 21.8% 21.8% 11,493.2 11,493.2 11,493.2 10,262.5 10,262.5 1,230.7 1,230.7 12.0% 12.0% 13,049.5 13,049.5 13,049.5 10,952.9 10,952.9 2,096.6 2,096.6 19.1% 19.1% 13,863.6 13,863.6 13,863.6 11,322.0 11,322.0 2,541.6 2,541.6 22.4% 22.4% 79,889.6 79,889.6 79,889.6 62,615.6 62,615.6 17,274.0 17,274.0 27.6% 27.6% 10,920.8 10,920.8 8,651.8 8,651.8 2,269.0 2,269.0 26.2% 26.2% 96,570.3 96,570.3 80,289.5 80,289.5 16,280.8 16,280.8 20.3% 20.3% 114,477.9 114,477.9 114,477.9 94,326.1 94,326.1 20,151.8 20,151.8 21.4% 21.4% 128,647.4 128,647.4 128,647.4 106,308.5 106,308.5 22,338.9 22,338.9 21.0% 21.0% 128,647.4 128,647.4 106,308.5 106,308.5 22,338.9 22,338.9 21.0% 21.0% 120,654.8 120,654.8 99,692.4 99,692.4 20,962.4 20,962.4 21.0% 21.0%

] 1

Summary of Financial Condition Financial of Summary

. contents differ from those audited and put on public notice.

After the launch of HFG in December 2005, we posted a remarkable result, reaching one trillion won in net income in 2006. The Group’s shareholders’equitycametrillion 8.0 to wonin 2006, percent 20.8 a increase from trillion 6.6 wontheat end 2005,of thus establishing the groundwork forsolid future operations. subordinatedThedebentures bonds2006. in includingissued us, by aforesaidtrillionthe year-end 2006, at subordinated won bonds,amounted11.2 to trillion won jumpa 1.1 from the previous year. raising low-interest deposits including MMDA trillion 5.5 by won from trillion 20.6 won in 2005 26.2 trillion to won in 2006. In an effort maintain to an adequate capital structure in connection with the increase in risky assets, including loans, we issued US$400 million worth of In 2006, our deposit balance stood at 77.3 trillion won, a 15.3 trillion 2006,trillionInriseour depositwon 15.3 from preceding the a won, Our balancecapital year. 77.3 stoodmanagementat concerning need caused theincrease by assetsin positivelywas focused low-coston deposits rather thanborrowings. also madeWe continued efforts reduce to funding cost by in step with the policy for operation of surplus funds, but carried out positive marketing in loans, increasing the amount won by froma wide trillion62.6 trillion margin won of in 17.3 2005 trillionto 79.9 won in 2006. The ratio of substandard and below loans dropped from 0.98 percentage points in 2005 0.69 percentto in 2006, despite the drastic increase in asset amount. trillionGroupconcentrated 2006,thetrillion106.3 quantitativefrom Inassets on wonincreased qualitative 22.3 totalassets.andThus, our its by growth of trillion wonin 2005 128.6 to won in 2006. In detail, xed incomewe maintained securities,trillion 16.2 won a in levelfi similar to that of the preceding year, Shareholders’Shareholders’ Equity Equity Liabilities LiabilitiesTotal Total & Shareholders’ & Shareholders’ Equity Equity The nancialforegoing statementsfi 1. guresfi include for Hana Life Insurance and Hana Bank Trust Account not subjected tofi consolidated nancial statements. Thus, the Non-InterestNon-Interest Bearing Bearing Liabilities Liabilities Account Account Trust Trust Liabilities LiabilitiesTotal Total Liabilities Liabilities Debentures Debentures Policy Policy Reserve Reserve Borrowings Borrowings from from Accounts Accounts Trust Trust Deposits Deposits Borrowings Borrowings Non-RevenueNon-Revenue Earning Earning Assets Assets Assets AssetsTotal Total InterestInterest Bearing Bearing Liabilities Liabilities Lease Lease Structured Structured Securities Securities Account Account Trust Trust Assets Assets Domestic Domestic Import Import Usance Usance Bills Bills Credit Credit Card Card Stocks Stocks and and Others Others Fixed FixedOtherOther Income Income Revenue Revenue Securities Securities Earning Earning Assets Assets Loans Loans InterestInterest Earning Earning Assets Assets Due Due from from Banks Banks Business Volume _ Total Assets _ Total Volume Business 5. Comprehensive[ Table Balance Sheet of The Group Ⅲ

MD&A . 070 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 071 % 0.2% YoY YoY 16.6 16.6 -110.8 -110.8 -11.1% 301.6 301.6 28.4% -146.8 -146.8 -74.6% -520.8 -6.8% -844.0 -87.7% -838.2 -12.8% (Unit: KRW in Billions)

2005 196.9 196.9 962.2

50.1 50.1 2006 118.2 118.2 890.0 1,000.8 7,175.3 7,175.3 7,696.1 1,362.1 1,362.1 1,060.5 6,976.6 6,976.6 3,993.3 2,983.3 74.7% 6,225.7 6,225.7 4,199.0 2,026.7 48.3% 5,694.7 5,694.7 6,532.9 3,329.5 3,329.5 1,709.4 1,620.1 94.8% 6,698.8 6,682.2 3,803.9 2,613.8 1,190.1 45.5% 12,765.9 12,765.9 11,479.6 1,286.2 11.2% 68,254.1 68,254.1 55,696.1 12,558.0 22.5% 13,405.0 13,405.0 9,154.1 4,250.9 46.4% 13,534.0 13,534.0 11,309.0 2,225.0 19.7% 89,772.9 89,772.9 72,961.4 16,811.5 23.0% 36,338.5 28,332.6 8,005.9 28.3% 28,595.3 23,961.0 4,634.3 19.3% 118,368.2 118,368.2 96,922.4 21,445.8 22.1%

solidifying the sales Group’s network. Amid continued efforts for synergy liates,creation the cates salesGroup’s among ciaryrose 4.6 affi balanceby trillion certifi in wonbenefi from the same period in 2005 trillion 28.6 to won by year-end 2006. The growth rate outdid the overall growth rate of the domestic investment fund market recorded in 2006. The growth rate of equity fund, a high-yield product, stood at a robust 94.8 percent, playing a crucial role in increasingincome. the Group’s commission We also opened 52 new Hana Financial Plazas (multi-purpose branches) in 2006 using our existing network of securities and bank branches, thereby addition, the amount of time deposits, a chief means of funding supporting growth in operation assets, jumped by 28.3 percent from 28.3 trillion won in 2005 36.3 to trillion won in 2006. By diversifying funding sources, the money market product such as CDs and RPs supplied rose by trillion 2.9 trillion won in 2006. As a result,won thefrom total amount 5.0 of depositstrillion received won increasedin 2005 percent 23.0 by year-on-yearto 7.9 89.8 trillion to won in 2006. Total SalesTotal Local currency deposits increased drastically in step with the rise in loans made in the local currency. The entire amount of deposits includingdeposits, low-cost MMDA and time deposits increased by 22.5 percent year-on-year to 68.3 trillion won in 2006.deposits Coreposted low-costan increase deposits, trillionof 1.3 wontrillioninclusive to 12.8 won andof MMDA demanda rise of 4.3 trillion won trillion to 13.4 won by the end of 2006. These are attributedefforts to made achieve to higher interest income for the Group through composition theof funding portfolio focused on low-cost deposits. In Equity Funds Equity Mixed Funds Fixed Income Funds Fixed Income Mixed Funds MMF Others • Others of cate Deposits Certifi Bonds Sold under Repurchase Agreements cates ciary Certifi BillsSale Sold of Benefi Account Trust Total DepositsTotal Deposits • Low Cost Deposits • MMDA • Time Deposits • Installment Deposits Business Volume _ Total Sales _ Total Volume Business Sales 6. Total [ Table of The Group ]

- - - - % %

9.9 9.9 11.9% YoY YoY YoY -11.5 -11.5 -16.7% 21.5 21.5 25.3% 10.0 10.0 12.1% -29.4 -29.4 -26.0% -42.3 -42.3 -36.0% -66.7 -10.4% -33.9 -9.6% -43.9 -16.3% -40.2 -98.3 -3.8% -20.7% -107.0 -107.0 -6.3% 175.3 175.3 21.3% 175.3 21.3% 248.6 248.6 56.6%

(Unit: KRW in Billions) 85.0 85.0 68.9 83.2 83.2 117.5 117.5 2005 2005 474.0 474.0 113.3 113.3 2.61% 2.61% -0.71%p 269.7 269.7 352.9 352.9 642.3 642.3 439.4 822.4 822.4 0.98% 0.98% -0.30%p 48.19% 48.19% 14.18%p

57.4 57.4 75.3 75.3 83.9 93.3 93.2 2006 2006 997.7 997.7 997.7 319.0 319.0 375.7 375.7 575.6 575.6 106.5 106.5 225.8 225.8 1.90% 1.90% 688.0 0.69% 0.69% 62.37% 62.37% 1,024.1 1,024.1 1,064.3 1,599.6 1,599.6 1,706.6 173.35% 173.35% 128.04% 45.31%p 82,384.2 63,562.3 18,821.9 29.6% 83,983.8 65,268.9 18,714.9 28.7%

Summary of Financial Condition Financial of Summary

. by year-endby 2006, clearly illustrating our preparedness against additional loss contingencies. lion won additionally set aside under the upwardFSS’s adjustment of the minimum rate of amount set aside for higher asset soundness. ed as “precautionary As well,classifi loans and lower” decreased billion107.0 by won year-on-year. Thus, the coverage ratio for“precautionary and below loans” and “substandard and below loans”percentage increased points by 14.18 and percentage45.31 points, percent to 62.37 percent,and 173.35 respectively, record 0.69 percent in 2006. As of the end of 2006, the amount set aside for loan loss reserves billion came billion won, to 997.7 up 175.3 won from the previous withyear, 86.7 bil- Along with loan growth, the Group realized improvements in asset soundness through continuedscreening overdue process. management The ratio of andsubstandard improvement and belowof loans,the loana key indicator, is being maintained lower than one percent, the same level as 2005, to The amount of loans subject to the FSS’s asset soundness cation increasedclassifi by 28.7% year-on-year from 65.3 trillionwon in 2006 wonled by Delta-2 in project2005 carriedto 84out to achieve trillion the organic growth of the Group. Nevertheless, the Group still continued to improve the asset soundness a great to extent with substandard and below loans down billion 66.7 by won year-on-year. Loan Loss Allowance Coverage Ratio LoanSubstandard Loss Allowance & Below Coverage Ratio DoubtfulPrecautionary & Below Estimated Loss Normal Precautionary Substandard Loan Loss Allowance Loan Loss Allowance Ratio Substandard & Below Ratio Amount Precautionary & Below Estimated Loss Amount Precautionary Substandard Doubtful CreditTotal Normal Asset Soundness Asset Asset Quality 7. [ Table of the Group ] Ⅲ

MD&A . 072 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 073 - - - - 9.0 9.0 9.0 8.4 8.4 8.4 0.3 0.3 0.3 34.4 34.4 34.4 85.285.2 28.2 53.953.9 111.2 111.2 111.2 2004 2004 114.0 114.0 114.0 267.5 267.5 139.7 139.7 298.0 9,185.1 9,185.1 9,918.5 9,918.5 147.67%

- - - - 198.1 198.1 - - 3.1 3.1 3.1 2.0 2.0 2.0 0.5 0.5 0.5 17.6 17.6 17.6

10.3 10.3 10.3 34.7 34.7 34.7 96.596.5 242.0 242.0 - - - - 2005 2005 137.7 137.7 137.7 556.1 556.1 556.1 579.2 579.2 275.3 275.3 275.3 622.0 622.0 422.4 422.4 422.4 285.6 285.6 144.5 144.5 144.5 -543.3 -543.3 145.3 145.3 145.3 600.0600.0 600.0 600.0 9.30%9.30% 7.58% 7.58% 3.99%3.99% 4.25% 4.25% (Unit:KRW in Billions, %) (Unit: KRW in Billions, %) (Unit: KRW in Billions, %) 5,747.3 5,747.3 5,747.3 4,205.0 4,205.0 5,747.3 5,747.3 5,747.3 4,205.0 4,205.0 1,319.9 1,319.9 1,319.9 1,123.8 1,123.8 2,613.7 2,613.7 2,613.7 2,414.2 2,414.2 13.29% 13.29% 13.29% 11.83% 11.83% 7,659.1 7,659.1 7,659.1

------7.7 7.7 7.7 6.1 6.1 6.1 0.6 0.6 0.6 0.3 0.3 0.3 12.0 12.0 12.0 34.0 34.0 34.0 54.354.3 2006 2006 927.5 927.5 927.5 282.8 282.8 282.8 492.8 492.8 492.8 230.6 230.6 600.0600.0 204.3204.3 3.41% 3.41% 3.41% -197.9 -197.9 -197.9 7.93% 7.93% 7.93% 1,199.3 1,199.3 1,199.3 9,185.1 9,185.1 9,185.1 8,215.8 8,215.8 6,565.3 6,565.3 2,957.5 2,957.5 2,957.5 6,425.6 6,425.6 6,425.6 6,425.66,425.6 11.34% 11.34% 11.34% 2

28.2 267.5 267.5 298.0 9,185.1 9,185.1 7,798.8 7,798.8 17,577.6 17,577.6 81,001.9 81,001.9 61,812.3 61,812.3 55,495.6 55,495.6 376.48% 376.48% 223.66% 223.66% -224.49% -224.49%

Equity Capital Investment Deduction Net Capital 1

6.1 6.1 16.5 16.5 88.0 125.7 125.7 6,716.5 6,716.5 6,480.2 Requisite Capital

Hana Bank, DI&S, and Hana Life were calculated as provided in the relevant regulation on supervision of their capital adequacy. sheet net of its investment in subsidiaries, underwriting of subordinated debts issuedBank, DI&S, andby Hanasubsidiaries, Life were Calculated and as provided subsidy in the relevant to subsidiaries. regultaions on supervisionMeanwhile, Requisite of their capital Capital aduquacy. of Hana Fundamental Fundamental Risk Risk Credit CreditNetNet Capital Capital Concentration Concentration Ratio Ratio Risk Risk Indirect Indirect Investment Investment Risk Risk (-)Fixed (-)Fixed Assets Assets (-)Prepaid (-)PrepaidGrossGross Expenses Expenses Risk Risk Amount Amount (-)Others (-)Others Market Market Risk Risk Counter Counter Party Party Risk Risk [ Table 10. Net Capital 10. [ Table Ratio - DI&S ] NetNet Capital Capital (+)Shareholders’ (+)Shareholders’ Equity Equity on on B/S B/S (+)Allowances (+)Allowances for for Currency Currency Assets Assets Total BIS BISTotal Total Capital Capital RiskRisk Weighted Weighted Assets Assets BISBIS Capital Capital Adequacy Adequacy Ratio Ratio Tier Tier 1 Ratio 1 Ratio Tier Tier 2 Ratio 2 Ratio TierTier 2 Capital 2 Capital Loan Loan Loss Loss Reserve Reserve Upper Upper Tier Tier 2 2 Lower Lower Investment Investment(-) (-) Tier Tier 2 2 Deduction Deduction Others Others BIS 9. [ Table Capital Adequacy Ratio - Hana Bank ] TierTier 1 Capital 1 Capital Tier Tier 1 from 1 from Common Common Stocks Stocks Tier Tier 1 from 1 from Preferred Preferred Stocks Stocks Ratio of the Equity Capital theto Requisite Capital accordanceIn withRegulation Supervisionon 1. Financialof Holding Company,Requisite CapitalcalculatedwasHFGassetstotal itsnon-consolidated ofon 8%of as balance Equity Capital of2. HFG excludes intangibles and deferred tax assets in accordance with Regulation on Supervision of Financial Holding Company. Shareholers’ Equity of HFG Hana Bank(Consolidated) DI&S Hana Securities Hana Life Total Capital Adequacy Capital 8. Required[ Table Ratio of the Equity Capital the to Requisite Capital ] ------1.1 1.1 1.1 1.1 1.1 1.0 1.0 1.0 2.4 2.4 2.4 2.6 2.6 2.6 0.8 0.8 0.8 0.20.2 5.25.2 53.1 53.1 53.1 16.7 16.7 16.7 33.1 33.1 33.1 31.4 31.4 31.4 30.1 30.1 30.1 10.0 10.0 10.0 28.0 28.0 28.0 50.7 50.7 50.7 20.9 20.9 20.9 23.9 23.9 23.9 52.352.3 54.254.2 26.226.2 30.530.5 2004 2004 2004 ------0.1 0.1 0.1 2.7 2.7 2.7 0.7 0.7 0.7 0.4 0.4 0.4 2.2 2.2 2.2 0.9 0.9 0.9 0.5 0.5 0.5 0.3 0.3 0.3 5.25.2 57.7 57.7 57.7 31.0 31.0 31.0 19.7 19.7 19.7 21.7 21.7 21.7 31.9 31.9 31.9 18.4 18.4 18.4 10.8 10.8 10.8 28.7 28.7 14.8 14.8 14.8 32.4 32.4 32.4 59.9 59.9 59.9 25.2 25.2 25.2 34.334.3 56.856.8 55.255.2 2005 2005 2005 339.8339.8 319.4 319.4 303.7303.7 288.0 288.0 (Unit: KRW in Billions, %) (Unit: KRW in Billions, %) (Unit: KRW in Billions, %)

------0.1 0.1 0.1 0.7 0.7 0.7 0.7 0.7 0.5 0.5 0.5 0.3 0.3 3.23.2 11.9 11.9 11.9 77.3 77.3 77.3 19.7 19.7 19.7 25.7 25.7 25.7 19.8 19.8 19.8 19.2 19.2 19.2 23.4 23.4 23.4 20.0 20.0 20.0 16.5 16.5 16.5 65.4 65.4 65.4 64.7 64.7 64.7 58.7 58.7 29.629.6 49.249.2 55.855.8 53.953.9 28.228.2 2006 2006 2006 297.9 297.9 297.9 373.5 373.5 373.5 170.91% 170.91% 146.26% 146.26% 300.63% 300.63% 218.31% 218.31% 178.07% 178.07% 166.36% 166.36%

507.51% 507.51% 550.06% 550.06% 568.49% 568.49%

Summary of Financial Condition Financial of Summary

. StandardStandard Amount Amount of of Solvency Solvency Margin Margin SolvencySolvency Margin Margin Ratio Ratio Subordinated Subordinated Debts Debts Net Net Premium Premium Reserve Reserve in in Excess Excess (-)Deduction (-)Deduction SolvencySolvency Margin Margin Shareholders’ Shareholders’ Equity Equity Loan Loan Loss Loss Reserve Reserve [ Table 13. Solvency 13. [ Table Margin Ratio - Hana Life ] RatioRatio of of Equity Equity Risks Risks to to Property Property Trust Trust Risk Risk Counter Counter Party Party Risk Risk Fundamental Fundamental Risk Risk Credit Credit Concentration Concentration Risk Risk GrossGross Risks Risks • (-)Deductions • (-)Deductions Market Market Risk Risk • (+)Adjusted • (+)Adjusted Assets Assets • (-)Adjusted • (-)Adjusted Liabilities Liabilities Subordinated Subordinated Borrowings Borrowings NetNet Equity Equity Net Net Assets Assets [ Table 12. Ratio of 12. Equity[ Table Risks to - DIMCO ] Credit CreditNetNet Capital Capital Concentration Concentration Ratio Ratio Risk Risk Indirect Indirect Investment Investment Risk Risk Market Market Risk Risk Counter Counter Party Party Risk Risk Fundamental Fundamental Risk Risk (-)Prepaid (-)PrepaidGrossGross Expenses Expenses Risk Risk Amount Amount (-)Others (-)Others (+)Shareholders’ (+)Shareholders’ Equity Equity on on B/S B/S (+)Allowances (+)Allowances for for Currency Currency Assets Assets (-)Fixed (-)Fixed Assets Assets [ Table 11. Net Capital Ratio 11. [ Table - Hana Securities] NetNet Capital Capital Ⅲ

MD&A . 074 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 075 ------7.1 7.1 7.1 7.1 7.1 0.9 0.9 0.9 0.90.9 23.0 23.0 23.0 23.0 23.0 40.940.9 39.039.0 86.586.5 30.030.0 45.645.6 80.680.6 38.238.2 38.238.2 2004 2004 ------1.7 1.7 1.7 1.7 1.7 1.7 2.6 2.6 2.6 2.6 2.6 2.6 8.6 8.6 8.6 37.1 37.1 37.1 37.1 37.1 51.3 51.3 51.3 49.7 49.7 49.7 49.7 49.7 49.7 39.639.6 2005 2005 191.9 191.9 191.9 193.8 193.8 193.8 185.2185.2 0.86%0.86% 1.06% 1.06% 26.74% 26.74% 26.74% 48.44% 48.44% 25.88% 25.88% 25.88% 47.38% 47.38% 21.40% 21.40% 21.40% 65.84% 65.84% (Unit: KRW in Billions, %) (Unit: KRW in Billions, %) ------1.5 1.5 1.5 2.8 2.8 2.8 2.8 2.8 11.4 11.4 11.4 11.4 11.4 11.4 53.1 53.1 53.1 53.1 53.1 53.1 50.4 50.4 50.4 50.450.4 64.564.5 53.253.2 2006 2006 237.2 237.2 237.2 550.4 550.4 550.4 548.9548.9 1.16% 1.16% 1.16% 21.26% 21.26% 21.26% 11.76% 11.76% 11.76%

22.42% 22.42%

Loan Loan Loss Loss Reserve Reserve and and Other Other Tier Tier 2 Ratio 2 Ratio Investment Investment(-) (-) Deduction Deduction Others Others BIS BISTotal Total Capital Capital RiskRisk Weighted Weighted Assets Assets BISBIS Capital Capital Adequacy Adequacy Ratio Ratio Tier Tier 1 Ratio 1 Ratio Tier TierTierTier 1 from 1 from 2 Capital 2 Capital Common Common Stocks Stocks Tier Tier 1 from 1 from Preferred Preferred Stocks Stocks Loan Loan Loss Loss Reserve Reserve Upper Upper Tier Tier 2 2 Lower Lower Tier Tier 2 2 AdjustedAdjusted Equity Equity Capital Capital Ratio Ratio BIS Capital 15. [ Table Adequacy Ratio - QIB ] TierTier 1 Capital 1 Capital • Shareholders’ • Shareholders’ Equity Equity Tier TierAdjustedAdjusted 2 Capital 2 Capital Assets Assets Total Total • Assets Assets Total Total on on B/S B/S (-)Deduction (-)Deduction [ Table 14. Adjusted 14. [ Table Equity CapitalRatio - Hana Capital ] AdjustedAdjusted Equity Equity Capital Capital Tier Tier 1 Capital 1 Capital

------% 9.1% 9.1% 9.5% 9.5% 6.6% 6.6% 6.6%

1.3 1.3 1.3 0.8 0.8 0.8 0.8 0.8 0.8 10.0% 10.0% YoY YoY 13.0 13.0 13.0 10.1% 10.1% 247.6 247.6 247.6 26.7% 26.7% -69.2-69.2 615.0 615.0 615.0 12.4% 12.4% 470.2 470.2 470.2 22.8% 22.8% 139.0 139.0 139.0 15.3% 15.3% -153.4 -153.4 -153.4 160.6% 160.6% (Unit: KRW in Billions, %) 5,257.0 5,257.0 5,257.0 16.7% 16.7% 0.01%p 0.01%p 0.01%p

7.8 7.8 7.8 9.3 9.3 9.3 129 129 129 13.9 13.9 13.9 2005 -95.5-95.5 927.8 927.8 927.8 4,9554,955 906.8906.8 1.05% 1.05% 1.05% 0.98% 0.98% 0.98% -0.29%p -0.29%p 9.30%9.30% -1.37%p -1.37%p 0.89%0.89% -0.12%p -0.12%p 3.99%3.99% -0.58%p -0.58%p 31,395 31,395 31,395 16.71% 16.71% 16.71% -0.74%p -0.74%p 13.29% 13.29% 13.29% -1.95%p -1.95%p 48.37% 48.37% 48.37% -6.25%p -6.25%p 50.43% 50.43% 50.43% -6.63%p -6.63%p

8.6 8.6 8.6 142 142 142 10.1 10.1 10.1 15.2 15.2 15.2 2006 5,570 5,570 5,570 3.41% 3.41% 3.41% 7.93% 7.93% 7.93% 0.77% 0.77% 0.77% 1.06% 1.06% 1.06% -248.9 -248.9 -248.9 0.69% 0.69% 0.69% 1,175.4 1,175.4 1,175.4 36,65236,652 42.12% 42.12% 42.12% 11.34% 11.34% 11.34% -1,110.1 -1,110.1 -1,110.1 -1,040.9 -1,040.9 1,045.8 1,045.8 1,045.8 15.97% 15.97% 15.97% 2,534.4 2,534.4 2,534.4 2,064.2 2,064.2 43.80%43.80% 172.65% 172.65% 172.65% 127.62% 127.62% 45.03%p 45.03%p 89,722.8 89,722.8 89,722.8 72,449.4 72,449.4 17,273.4 17,273.4 23.8% 23.8% 83,294.483,294.4 64,953.7 64,953.7 18,340.7 18,340.7 28.2% 28.2% 123,901.2 123,901.2 123,901.2 102,955.1 102,955.1 20,946.1 20,946.1 20.3% 20.3% 1. Hana Bank Bank Hana 1.

)

1 Unit: KRW in Millions (

) )

Unit: KRW Unit: KRW ( TierTier 1 Ratio 1 Ratio ( GeneralGeneral Operating Operating Income Income Performance Results of Affiliates _ _ Affiliates of Results Performance

1. Productivity1. indicators are based on domestic net income, assets, deposits, loans and number of employees in accordance with the reporting standards of FSS. Assets Assets per per Capita Capita Deposits Deposits per per Capita Capita Loans Loans per per Capita Capita [Productivity per Capita (On GDP Basis)] • Tier • Tier 2 Ratio 2 Ratio Net Income per Capita BPS BIS BIS Ratio Ratio • Coverage Coverage[Capital against against Adequacy] Substandard Substandard & Below & Below Delinquency Delinquency Ratio Ratio [Asset[Asset Soundness] Soundness] (Net (Net of of Amortization Amortization of of Merger-Related Merger-Related Goodwill) Goodwill) Substandard Substandard & Below & Below Ratio Ratio ROE ROE EPS Cost-Income Cost-IncomeRatioRatio Operating Operating Income Income Net Net Income Income ROA ROA General General and and Administrative Administrative Expenses Expenses Provisioning Provisioning for for Credit Credit Losses Losses tability]tability] Deposits Deposits Total Total [Profi [Profi Credits Credits Total Total [Business[Business Volume Volume (Including (Including Account)] Account)] Trust Trust Assets Assets Total Total [ Table 1. Summarized 1. [ Table Financial Information – Hana Bank ] income and the cost-income percent. Thus,ratio at ROA 42.12 and ROE recorded percent 1.06 percent,and 15.97 respectively. Our productivity index 15.2 millionandwon improvement GDP-basedshowedalsoprecedingwithan thefromper-employee assets 142 incomeamountingtotalyear, net and to billion won, respectively. The following are the leading management indicators based on management results made in 2006. cent and 172.65 percent,cent respectively, and 172.65 showing the highest level in banking circles. Net income posted 1,045.8 billion won, a solid 15.3 percent year-on-year increase, as a result of maintaining a steady increase in general operating will continue to increase profi tability, utilizing our fi nancialfi tability,will continueservice utilizing increase to networkour profi as a strong foothold. Ourtotal assets increased percent 20.3 by trillion in 2006 123.9 to won. The ratio substandardof and below loans and their coverage stood at 0.69per- the fi nancial business. business a such Amid income ed environment,structures intensivemade efforts we secure customersfi more to explore the and diversifi facilitate to growth.effortsOur focusedwereenhancing on productcompetitiveness specializingand saleschannels. alsosought quantitative We growth and qualitative improvement edof assets,risk managementand fortifi through enhancing operational processes. nancial fi As a leader market, we in the Overview Overview ercer competition between2006, Inlocal marketthe fi sawbanks theirand foreign-based counterparts and between those engaged various in sectors of Ⅳ

MD&A . 076 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 077 -- % - - 0.6 0.6 0.6 -0.2% -0.2% YoY YoY 75.5 75.5 75.5 13.3% 13.3% 26.626.6 11.1% 11.1% 69.269.2 6.6% 6.6% 247.6 247.6 247.6 26.7% 26.7% 274.2 274.2 274.2 23.5% 23.5% 284.7 284.7 284.7 16.9% 16.9% 109.4 109.4 109.4 154.1% 154.1% 401.0 401.0 401.0 39.2% 39.2% 139.0 139.0 139.0 15.3% 15.3% 470.2 470.2 470.2 22.8% 22.8% 153.4 153.4 153.4 160.6% 160.6% 135.2135.2 51.7% 51.7% (Unit: KRW In Billions, %)

- - 71.0 71.0 71.0 95.595.5 2005 927.8 927.8 927.8 261.3 261.3 261.3 240.3240.3 566.4566.4 906.8906.8 -261.6 -261.6 -261.6 1,168.1 1,168.1 1,168.1

- - 2006 180.3 180.3 180.3 642.0 642.0 642.0 249.0 249.0 249.0 266.9266.9 396.5396.5 -261.0 -261.0 -261.0 1,110.1 1,110.1 1,110.1 1,040.9 1,040.9 1,175.4 1,175.4 1,175.4 1,973.1 1,973.1 1,973.1 1,688.4 1,688.4 1,424.4 1,424.4 1,424.4 1,023.3 1,023.3 1,442.3 1,442.3 1,442.3 1,045.81,045.8 2,534.42,534.4 2,064.2 2,064.2 – Hana Bank ] 1 ) ) △ ) ) △ ) ) △

tributed efforts to control to expenses within the range of income increase. Loanlossreserves billion aforementioned thebillion 248.9 due to won to wonasideset153.4 rose by guideline FSS regarding loanloss allowance. Oper- billion wonincrease atingincome billionfrom thepreviousafter 247.6 won,a With loanthe inclusionyear. loss reserves non-operatingof stood 1,175.4 at income of 266.9 billion won and corporation tax expense of 396.5 billion won, Hana Bank posted a net income of billion1,045.8 billion won won increasein 2006, year a from139.0 the preceding year. 75.5 billion won from the same period in 2005 to 641.9 billion won in 2006 through efforts made in the cross-selling of benefi ciary certifi cates, bancassur-billion2006 inthrough won ciarybillion efforts samefrom thewonperiodcertifi 75.5 641.9 cross-selling 2005the madeto inin benefi of anceand credit cards. Gain ondisposition and valuation jumpedbillion 109.4 billion by wonyear-on-year 180.4 wonto due the solidto gain onvaluation of stocks, including billion stocks. SK’s paid We won 261.0 in other operating expenses. General and administrative expenses increased by 69.2 billionbillion wonwon. fromHowever, the cost-incomethe year beforeratio, with to 1,110.1 the amount of merger-related amortization of goodwill excluded,percent, stooda 6.25 atpercent 42.12 year-on-year decrease. The decrease in ratio is at- Income Expenses Tax ( NetNet Income Income This1. Income Statement is prepared only for analysis and may be different nancial fromstatements cation that of of the fi accounts.in classifi Firstall,generalof operating billionbillion income2,534.4 Net won.interestwonto 470.2 rose by income, themajor part income,thebank’s of increased billion billion won on the 284.7 by strength won year-on-year anof 1,973.1 increase to in interest-earning assets. Commission-related income jumped by Pre-ProvisioningPre-Provisioning Income Income Provisioningfor Loan Losses ( OperatingOperating Income Income Non-OperatingNon-Operating Income Income OrdinaryOrdinary Income Income ExtraordinaryExtraordinary Income Income GeneralGeneral Operating Operating Income Income Net Net Interest Interest Income Income Fee Fee and and Commission Commission income income Gains GainsGeneral on on Disposition Disposition & Administrative and and Valuation Valuation Expenses ( Others Others General General Operating Operating Income Income to 2,534.4 billion 2,534.4 to won, despite billion 248.9 billion won 153.4 (a won year-on-year increase) set aside in loan loss reserves due expansion the to FSS’s of itemssubject loan to loss reserve and the upward adjustment theof minimum reserve tabilityratio. The bank’s enhanced is attributed to the profi expansion nancial of the income service basis through network the fi ledby HFG. Comprehensive 2. [ Table Income Statement Summary of Operating Results Results Operating of Summary In 2006, Hana Bank posted 1,045.8 billion won in net income, a 139 billion won increase from the previous year. year-on-yearNet increaseincome on recordedthe back of the solid a performancepercent15.3 of general operating income, which billionrose by 470.2 won from the same period in 2005

-- % 8.7% 8.7% 0.5% 0.5% 9.9% 9.9% 0.8% 0.8%

- - 0.50.5 3.2% 3.2% YoY YoY 68.668.6 897.4 897.4 897.4 987.0 987.0 987.0 16.7% 16.7% 647.9 647.9 647.9 10.7% 10.7% 918.6 918.6 918.6 333.1 333.1 333.1 16.7% 16.7% 246.0 246.0 246.0 5.6% 5.6% 384.8384.8 64.7% 64.7% 536.8536.8 19.7% 19.7% -222.1 -222.1 -222.1 -16.6% -16.6% 0.9%p 0.9%p 0.9%p (Unit: KRW In Billions, %) -1.7%p -1.7%p -1.7%p -57.1% -57.1%

- - 15.6 15.6 15.6 2005 2.9% 2.9% 2.9% 594.3594.3 7,807.4 7,807.4 7,807.4 2,430.4 2,430.4 31.1% 31.1% 106.7% 106.7% 106.7%

- - 16.1 16.1 16.1 98.898.8 1,409.9 1,409.9 -1,311.2 -1,311.2 -93.0% -93.0% 2006 1.3% 1.3% 1.3% 979.1 979.1 979.1 1,114.5 1,114.5 1,114.5 1,336.6 1,336.6 1,257.9 1,257.9 1,257.9 2,455.4 2,455.4 -1,197.5 -1,197.5 -48.8% -48.8% 6,881.4 6,881.4 6,881.4 5,894.4 5,894.4 4,614.4 4,614.4 4,614.4 4,368.4 4,368.4 2,328.2 2,328.2 2,328.2 1,995.0 1,995.0 3,265.43,265.4 2,728.6 2,728.6 107.6% 107.6% 107.6% 6,708.06,708.0 6,060.2 6,060.2 11,167.2 11,167.2 11,167.2 10,269.8 10,269.8 14,407.3 14,407.3 14,407.3 14,338.7 14,338.7 10,183.8 10,183.8 10,183.8 9,265.2 9,265.2 77,025.9 77,025.9 77,025.9 61,610.1 61,610.1 15,415.8 15,415.8 25.0% 25.0% 10,237.9 10,237.9 10,237.9 79,399.7 79,399.7 79,399.7 62,385.9 62,385.9 17,013.8 17,013.8 27.3% 27.3% 99,355.999,355.9 81,739.4 81,739.4 17,616.5 17,616.5 21.6% 21.6% 93,905.893,905.8 78,134.6 78,134.6 15,771.2 15,771.2 20.2% 20.2% 110,851.7 110,851.7 110,851.7 92,002.2 92,002.2 18,849.5 18,849.5 20.5% 20.5% 110,851.7 110,851.7 110,851.7 92,002.2 92,002.2 18,849.5 18,849.5 20.5% 20.5% 1. Hana Bank Bank Hana 1. - Hana Bank ] 1

4 Performance Results of Affiliates _ _ Affiliates of Results Performance

our sales basis increasing by low-cost tability deposits and through improving a low-cost profi funding structure. Thus, the gap between interest-earning assets and interest-bearing liabilities dropped from the preceding year, modestbut therise. planWe loan maketo continued to deposit efforts ratio increaseto showed the a amount of newly supplied deposits for more balanced supply and operation, expanding As for funding, the amount of deposits increased by 15.4 trillion won from the same period in 2005 to 77.0 trillion won in 2006. In terms of the compositionthe trilliontermsof 2006.In in won funding,fortrilliondepositsamount As77.0 samethe of period fromthe won 2005increasedto in 15.4 by depositstotalaccount of by low-costtitle,deposits, trillionincludingwhilepreviousdepositstimefromthe 5.5 won year, jumped CDsMMDA, by androse trillion 8.0 by won and trillion 3.0 won respectively. year-on-year, growthwithrate, all types businessesof showing evengrowth. Loansbusiness, to particularly SMEs, recorded higha growth withrate, household loans and corporate loans striking a balance. Looking at operational status, the amount of loans that is relatively table thanmore otherprofi interest-earning theassets previous yeartrillionjumped 79.4 to trillion won,17.0 leadingby won an increase from in the amount of overall assets. By industry, wholesale/retail businesses registered the highest In 2006, Hana Bank strove for qualitative improvement of assets through proper risk management as well as forpositive quantitative marketing activities.growth postedof We assets a high rate of throughgrowth in net income by maintaining proper risk management expenses table and increasing profi assets, adopting such a portfolio policy. 3. Exclude Inter-Banks Reconciliation Funds which are Non-Interest-Earning Assets Exclude4. Inter-Banks Reconciliation Funds which are Non-Interest-Bearing Liabilities LeverageLeverage Ratio Ratio (times) (times) This1. Balance Sheet is prepared only for analysis and may be different nancial fromstatements cation that of the of fi accounts.in classifi Exclude2. Reserve deposits in BOK which are Non-Interest-Earning Assets Revenue-EarningRevenue-Earning Assets Assets Expense-Incurring Expense-Incurring to to Liabilities Liabilities Gap Gap GapGap Ratio Ratio LoanLoan Deposit Deposit to to Ratio Ratio Non-Interest-BearingNon-Interest-Bearing Liabilities Liabilities Shareholders’Shareholders’ Equity Equity liabilities liabilities Total Total & Shareholders’ & Shareholders’ Equity Equity Borrowings Debentures Debentures Others Others Interest-BearingInterest-Bearing Liabilities Liabilities Assets Assets Total Total Deposits Deposits Stocks StocksNon-Revenue-EarningNon-Revenue-Earning Assets Assets Domestic Domestic Import Import Usance Usance Bill Bill OtherOther Revenue-Earning Revenue-Earning Assets Assets Others Others Credit Credit Card Card Receivables Receivables Due from Banks Securities Securities Loans (Net of provision) [ Table 3. Comprehensive[ Table Balance Sheet Interest-EarningInterest-Earning Assets Assets Ⅳ

MD&A . 078 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 079 % 0.8% 0.8% 1.8 1.8 1.8 0.6 0.6 0.6 13.1% 13.1% (Unit: KRW in Billions) YoY YoY 86.886.8 19.1% 19.1% 775.0 775.0 775.0 33.1% 33.1% -222.1 -222.1 -222.1 -16.6% -16.6% -954.8-954.8 -48.6% -48.6% -838.2-838.2 -12.8% -12.8% 1,787.4 1,787.4 1,787.4 67.1% 67.1% 2,109.7 2,109.7 2,109.7 50.0% 50.0% 2,712.3 2,712.3 2,712.3 23.0% 23.0% 1,913.9 1,913.9 1,913.9 145.9% 145.9% 2,351.5 2,351.5 2,351.5 108.3% 108.3% 9,693.1 9,693.1 9,693.1 46.8% 46.8% 6,045.1 6,045.1 6,045.1 20.1% 20.1% 6,045.1 6,045.1 20.1% 20.1% 1,855.3 1,855.3 1,855.3 22.0% 22.0% 1,286.2 1,286.2 1,286.2 11.2% 11.2%

4.3 4.3 4.3 2005 218.0 218.0 218.0 454.3454.3 2,171.7 2,171.7 2,171.7 9,154.1 9,154.1 9,154.1 4,250.9 4,250.9 46.4% 46.4% 1,311.6 1,311.6 1,311.6

4.9 4.9 4.9 2006 541.1 541.1 541.1 219.8 219.8 219.8 1,114.5 1,114.5 1,114.5 1,336.6 1,336.6 3,113.8 3,113.8 3,113.8 2,338.8 2,338.8 6,331.5 6,331.5 6,331.5 4,221.8 4,221.8 6,976.6 6,976.6 6,976.6 3,993.3 3,993.3 2,983.3 2,983.3 74.7% 74.7% 5,694.7 5,694.7 5,694.7 6,532.9 6,532.9 4,523.2 4,523.2 4,523.2 1,008.2 1,008.2 1,008.2 1,963.0 1,963.0 4,450.8 4,450.8 4,450.8 2,663.4 2,663.4 3,225.5 3,225.5 3,225.5 36,151.7 36,151.7 36,151.7 30,106.6 30,106.6 36,151.7 36,151.7 30,106.6 30,106.6 14,487.9 14,487.9 14,487.9 11,775.6 11,775.6 17,298.8 17,298.8 17,298.8 11,260.6 11,260.6 6,038.2 6,038.2 53.6% 53.6% 12,765.9 12,765.9 12,765.9 11,479.6 11,479.6 76,188.8 76,188.8 76,188.8 61,455.5 61,455.5 14,733.3 14,733.3 24.0% 24.0% 77,383.7 77,383.7 77,383.7 59,703.4 59,703.4 17,680.3 17,680.3 77,383.7 77,383.7 29.6% 29.6% 59,703.4 59,703.4 17,680.3 17,680.3 29.6% 29.6% 77,383.7 77,383.7 77,383.7 59,703.4 59,703.4 17,680.3 17,680.3 29.6% 29.6% 10,284.6 10,284.6 10,284.6 8,429.3 8,429.3 13,405.0 13,405.0 13,405.0 63,844.963,844.9 51,997.8 51,997.8 11,847.1 11,847.1 22.8% 22.8% 30,406.330,406.3 20,713.2 20,713.2 36,338.536,338.5 28,332.6 28,332.6 8,005.9 8,005.9 28.3% 28.3% (10,476.1) (10,476.1) (10,476.1) (5,730.5) (5,730.5) (4,745.6) (4,745.6) (82.8%) (82.8%) RP(won)/Bills RP(won)/Bills Sold Sold Total Deposits DepositsTotal Total (Bank (Bank Account) Account) Low Low Cost Cost Deposits Deposits MMDA MMDA Time Time Deposits Deposits Installment Installment Deposits Deposits CD CD Total Credits CreditsTotal Total Sector Sector by by Large Large Corp. Corp. SMEs SMEs (SOHO) (SOHO) Public Public & Others & Others Household Household Total Credits CreditsTotal Total Industry Industry by by Manufacturing Manufacturing Construction Construction Wholesale Wholesale & Retail & Retail Household Household Others Others Loans Loans in in FC FC (off-shore (off-shore loans loans included) included) Domestic Domestic Import Import Usance Usance Bill Bill Bills Bills Bought/CP Bought/CP Privately Privately Placed Placed Corporate Corporate Bonds Bonds Advances Advances for for Customers Customers Factoring Factoring Receivables Receivables [ Table 4. Total Credits Total 4. [ Table and Deposits (Bank Acc. Ending Balance) – Hana Bank ] Credits CreditsTotal Total (Bank (Bank Account) Account) Loans Loans in in won won

------% 5.5% 5.5%

- - 4.7 4.7 4.7 43.2% 43.2% 3.83.8 20.2% 20.2% YoY YoY 97.6 97.6 97.6 17.6% 17.6% 28.228.2 72.5% 72.5% 48.248.2 13.1% 13.1% 116.1 116.1 116.1 24.2% 24.2% 471.4 471.4 471.4 74.9% 74.9% 977.6 977.6 977.6 27.3% 27.3% 514.8 514.8 514.8 30.1% 30.1% 140.0 140.0 140.0 55.7% 55.7% 720.9 720.9 720.9 284.7 284.7 284.7 16.9% 16.9% 799.0799.0 32.2% 32.2% (Unit: KRW in Billions, %) 7,073.2 7,073.2 7,073.2 12.3% 12.3% 1,435.6 1,435.6 1,435.6 16.3% 16.3% 2,359.4 2,359.4 2,359.4 26.2% 26.2% 1,083.7 1,083.7 1,083.7 26.0% 26.0% 0.41%p 0.41%p 0.41%p 0.49%p 0.49%p 0.49%p

- - 10.9 10.9 10.9 18.9 18.9 18.9 38.938.9 251.1 251.1 251.1 2005 478.9 478.9 478.9 629.0 629.0 629.0 555.9555.9 368.9368.9 5.73% 5.73% 5.73% 2.46% 2.46% 2.46% -0.08%p -0.08%p 2.32% 2.32% 2.32% -0.01%p -0.01%p 3.27%3.27%

- - 67.1 67.1 67.1 15.6 15.6 15.6 22.7 22.7 22.7 417.1 417.1 417.1 2006 391.1 391.1 391.1 594.9 594.9 594.9 653.5653.5 6.15% 6.15% 6.15% 2.31% 2.31% 2.31% 3.76% 3.76% 3.76% 2.39%2.39% 1,100.4 1,100.4 1,100.4 1,973.1 1,973.1 1,973.1 1,688.4 1,688.4 4,558.1 4,558.1 4,558.1 3,580.5 3,580.5 2,223.7 2,223.7 2,223.7 1,708.9 1,708.9 5,249.95,249.9 4,166.2 4,166.2 3,276.83,276.8 2,477.8 2,477.8 71,112.5 71,112.5 71,112.5 59,145.4 59,145.4 11,967.1 11,967.1 20.2% 20.2% 11,367.7 11,367.7 11,367.7 9,008.3 9,008.3 64,387.8 64,387.8 64,387.8 57,314.6 57,314.6 10,239.6 10,239.6 10,239.6 8,804.0 8,804.0 87,095.5 87,095.5 87,095.5 75,755.9 75,755.9 11,339.7 11,339.7 15.0% 15.0% 13,855.3 13,855.3 13,855.3 13,134.4 13,134.4 85,384.985,384.9 72,648.6 72,648.6 12,736.3 12,736.3 17.5% 17.5% 1. Hana Bank Bank Hana 1. – Hana Bank ] 1 Performance Results of Affiliates _ _ Affiliates of Results Performance

NIMNIM NISNIS compare To each1. other, Figures are calculated using Internal standards and they are different from those of FSS standards. NetNet Interest Interest Income Income InterestInterest Revenue Revenue / IEA / IEA InterestInterest Expense Expense / IBL / IBL Interest Interest ExpensesExpenses on on Borrowings Borrowings Interest InterestExpensesExpenses on on Debentures Debentures Interest InterestExpensesExpenses on on Others Others InterestInterest Expenses Expenses on on IBL IBL Interest Interest RevenuesRevenues on on Others Others Interest InterestExpensesExpenses on on Deposits Deposits Interest Interest RevenuesRevenues on on Due Due from from Banks Banks Interest InterestRevenuesRevenues on on Securities Securities Interest InterestRevenuesRevenues on on Loans Loans Debentures DebenturesInterestInterest Revenues Revenues on on IEA IEA Others Others Interest-BearingInterest-Bearing Liabilities Liabilities (IBL) (IBL) Deposits Deposits Borrowings Borrowings Securities Securities Loans Loans Others Others Interest-EarningInterest-Earning Assets Assets (IEA) (IEA) Due Due from from Banks Banks [ Table 5. Net[ Table Interest Spread and Net Interest Margin 87.1 trillion won. Deposits trillion received87.1 won from rose the by year7.1 before and led an increase in interest-bearing liabilities. The funding rate rose by percentage0.47 points from the same period in 2005. Thus, we will strive to increase low-cost deposits to reduce funding cost and aim for proper loan pricingand income management rate secure to higher netinterest income theslowdowninspite of ininterest-earning assets. The average balance of interest-earning trillion assets won rose year-on-year trillion 85.4 to by 12.7 won. Such an increase y in operational assets is chiefl trillionattributed won theincrease to 12.0 in loans. The average balance of interest-bearing liabilitiestrillion won from jumped the previous by 11.3 year to point rise in the lending rate for loans. The expense rate of interest-bearing liabilities jumped by 0.49 percentage pointspercentpercentage fromdue0.47 a to thepoint year-on-yearprevious rise in the deposityear to funding 3.76 percentage andrate, 0.97 a point rise from the year before in borrowing rate. Thus, netinterest margin, a core indicator of the interest income of the bank, percent, stood at 2.31 a level similarthat to of 2005. year, makingyear, an important contribution raising to net interest income. The rate of return for interest earning assets increased percentage by 0.41 points percentfrom the year on thebefore back 6.15 to of a 0.36 percentage In 2006, Hana Bank’s net interest income rose billion by 248.7 won from the billionprevious won.year Net to 1,973.1 interest margin waspercent, 2.31 modesta drop from the preceding The year. average balance interest-earningof assets became trillion 85.4 won increasing by trillion won year-on- 12.7 Detailed Analysis of General Operating Income Income Operating General of Analysis Detailed Income Interest Net 1. Ⅳ

MD&A . 080 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 081

------% % 5.5% 5.5% 7.6% 7.6%

- - 4.7 4.7 4.7 43.2% 43.2% 3.83.8 20.2% 20.2% YoY YoY YoY YoY 97.6 97.6 97.6 17.6% 17.6% -0.9-0.9 -5.4% -5.4% 28.228.2 72.5% 72.5% 48.248.2 13.1% 13.1% 116.1 116.1 116.1 24.2% 24.2% 471.4 471.4 471.4 74.9% 74.9% 977.6 977.6 977.6 27.3% 27.3% 514.8 514.8 514.8 30.1% 30.1% 397.3 397.3 397.3 5.4% 5.4% 140.0 140.0 140.0 55.7% 55.7% 391.5 391.5 391.5 720.9 720.9 720.9 243.8 243.8 243.8 13.1% 13.1% 284.7 284.7 284.7 16.9% 16.9% 799.0799.0 32.2% 32.2% -218.9 -218.9 -218.9 -7.7% -7.7% -251.9 -251.9 -251.9 -4.0% -4.0% -276.8 -276.8 -276.8 -18.0% -18.0% 0.7%p 0.7%p 0.7%p (Unit: KRW in Billions, %) (Unit: KRW in Billions, %) 6.5%p 6.5%p 6.5%p 1,437.1 1,437.1 1,437.1 16.3% 16.3% 1,145.7 1,145.7 1,145.7 21.5% 21.5% 1,140.0 1,140.0 1,140.0 36.4% 36.4% 7,073.2 7,073.2 7,073.2 12.3% 12.3% 2,359.4 2,359.4 2,359.4 26.2% 26.2% 1,083.7 1,083.7 1,083.7 26.0% 26.0% -3.9%p-3.9%p

- - 10.9 10.9 10.9 18.9 18.9 18.9 16.216.2 38.938.9 251.1 251.1 251.1 2005 2005 4.0% 4.0% 4.0% 478.9 478.9 478.9 629.0 629.0 629.0 555.9555.9 368.9368.9 81.8% 81.8% 81.8% 3,127.7 3,127.7 3,127.7 2,831.1 2,831.1 2,831.1 1,537.3 1,537.3 1,537.3 109.1% 109.1% 109.1%

- - 67.1 67.1 67.1 15.6 15.6 15.6 22.7 22.7 22.7 417.1 417.1 417.1 15.3 15.3 15.3 2006 2006 391.1 391.1 391.1 4.7% 4.7% 4.7% 594.9 594.9 594.9 653.5653.5 77.9% 77.9% 77.9% 1,973.1 1,973.1 1,973.1 1,688.4 1,688.4 4,558.1 4,558.1 4,558.1 3,580.5 3,580.5 2,223.7 2,223.7 2,223.7 1,708.9 1,708.9 2,107.0 2,107.0 2,107.0 1,863.2 1,863.2 115.7% 115.7% 115.7% 5,979.85,979.8 6,231.7 6,231.7 5,249.95,249.9 4,166.2 4,166.2 3,276.83,276.8 2,477.8 2,477.8 1,100.4 1,100.4 1,100.4 2,612.3 2,612.3 2,612.3 7,726.5 7,726.5 7,726.5 7,329.2 7,329.2 71,112.5 71,112.5 71,112.5 59,148.7 59,148.7 11,963.8 11,963.8 20.2% 20.2% 4,267.7 4,267.7 4,267.7 5,514.8 5,514.8 5,514.8 5,123.3 5,123.3 1,260.5 1,260.5 1,260.5 6,479.4 6,479.4 6,479.4 5,333.7 5,333.7 99,091.2 99,091.2 99,091.2 86,212.8 86,212.8 12,878.3 12,878.3 99,091.2 99,091.2 14.9% 14.9% 86,212.8 86,212.8 12,878.3 12,878.3 14.9% 14.9% 11,367.7 11,367.7 11,367.7 9,008.3 9,008.3 13,855.3 13,855.3 13,855.3 13,134.4 13,134.4 10,241.1 10,241.1 10,241.1 8,804.0 8,804.0 87,097.0 87,097.0 87,097.0 75,755.9 75,755.9 11,341.1 11,341.1 15.0% 15.0% 64,387.8 64,387.8 64,387.8 57,314.6 57,314.6 85,384.9 85,384.9 72,652.0 72,652.0 12,732.9 12,732.9 17.5% 17.5%

3 Interest Interest Expense Expense on on Borrowings Borrowings Interest InterestNet Interest Expense Expense Income on on Debentures Debentures Others OthersNetNet Interest Interest Income Income as as % of % of General General Operating Operating Income Income It is calculated1. only for analysis and revenue from cash advances and card loans is not included. Interest Interest Revenue Revenue on on Due Due from from Banks Banks Interest Interest Revenue Revenue on on Securities Securities Interest InterestInterestInterest Revenue Revenue Expenses Expenses on on Loans Loans Others Others Interest Interest Expense Expense on on Deposits Deposits Interest Revenues 7. [ Table and Expenses – Hana Bank ] InterestInterest Revenues Revenues GapGap Ratio Ratio LoanLoan Deposit Deposit to to Ratio Ratio LeverageLeverage Ratio Ratio (times) (times) Exclude1. Reserve deposits in BOK which are Non-Interest-Earning Assets Exclude2. Inter-Banks Reconciliation Funds which are Non-Interest-Earning Assets cates ed as have cial‘Other 3. Since beenCertifi Revenue-Earning 2004,classifi Benifi Assets’ in accordance with amendment to FSS standards. Exclude4. Inter-Banks Reconciliation Funds which are Non-Interest-Bearing Liabilities Debentures DebenturesNon-Interest-BearingNon-Interest-Bearing Liabilities Liabilities Others OthersShareholders’Shareholders’ Equity Equity Revenue-EarningRevenue-Earning Assets Assets Expense-Incurring Expense-Incurring to to Liabilities Liabilities Gap Gap Libilities Libilities Total Total & Shareholders’ & Shareholders’ Equity Equity Non-Revenue-EarningNon-Revenue-Earning Assets Assets Domestic Domestic Import Import Usance Usance Bill Bill Interest-BearingInterest-Bearing Liabilities Liabilities Assets Assets Total Total Deposits Deposits Borrowings Securities Securities LoansOtherOther (Net of provision) Revenue-Earning Revenue-Earning Assets Assets Others Others Credit Credit Card Card Receivables Receivables Stocks [ Table 6. Funding[ Table and Usage (Based on Average Balance of Bank Account)Hana – Bank ] Interest-EarningInterest-Earning Assets Assets Due from Banks

- - % % 2.0 2.0 2.0 15.9% 15.9% 1.3 1.3 1.3 17.8% 17.8% 0.4 0.4 0.4 80.0% 80.0% 2.22.2 3.5% 3.5% YoY YoY YoY YoY (1.4) (1.4) (1.4) -38.1% -38.1% -9.5-9.5 -3.9% -3.9% 47.0 47.0 47.0 14.9% 14.9% -3.4-3.4 -6.1% -6.1% (3.6) (3.6) (3.6) -4.9% -4.9% 14.8 14.8 14.8 34.9% 34.9% 26.8 26.8 26.8 38.5% 38.5% 75.5 75.5 13.3% 13.3% 35.235.2 19.2% 19.2% 20.220.2 8.2% 8.2% 20.220.2 8.2% 8.2% 55.255.2 28.3% 28.3% -10.8 -10.8 -10.8 -40.0% -40.0% 115.0 115.0 115.0 13.6% 13.6% 148.6 148.6 148.6 19.9% 19.9% 243.7 243.7 243.7 13.1% 13.1% 6,2616,261 4.0% 4.0% 1.0%p 1.0%p 1.0%p 19.7% 19.7% (Unit: KRW in Billions, %) (Unit: KRW in Billions, %) 21,440 21,440 21,440 14.7% 14.7% -2.1%p -2.1%p -2.1%p -1.8%p -1.8%p -1.8%p -9.0% -9.0% -0.6%p-0.6%p -4.3% -4.3%

7.3 7.3 7.3 3.7 3.7 3.7 0.5 0.5 0.5 27.0 27.0 27.0 12.6 12.6 12.6 42.2 42.2 42.2 73.3 73.3 73.3 69.6 69.6 69.6 55.355.3 63.563.5 747.0 747.0 747.0 2005 2005 315.1 315.1 315.1 5.0% 5.0% 5.0% 845.1 845.1 845.1 243.7 243.7 243.7 183.3 183.3 183.3 194.8 194.8 194.8 245.5245.5 245.5245.5 566.4566.4 27.4% 27.4% 27.4% 13.2% 13.2% 13.2% 20.0% 20.0% 20.0% 8,917.0 8,917.0 8,917.0 1,639.8 1,639.8 18.4% 18.4%

2.3 2.3 2.3 0.9 0.9 0.9 8.68.6 57.0 57.0 57.0 14.6 14.6 14.6 51.9 51.9 51.9 16.2 16.2 16.2 69.7 69.7 69.7 65.7 65.7 96.496.4 2006 2006 5.9%5.9% 362.1 362.1 362.1 218.5 218.5 218.5 641.9 641.9 641.9 960.1 960.1 960.1 265.7265.7 265.7265.7 234.2234.2 250.0250.0 895.6895.6 12.6% 12.6% 12.6% 18.2% 18.2% 18.2% 25.3% 25.3% 25.3% 2,107.0 2,107.0 2,107.0 1,863.3 1,863.3 166,843166,843 145,403 145,403 163,463163,463 157,202 157,202 10,556.810,556.8 3,527,402 3,527,402 3,527,402 2,897,622 2,897,622 629,780 629,780 21.7% 21.7% 3,694,2453,694,245 3,043,025 3,043,025 651,220 651,220 21.4% 21.4% 1. Hana Bank Bank Hana 1.

1 RevenueRevenue from from credit credit card card loans loans RevenueRevenue from from purchase purchase card card receivables receivables OtherOther revenue revenue RevenueRevenue from from credit credit card card receivables receivables RevenueRevenue from from cash cash advance advance Performance Results of Affiliates _ _ Affiliates of Results Performance

Total Sales SalesTotal Total NumberNumber of of Merchants Merchants NumberNumber of of Credit Credit Card Card Issued Issued Household Household Corporate Corporate NetNet Income Income from from Credit Credit Card Card Credit Credit / Total / Total Card Card Receivables Receivables RevenueRevenue from from purchase purchase card card / Purchase / Purchase Card Card Receivables Receivables NetNet Income Income from from Card/Card Card/Card Receivables(Purchase Receivables(Purchase card card deducted) deducted) • • Fee Fee expenses expenses • • • NetNet Income Income from from Credit Credit Card Card Operations Operations Others Others Fee Fee revenue revenue Credit Credit card card loans loans Purchase Purchase Card Card Receivables Receivables DailyDaily Average Average Credit Credit Total Total Card Card Receivables Receivables Credit Credit card card receivables receivables Cash Cash advances advances [ Table 9. Fee 9. [ Table and Commission income from General Credit Card Operations – Hana Bank ] won year-on-year to 265.7 billion year-on-yearwon265.7 the backtheriseonwon of to theaverage in balance creditof sales amount andpurchase cards. expectedisIt thatcredit card-related commission income will continue to asgrow, indicators related to the sales basis of credit cards, such as the number of cards memberissued stores and and sales, have shown an increase. Credit card-related commission, the major part in commission earned by Hana Bank, posted a drop in rate of return due to a decrease tabilityand in card cash loans, are high, whoseservice following profi measures takento reinforce their risk management. Commission income increasedby 20.2 billion 1. The foregoing1. commission income related credit to cards is inclusive of that related purchase to cards. 2) Credit Card-related Commission FeeFee income income from from trust trust operation operation Fee FeeTotal andTotal and Commission Commission Income Income FeeFee Income Income as as % of % of General General Operating Operating Income Income FeesFees from from guarantees guarantees acceptances acceptances & & FeeFee income income from from won won currency currency FeeFee income income in in foreign foreign currency currency [ Table 8. Total Fee 8. Total and[ Table Commission income – Hana Bank ] Fees from credit card operations inthe interest income Delta-2 by project from the same period in 2005. weexpanded However, our commission income basis through cross selling and maintained commission income through exploration of new commission revenue sources. Commission income rose by 75.5 billion won year-on-year to 641.9 billion won. Such an increase is chiefl y attributable y commission the rise in to billion increaseSuchrelatedto anwon. Commission chiefl is billion 641.9 year-on-yearwon income75.5 to by rose commissionshareof Thegeneral KoreanWon. income drasticof creditoperatingfeesinincreaseoutothercards anda decrease income postedto a due 2. Fee and Commission Income Income Commission and 2. Fee Increase/Decrease1) in Fee and Commission Income Ⅳ

MD&A . 082 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 083 - - - % % 4.1% 4.1% 7.6% 7.6% 3.4% 3.4% 9.6% 9.6%

7.9 7.9 7.9 54.7% 54.7% 1.4 1.4 1.4 11.1% 11.1% 1.4 1.4 39.9% 39.9% 1.2 1.2 1.2 26.9% 26.9% 2.6 2.6 2.6 2.8 2.8 2.8 24.4% 24.4% 0.4 0.4 0.4 2.2 2.2 2.2 9.5 9.5 9.5 29.2% 29.2% 6.36.3 11.3% 11.3% 6.36.3 9.7% 9.7% -1.1 -1.1 -1.1 -4.3% -4.3% -2.9 -2.9 -2.9 -12.7% -12.7% YoY YoY -0.7 -0.7 -14.1% -14.1% YoY YoY -0.4-0.4 -51.2% -51.2% 12.1 12.1 12.1 35.9% 35.9% -0.2-0.2 -10.7% -10.7% -0.2-0.2 -2.1% -2.1% -0.2-0.2 -21.2% -21.2% 27.6 27.6 27.6 103.0% 103.0% 12.9 12.9 12.9 26.3% 26.3% 61.6 61.6 61.6 23.7% 23.7% 80.580.5 55.255.2 28.3% 28.3% -10.1 -10.1 -10.1 -79.3% -79.3% (Unit: KRW in Billions, %) (Unit: KRW in Billions, %) 2,310.3 2,310.3 2,310.3 22.3% 22.3%

7.8 7.8 7.8 4.1 4.1 4.1 1.5 1.5 1.5 1.2 1.2 1.2 4.4 4.4 4.4 4.8 4.8 4.8 0.8 0.8 0.8 3.53.5 11.6 11.6 11.6 12.7 12.7 12.7 23.1 23.1 23.1 14.4 14.4 14.4 12.8 12.8 12.8 62.7 62.7 62.7 32.5 32.5 32.5 26.6 26.6 26.6 55.6 55.6 55.6 26.8 26.8 26.8 48.948.9 33.533.5 63.563.5 65.565.5 2005 2005 194.8 194.8 194.8 260.3260.3 0.61% 0.61% 0.61% -0.09%p -0.09%p

4.1 4.1 4.1 2.6 2.6 2.6 0.4 0.4 0.4 4.5 4.5 4.5 0.9 0.9 0.9 7.6 7.6 7.6 1.4 1.4 1.4 4.9 4.9 4.9 5.6 5.6 5.6 41.9 41.9 41.9 61.9 61.9 61.9 71.9 71.9 71.9 65.7 65.7 65.7 22.3 22.3 22.3 65.365.3 14.4 14.4 14.4 61.8 61.8 61.8 14.3 14.3 14.3 25.4 25.4 25.4 54.3 54.3 54.3 45.6 45.6 20.2 20.2 2006 2006 321.9 321.9 321.9 250.0250.0 0.52% 0.52% 0.52% 1,136.0 1,136.0 1,136.0 1,055.5 1,055.5 11,520.7 11,520.7 11,520.7 9,290.9 9,290.9 2,229.8 2,229.8 24.0% 24.0% 12,656.7 12,656.7 12,656.7 10,346.4 10,346.4

1 Fee Fee expenses expenses related related loans loans to to Fee Fee expenses expenses related related KHFC KHFC to to mortgage mortgage loans loans Fee Fee expenses expensesNetNet of of Fee Fee Income Income related related in in Won Won Currency Currency CD CD to to network network Others Others Fees Fees from from bancassurance bancassurance business business Fees Fees related related loan loan to to products products Fees FeesFeeFee from from Expenses Expenses ABS ABS operations operations in in Won Won Currency Currency Others Others Fee Fee expenses expenses related related collection collection to to of of overdue overdue loans loans Fees Fees on on CDs CDs and and ATMs ATMs Fees Fees on on automatic automatic transfer transfer Fees Fees received received as as agency agency catescates consignmentconsignment cialcial certifi certifi salesale Fees Fees on on benifi benifi Agency Agency fees fees from from sale sale of of KHFC KHFC mortgage mortgage loans loans Fees Fees on on alliance alliance services services [ Table 11. Fee and Commission 11. [ Table income in Won Currency – Hana Bank ] FeeFee Revenue Revenue in in Won Won Currency Currency Fees Fees on on remittance remittance Fees Fees on on collection collection Fees Fees on on represent represent securities securities bancassurance rose billion by 27.6 won and billion12.9 won, respectively, leading an increase in commission income. Won-denominatedincomeincreased billion billion55.3 by commission wonconsidering won year-on-year 250.1 to thewon-denominated commission billion expense6.3 won,a 71.8 of billion won increase from the year before. Foreign currency-denominated commission income decreased by 3.4 billion wonamid wonthepoor recordyear-on-year commissionof billion to 51.9 income related letters to credit.of will We continue explore to newsources commissionof income and expand relevant business bases. 1. Trust for Public1. Welfare is excluded. Other4) Commission Incomes In 2006, Hana Bank continued to edexplore income diversifi sources. As a result, won-denominated commission cates and ciaryincreasean billion jumped2006.crosscertifi Dueinto selling, in won commissionsameperiod 321.9 by benefi yearbillionbeforesale61.6 theto theof related to won from the Fees Fees Trust Trust & CommissionsAverage & CommissionsAverage Balance Balance Trust Trust Fees Fees on on early earlyterminationtermination of of trust trust accounts accounts Average Average Management ManagementTrust Trust Balance Balance of of Principal-Covered Principal-Covered Fee Fee Ratio Ratio Trusts Trusts Average Balance of Performance Based Trusts average balance of trust billion rose by 2,310.3 won year-on-year. Commission income in the trust sector rose due anto increase in trust fees under the impact of the gain on sale ofstocks of Daewoo Engineering & Construction. Fee and 10. [ Table Commission income from Operations Trust ] FeesFees from from trust trust operation operation 3) Trust Business Operations Commissionincome theintrust sector jumpedbillion 2.3 by wonfrom thesame period billion last 65.7 year The won.to trust feepostedrate decrease a prohibitionthe productsto duetrustof of subjectbookvalue-basedthe to evaluation methodoffering relativelya otherandfactors.hightrustrate Thefee

% % % 1.1% 1.1% 1.7 1.7 1.7 12.4% 12.4% 1.5 1.5 1.5 -60.0% -60.0% 1.2 1.2 1.2 28.6% 28.6% 0.3 0.3 0.3 0.60.6 -0.2% -0.2% -1.3 -1.3 -1.3 -1.5% -1.5% 17.7 17.7 17.7 -103.5% -103.5% -2.5 -2.5 -2.5 -8.3% -8.3% YoY YoY YoY YoY YoY -3.4 -3.4 -3.4 -6.1% -6.1% -2.2-2.2 -3.7% -3.7% -5.5-5.5 5.8% 5.8% 19.2 19.2 19.2 -98.0% -98.0% 80.980.9 -1037.2% -1037.2% 62.362.3 616.8% 616.8% 29.229.2 -503.4% -503.4% 36.536.5 -31.4% -31.4% -18.6 -18.6 -18.6 -103.9% -103.9% -32.1 -32.1 -32.1 50.5% 50.5% 109.4 109.4 109.4 154.1% 154.1% (Unit: KRW in Billions, %) (Unit: KRW in Billions, %) (Unit: KRW in Billions, %)

4.24.2 -7.8 -7.8 -7.8 -2.5 -2.5 -2.5 17.9 17.9 17.9 -5.8-5.8 71.0 71.0 71.0 10.1 10.1 10.1 13.7 13.7 13.7 29.4 29.4 29.4 30.030.0 59.459.4 55.355.3 -17.1 -17.1 -17.1 86.386.3 -19.6 -19.6 -19.6 2005 2005 2005 -95.4-95.4 -63.6-63.6 -116.3 -116.3 -116.3 -261.6 -261.6 -261.6

0.6 0.6 0.6 5.35.3 -1.0 -1.0 -1.0 -0.7 -0.7 -0.7 27.5 27.5 27.5 -0.4-0.4 51.9 51.9 51.9 73.1 73.1 73.1 57.2 57.2 57.2 29.7 29.7 29.7 15.4 15.4 15.4 72.4 72.4 72.4 23.423.4 85.085.0 2006 2006 2006 -79.8 -79.8 -79.8 -95.7-95.7 180.4 180.4 180.4 -261.0 -261.0 -261.0 -100.9 -100.9 -100.9 1. Hana Bank Bank Hana 1.

Performance Results of Affiliates _ _ Affiliates of Results Performance

ProvisionProvision for for other other allowances allowances StockStock Dividends Dividends NetNet of of Other Other General General Operating Operating Income Income DepositDeposit Insurance Insurance Fee Fee ContributionContribution Credit Credit to to Guarantee Guarantee Fund Fund related unused to credit line toward the end of 2005. Other 14. [ Table General Operating Income – Hana Bank ] from 2005 as a result of the 0.1 percentage point rise in the credit insurance premium rate. The amount of provision to other allowance stood at 79.8 billion percentagecredit79.8 allowanceinsurance otherthe provision at pointinriseamount stood The of to premium rate. 0.1 the resultof a as2005from won due expansionto of the scope of those subject whatto should be set aside concerning the unused credit line. the However, amount decreased by 36.5billion won year-on-year under the impact theof lump sum transfer billion 92.0 of won due FSSguidelines to regarding provision other to allowance Among the factors comprising other general ordinary income, insurance fees on deposits increased by 5.5 billion won year-on-year billion 100.9 to won risea theoverallindue to amount depositsof received.billion paid 95.7 contributionWe inwon billion theCredit to increasewonGuarantee 32.1 Fund,a 4. Other General Operating Income Operating General 4. Other GainsGains on on Derivatives Derivatives GainsGains on on Foreign Foreign Currencies Currencies Gains GainsTotal Total on on Disposition Disposition and and Valuation Valuation GainsGains on on Trading Trading Bonds Bonds Gains Gains on on disposition disposition Gains Gains on on valuation valuation GainsGains on on Trading Trading Stocks Stocks Gains Gains on on disposition disposition Gains Gains on on valuation valuation [ Table 13. Gains 13. [ Table on Disposition and Valuation – Hana Bank ] of SK’s stocks, bond-related Trading SK’s of etc. income remained atlevel a similar that to theof preceding while year, income related derivatives to and foreign exchange billion rose by 27.9 won from the same period in 2005 to billion108.4 won in 2006. Thus, overall gain on disposition and valuation increased billion 109.4 by won year-on-year billion 180.4 to won. 3. Gain on Disposition and Valuation Valuation and 3. Gain Disposition on In 2006, trading stock-related income earned by Hana Bank increased by 62.3 billion won year-on-year billion to 72.4 won due to the gain on valuation Net of Fee Income in Foreign Currency Fees FeesFeeFee related related Expenses Expenses L/C L/C to to in in Foreign Foreign Currency Currency Other Other fee fee revenue revenue in in foreign foreign currency currency [ Table 12. Fee and 12. Commission[ Table income in Foreign Currency ] FeeFee Revenue Revenue in in Foreign Foreign Currency Currency Ⅳ

MD&A . 084 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 085 ------% % 7.7% 7.7% 7.8% 7.8%

3.7 3.7 3.7 2.32.3 4.4% 4.4% 8.28.2 20.0% 20.0% 280280 3.2% 3.2% YoY YoY YoY YoY -6.5-6.5 -7.7% -7.7% 21.5 21.5 21.5 25.9% 25.9% 16.4 16.4 16.4 21.6% 21.6% 13.9 13.9 13.9 17.6% 17.6% 29.7 29.7 29.7 10.9% 10.9% 69.269.2 6.6% 6.6% 35.235.2 -17.5 -17.5 -17.5 -28.5% -28.5% -71.7 -71.7 -71.7 -6.8% -6.8% -98.0-98.0 -20.7% -20.7% 178.2 178.2 178.2 22.0% 22.0% 153.4 153.4 153.4 160.6% 160.6% (Unit: KRW in Billions, %) (Unit: KRW in Billions, %) 0.15%p 0.15%p 0.15%p

41.1 41.1 41.1 47.4 47.4 47.4 52.1 52.1 52.1 61.4 61.4 61.4 83.1 83.1 83.1 76.0 76.0 76.0 84.7 84.7 84.7 79.379.3 95.595.5 2005 2005 457.1 457.1 457.1 811.2 811.2 811.2 8,766 8,766 8,766 473.2 473.2 473.2 273.2273.2 2.61% 2.61% 2.61% -0.74%p -0.74%p 0.15% 0.15% 0.15% 0.98% 0.98% 0.98% -0.29%p -0.29%p 48.37% 48.37% 48.37% -6.24%p -6.24%p

51.1 51.1 51.1 92.492.4 54.454.4 49.349.3 78.278.2 43.943.9 93.393.3 2006 2006 987.8 987.8 987.8 1,059.6 1,059.6 104.6 104.6 104.6 375.2375.2 248.9248.9 492.3492.3 9,0469,046 989.4989.4 302.9302.9 1.87% 1.87% 1.87% 0.69% 0.69% 0.69% 0.30%0.30% 1,110.1 1,110.1 1,110.1 1,040.9 1,040.9 42.12% 42.12% 42.12% 43.80%43.80% 50.43% 50.43% -6.63%p -6.63%p 172.65% 172.65% 172.65% 127.62% 127.62% 45.03%p 45.03%p 81,733.6 81,733.6 81,733.6 63,258.4 63,258.4 18,475.1 18,475.1 29.2% 29.2% 83,294.483,294.4 64,953.7 64,953.7 18,340.8 18,340.8 28.2% 28.2%

1 – Hana Bank ] 1 83,294.4 billion won. Substandard and below loans decreased billion by 62.6 won from the previous yearbillion 573.0 to won, with the ratio of substandard and below loans standing at 0.69 percent, a 0.29 percentage point improvement from the preceding Substandardyear. and below loan coverage percent, rose with 172.65 to the increase in the amount of loan loss reserves set aside under revised FSS guidelines regarding loan loss allowance. De- linquency percentage ratio improved points by 0.12 from the same period in 2005 percent post to 0.77 in 2006. Such solid asset soundness indices are a result of intensive efforts for positive risk management improve to asset quality and join the ranks of world-class banks in asset soundness. Substandard SubstandardProvisionProvision for for and and Credit Credit Below Below Loss Loss Ratio Ratio Credits Credits Total Total to to Based Coverage Coverage1. on FSS against against Standards Substandard Substandard for NPLs & Below & Below 2006,In ourasset soundness indices continued improve. to The amount totalcreditsof posted robusta year-on-year increase percent,28.2 of reaching EstimatedEstimated Loss Loss Credits CreditsTotal Total AllowanceAllowance for for Possible Possible Credit Credit Loss Loss ProvisionProvision for for Credit Credit Loss Loss AssetAsset Soundness Soundness Ratio Ratio Precautionary Precautionary and and Below Below Ratio Ratio NormalNormal PrecautionaryPrecautionary SubstandardSubstandard DoubtfulDoubtful [ Table 16. Asset 16. [ Table Soundness The sum1. of monthly number of employees(excluding outside directors and outsourced personnel such as part-timers and guards) divided months by 12 (Exclude (Exclude the the Amount Amount of of Amortization Amortization of of Merger-Related Merger-Related Goodwill) Goodwill) Reserves Loss Loan and Soundness Asset Taxes Taxes Taxes OthersOthers GeneralGeneral & Administrative & Administrative Expenses Expenses Number of Employees on Average SalariesSalaries and and Wages Wages per per Capita Capita (Unit: (Unit: KRW KRW in in Millions) Millions) Cost-IncomeCost-Income Ratio Ratio SalariesSalariesandand wages wages ts ts RetirementRetirement benefi benefi tstsFringeFringe benefi benefi DepreciationDepreciation AmortizationAmortization of of intangibles intangibles won from the previous year billion to 401.0 won. Despite such a rise in general and administrative expenses, the cost-income ratio, merger-relatedwith theamortization amount of of goodwill excluded, percentremained on atthe 42.12 back of an increase in general operating gureincome. The robust fi attributedis maintaining to general andadministrative expenses levela properat businessfor activities designed generate to income.will continueWe to control general and administrative cient expenses use of available through sources.effi General 15. [ Table & Administrative ExpensesHana – Bank ] General & Administrative Expenses Expenses & Administrative General In 2006, Hana Bank’s general and administrative expense increased by 69.2 billion won from billionthe previouswon. Out yearof amount, theto 1,110.1 entiresalaries and wages expenses rose by 35.2 billion won year-on-year to 492.3 billion won, while equipment expenses increased by 46.4 billion

------% % (Unit : %)

- - 1.8 1.8 1.8 26.1% 26.1% YoY YoY YoY 71.4 71.4 71.4 410.3% 410.3% 10.5 10.5 10.5 -100.0% -100.0% 52.3 52.3 52.3 55.9% 55.9% 26.626.6 11.1% 11.1% 86.886.8 42.3% 42.3% -47.4 -47.4 -47.4 -45.1% -45.1% -37.8 -37.8 -37.8 1181.3% 1181.3% -24.2-24.2 -77.6% -77.6% -36.9-36.9 -39.0% -39.0% 123.7 123.7 123.7 111.5% 111.5% (Unit: KRW in Billions, %) 0.13%p 0.13%p 0.13%p

- - 6.96.9 17.4 17.4 17.4 -3.2-3.2 31.2 31.2 31.2 94.5 94.5 93.593.5 -10.5 -10.5 -10.5 2005 2005 110.9 110.9 110.9 105.0 105.0 105.0 240.3240.3 205.4205.4 1.80% 1.80% 1.80% 0.83% 0.83% 0.83% -0.26%p -0.26%p 0.88% 0.88% 0.88% -0.01%p -0.01%p 0.89%0.89% -0.12%p -0.12%p

- - - - 7.0 7.0 7.0 8.7 8.7 8.7 57.6 57.6 57.6 57.6 57.6 88.888.8 -41.0 -41.0 -41.0 2006 2006 145.8 145.8 145.8 234.6 234.6 234.6 292.2292.2 266.9266.9 1.93% 1.93% 1.93% 0.87% 0.87% 0.87% 0.57% 0.57% 0.57% 0.77% 0.77% 0.77% 1. Hana Bank Bank Hana 1.

– Hana Bank ] 1

Disposition Disposition of of Investment Investment Bonds Bonds Disposition Disposition of of Investment Investment Stocks Stocks Valuation Valuation of of Investment Investment Stocks Stocks • • • Performance Results of Affiliates _ _ Affiliates of Results Performance

. the same period in 2005 percent record to 15.97 in 2006 amid an increase in equity capital following a rise in net income and capital adjustment. assets ratio decreased from the preceding year, showing improved ciency,operational despite effi the increase in generalTheloan loss andreserve administrativeratio rose due an increaseto expense.in the amount loanof loss reserves under revised FSSguidelines regarding loan loss allowance. With suchanoperational result, percentage ourrose ROA0.01 by points percent, year-on-year percentage 1.06 and to our ROE dropped points 0.74 by from In 2006, the general operating income-to-total assets ratio percentagerose by 0.16 points from the same period the increasea to due year y interestin incomebefore ratio and gain dispositionon to riserecordSuchchiefl wasa valuation. and 2.56 percent.The general administrative and expense-to-total Du Pont Analysis Analysis Pont Du RetirementRetirement Allowance Allowance OthersOthers NetNet of of Non-Operating Non-Operating Income Income Gain/LossGain/Loss on on the the Sale Sale of of Fixed Fixed Assets Assets • Valuation • ValuationGain/LossGain/Loss of of Investment Investment Bonds Bonds on on the the Sale Sale of of NPLs NPLs Income Income from from Investment Investment Bonds Bonds NetNet of of Income Income from from Disposition Disposition & Valuation & Valuation Income Income from from Investment Investment Stocks Stocks [ Table 18. Non-operating 18. [ Table Income – Hana Bank ] investment securities, an 86.8 billion won year-on-year increase. y attributed The riseto theis chiefl gain on the disposal of stocks of Daewoo Engineer- ing & Construction and recovery in impaired loss incurred from investment stocks of Hyundai Engineering & Construction. Other non-operating billionincreased billion income won from won 37.8 by 2005 in 2006 41.0 to due contributions to made and refunds of dormant accounts. Non-Operating Income Non-Operating In 2006, Hana Bank posted 266.9 billion won in non-operating income. First of all, we recorded 292.2 billion won in gain on disposition and valuation of 1. Ratios1. are calculated in accordance with the FSS standards. Corporate Corporate Sector Sector Household Household Sector Sector Credit Credit Card Card Sector Sector DelinquencyDelinquency Ratio Ratio [ Table 17. Delinquency Ratio 17. [ Table Ⅳ

MD&A . 086 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 087 ------% % 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% (Unit : %) - - - - YoY YoY YoY YoY 92.9 92.9 92.9 67.5% 67.5% 0.320.32 -52.7 -52.7 -52.7 36.2% 36.2% 371.4 371.4 371.4 66.8% 66.8% 678.2 678.2 678.2 678.2 678.2 11.8% 11.8% 11.8% 11.8% 343.7 343.7 343.7 13.2% 13.2% 969.3969.3 11.8% 11.8% -120.6 -120.6 -120.6 -9.1% -9.1% (Unit: KRW in Billions, %) 0.10%p 0.10%p 0.10%p 0.01%p 0.01%p 0.01%p 0.04%p 0.04%p 0.04%p 0.15%p 0.15%p 0.15%p 0.03%p 0.03%p 0.03%p 0.16%p 0.16%p 0.16%p 0.09%p0.09%p

- - 6.296.29 2005 2005 137.7 137.7 137.7 556.1 556.1 556.1 600.0600.0 1.05% 1.05% 1.05% 1.96% 1.96% 1.96% -145.3 -145.3 -145.3 0.08% 0.08% 0.08% 0.66% 0.66% 0.66% -0.01%p -0.01%p 9.30%9.30% -1.37%p -1.37%p 3.99%3.99% -0.59%p -0.59%p 2.67% 2.67% 2.67% 0.28%0.28% -0.01%p -0.01%p 2.39%2.39% 5,747.3 5,747.3 5,747.3 5,747.3 5,747.3 -0.11% -0.11% -0.11% -0.14%p -0.14%p -1.21% -1.21% -1.21% 16.71% 16.71% 16.71% -0.74%p -0.74%p 1,319.9 1,319.9 1,319.9 -1.62% -1.62% -1.62% -0.15%p -0.15%p -0.30%-0.30% -0.30%-0.30% -0.10%p -0.10%p

- - 6.61 6.61 6.61 2006 2006 927.5 927.5 927.5 230.6 230.6 600.0600.0 0.18% 0.18% 0.18% 3.41% 3.41% 3.41% -197.9 -197.9 -197.9 7.93% 7.93% 7.93% 1.06% 1.06% 1.06% 1.99% 1.99% 1.99% 0.65% 0.65% 0.65% 2.83% 2.83% 2.83% 2.56% 2.56% 2.56% 0.27%0.27% -1.12% -1.12% -1.12% 1,199.3 1,199.3 1,199.3 9,185.1 9,185.1 9,185.1 8,215.8 8,215.8 -1.77% -1.77% -1.77% 2,957.5 2,957.5 2,957.5 2,613.8 2,613.8 -0.40%-0.40% -0.26%-0.26% 6,425.6 6,425.6 6,425.6 6,425.6 6,425.6 15.97% 15.97% 15.97% -0.25%-0.25% 11.34% 11.34% 11.34% 13.29% 13.29% -1.95%p -1.95%p 81,001.9 81,001.9 81,001.9 61,812.3 61,812.3 19,189.6 19,189.6 31.0% 31.0%

Total BIS BISTotal Total Capital Capital Risk-WeightedRisk-Weighted Assets Assets BISBIS Capital Capital Ratio Ratio Tier Tier 1 1 Tier Tier 2 2 Tier 2 Provisions Provisions Upper Upper Tier Tier 2 2 Lower LowerSubsidiarySubsidiary Tier Tier 2 2 Investment Investment Deductions Deductions Others Others [ Table 20. BIS[ Table Capital Ratio – Hana Bank] Tier 1 Tier Tier 1 from 1 from Common Common Shares Shares Tier Tier 1 from 1 from Preferred Preferred Shares Shares won in dividend payout. Bytheend 2006, of theTier capitalII billion amountbillion 343.7 won(a and ratiowonyear-on-year stood 2,957.5 at increase; year-end dividend payout: percent,guidelinesrevisedrespectively,reserves.lossFSSloan mainlyto relateddueto Risk-weighted 3.41 2006)and Decemberbillionon won31, 10.33 assets rosebillion by 19,189.6 won from the same period in 2005 billion to 81,001.9 won in 2006 amid a drasticcapital increase adequacy percent. ratio stoodin at 11.34 asset amount. Thus, BIS Capital Adequacy Adequacy Capital By the end of 2006, Hana Bank’s BIS Tier I capital amount and ratio billionstood at 6,425.6 won billion 678.2 (a won year-on-year increase; interim divi- 1,045.8 billion ectionbillion dend wonof in net incomepayout:won on23.47 Septemberpercent, and 338.0 respectively,billion2006) 26, and 7.93 inrefl LoanLoan Loss Loss Provision Provision Ratio Ratio Ratio RatioTax Tax GrossGross Expense Expense Ratio Ratio Equity/AssetsEquity/Assets ROAA ROAA ROAE ROAE Fee Fee Income Income Ratio Ratio Disposition/Valuation Disposition/ValuationNon-OperatingNon-Operating Income Income Income Income Ratio Ratio Ratio Ratio Other OtherGrossGross Income Income Income Income Ratio Ratio Ratio Ratio G&AG&A Expense/Asset Expense/Asset [ Table 19. Du-Pont 19. [ Table Analysis – Hana Bank ] GeneralGeneral Operating Operating Income Income Ratio Ratio Interest Interest Income Income Ratio Ratio ------% - - - - 7.4 7.4 7.4 19.3% 19.3% 5.3 5.3 5.3 1060.0% 1060.0% 0.5 0.5 0.5 500.0% 500.0% 3.5 3.5 159.1% 159.1% -5.1 -5.1 -5.1 -10.5% -10.5% 4.5 4.5 2.3% 2.3% -1.9 -1.9 -1.9 -13.4% -13.4% 5.5 5.5 5.5 5.5 10.5% 10.5% 5.5 5.5 10.5% 10.5% 10.5% 10.5% 6.9 6.9 17.9% 17.9% -3.7 -3.7 -3.7 -55.2% -55.2% -5.1 -5.1 -23.7% -23.7% YoY YoY -2.4 -2.4 -2.4 -1.5% -1.5% -0.9-0.9 -0.8% -0.8% -0.8-0.8 -0.5% -0.5% -0.2-0.2 -66.7% -66.7% -0.5-0.5 -166.7% -166.7% 10.4 10.4 10.4 281.1% 281.1% (Unit: KRW in Billions, %) 152%p 152%p 152%p -0.5%p-0.5%p 1 - - - - 0.1 0.1 0.1 3.7 3.7 3.7 6.7 6.7 6.7 2.2 2.2 2.2 0.5 0.5 0.5 0.3 0.3 0.3 0.3 0.3 21.5 21.5 21.5 14.2 14.2 14.2 52.5 52.5 52.5 52.5 52.5 52.5 48.8 48.8 38.6 38.6 38.3 38.3 2005 171.6 171.6 171.6 112.9 112.9 112.9 224% 224% 224% 196.8 196.8 158.2 158.2 13.2% 13.2% 13.2%

- - - - 0.1 0.1 0.1 5.7 5.7 5.7 0.6 0.6 0.6 3.0 3.0 3.0 5.8 5.8 5.8 -0.2-0.2 45.7 45.7 45.7 14.1 14.1 14.1 12.4 12.4 12.4 43.7 43.7 43.7 16.4 16.4 58.0 58.0 58.0 58.0 58.0 58.0 45.5 45.5 2006 112.0 112.0 112.0 376% 376% 376% 170.8 170.8 170.8 201.3 201.3 201.3 155.8 155.8 155.8 12.7% 12.7% 12.7% 2. Daehan Investment & Securities (DI&S) Securities & Investment Daehan 2. ) ) △ ) ) △ ) ) △

Other Other Fees Fees Fees Related to Benefi ciary Certifi catescates ciaryciary Fees FeesCertifi Certifi Related Related Benefi Benefi to to Brokerage Brokerage Fees Fees Fees Fees from from Subscription Subscription & Arrangement & Arrangement Fees Fees from from Advisory Advisory Fees Fees Related Related Structured Structured to to Securities Securities Fees Fees from from Bancassurance Bancassurance • • • • • • • Performance Results of Affiliates _ _ Affiliates of Results Performance

. process of privatization of the company, for clear comparability with the previous year.

risk management. stockmarket amid thehigher volatility themarket,of thedecrease intransaction volume, and theshrinkage transactionsof inthederivative business following measures taken strengthen to risk management in the brokerage Commission sector. from subscription and arrangement stood at 3 billion won, a 55.2 percent year-on-year decrease. The drop is attributable to the shrinkage of the real estate-related business under measures taken to strengthen income the to company. Net brokerage commission posted gurean ofanemic 43.7 billionfi won, a10.5 percent decrease from2005, attributedto investors’ escape from the Prospects for improvement in profi tabilityProspects expansionand forimprovement the of businessinprofi basis look good, judging from the fact that mostthe of increase in sales volume wasmade in the retail sector and billion that the amount won in sales rose as by much volume as 1,016.1 related individual to customers who bring high by 996.7 billion996.7 by billion wonand 199.4 won,respectively. The amount billion tability,MMFof funds, 1,330.1 won droppedto due which by bring lower profi implementationthe systemtheunderof which MMFbusinesses allow customers subscribing productdeposita for to their investment money daytheon following the day of application. Thus, the sales structure was improved with an emphasis on high fee generating products for the company. In the benefi ciary certifi cate business, the sales volume amounted to 17,989.4 billion won, a 1,267.4 abillion year-on-year resultof won efforts increase, as 1,267.4 a billion17,989.4 won, business, cate sales the volume to amounted ciary certifi benefi the In to occupy a dominant position in the asset management industry. Equity funds and derivative & AI products, associated with a high rate of return, rose Commission related to benefi ciary certifi cates amounted to 112.0 112.0 billion catesCommission ciary amountedwon, 0.8a to percent certifi related to decreasebenefi from the same period the previous year. The drop y attributabletois a chiefl decrease of about 9 billion won which was additionally paidto Daehan InvestmentTrust Management (DIMCO) dueto revised arrangements made with DIMCO in July 2006 for a change in the commission allocation ratio. In 2006, net operating income off billion DI&S stood at percent 201.3 won, a 2.3 year-on-year increase. NCRNCR The income/expense index1. for 2005 was drawn up based on normalized PL, and does not take into account loss on asset valuation or other losses that occurred in the Income Expenses Tax ( NetNet Income Income ROEROE OrdinaryOrdinary Income Income ExtraordinaryExtraordinary Income Income IncomeIncome before before Income Income Taxes Taxes Provisioning for Loan Losses ( OperatingOperating Income Income Non-OperatingNon-Operating Income Income General & Administrative Expenses ( Net NetPre-ProvisioningPre-Provisioning Interest Interest Income Income Income Income Net Net Income Income Trading Trading

Net Net Fee Fee Income Income [ DI&S Performance ] GeneralGeneral Operating Operating Income Income Ⅳ

MD&A . 088 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 089

efforts improve to the financial structure. The amount of customers’ assets entrusted to us jumped by 5.6 percent in 2005 to 20.3 trillion won, highlightingbasis. our expanded business and income invigoration of the business following the launch of the Group. Our net income increased percent by 10.5 from the same period in 2005 record to 58 billion won in 2006, while ROE dropped percentage by 0.5 points percent.year-on-year 12.7 to CapitalassetNetsoundnessan Ratio(NCR), securitiesindexfor percent percentage throughbusinesses, continued 376 points 152 from2005to by rose and the shrinkage of the RP business. Net trading income rose by billion10.4 won in billion2005 to won14.1 in 2006 on the earnedback fromof thedividend Investment Stabilization Trust income Fund. General and administrative expenses recorded 155.8 billion won, a 1.5 percent year-on-year drop. Salaries due andimprovementto wages in the laborexpenses expense structureshowed and a a loweringdecrease in performance-based compensation associated with a drop in commission income. But, equipment expenses increased by billiononly 1.1 won from the preceding year due to an increase in advertisement expense related to efforts for In2006, bancassurance emerged newasa solid income source. Sales commission related thesector to increased staggeringa by percent 1,060 5.8 to billionrobustSuchwon.a resultutilization dueto is bancassuranceof diversify to products andreinforce company’stheasset management. interestNet billion year-on-yearwon decrease. billionwithdrawalthe5.1 Thea duedepositsto dropincomewon,was of 16.4 stood at made withfinancial institutions ------% 0.1 0.1 0.1 1.1% 1.1% 1.1% 1.1% 7.2% 7.2% - - - - -1.4 -1.4 -1.4 -4.9% -4.9% 1.3 1.3 1.3 16.5% 16.5% 3.6 3.6 3.6 69.2% 69.2% 4.6 4.6 10.7% 10.7% 0.9 0.9 2.8% 2.8% 4.5 4.5 10.4% 10.4% 0.5 0.5 0.5 0.5 5.5 5.5 YoY YoY -0.6-0.6 -4.8% -4.8% -0.3-0.3 -13.0% -13.0% -0.2-0.2 -200.0% -200.0% -4.0-4.0 -181.8% -181.8% -0.4-0.4 -3.1% -3.1% 10.1 10.1 10.1 8.5% 8.5% -10.5 -10.5 -10.5 -19.3% -19.3% 18.2 18.2 222.0% 222.0% (Unit: KRW in Billions,%) (Unit: KRW in Billions,%) -42%p-42%p

- - 7.9 7.9 7.9 0.1 0.1 0.1 0.1 0.1 0.1 2.3 2.3 2.3 5.2 5.2 8.2 8.2 2.2 2.2 13.1 13.1 13.1 76.1 76.1 76.1 12.6 12.6 12.6 43.1 43.1 43.1 43.1 43.1 43.1 28.4 28.4 28.4 54.5 54.5 54.5 32.2 32.2 45.3 45.3 45.3 45.3 2005 550%550% 119.2 119.2 119.2 9.75% 9.75% 9.75% -0.39%p -0.39%p

- - 0.1 0.1 0.1 2.0 2.0 2.0 9.2 9.2 8.8 8.8 -1.8 -1.8 -1.8 -0.1 -0.1 -0.1 47.7 47.7 47.7 47.6 47.6 47.6 12.0 12.0 12.0 12.7 12.7 12.7 81.6 81.6 81.6 33.1 33.1 33.1 25.9 25.9 25.9 26.4 26.4 26.4 44.0 44.0 44.0 45.8 45.8 45.8 45.8 2006 508%508% 129.3 129.3 129.3 9.36%9.36% 3. Hana Securities Hana 3. ) ) (△ ) ) (△ ) ) (△

Performance Results of Affiliates _ _ Affiliates of Results Performance

ROE dropped by 0.39 percentage points from the same period in 2005 9.36to percent, while BPS rose by 666 won year-on-year won. Thus,16,649 to NCR (net capital ratio) stood at a level higher than 500 percent in 2006 as in the preceding year. General and administrative expense stood at billion81.6 won, a percent7.2 year-on-year increase, percentwith rise billionsalaries 54.9 to won, and equipmentand expenseswages recording percentexpenses a 2.6 decrease billion 26.7 to posting won. a 12.7 ceding year, i.e. billion12 won, in connection with sales of trillion1.3 won, a 96 percent increase from 2005, putting stressover-the-counter derivative on risk business. managementGain on disposition in the and valuation amounted billion26.4 to won,a 222 percent rise fromthe previous despite year, a 4 percent increase in the trading volume on the stock market. Fees from subscription and arrangement rose by 16.5 percent from the same period a advisoryyear servicebefore increasedto record by 69.2 percent9.2 year-on-yearbillion to 8.8 billionwon won. Feesin related2006, to structured while securities fees posted a fromlevel similar to that of the pre- Indetail, brokerage fees stood billion at44.0 percent won,19.3 a year-on-year decrease. The drop is due the loweredto share retailof investors’ trading volume as a growing number of retail investors invested through indirect investment products despite the fact that the market grewpercent by 3.7 year- on-year trillion 2,563 to won. Our market share percent, stood at 0.75 a 0.2 percentage point drop from the preceding year In 2006,In Hana Securities percent billion postedyear-on-year10.4 operatinga won,increase, incomeandnetincome billion 47.6 of 2.8 worth a won, 33.1 percent rise from the same period in 2005. ROEROE NCRNCR IncomeIncome before before Income Income Taxes Taxes Income Expenses Tax NetNet Income Income Non-OperatingNon-Operating Income Income OrdinaryOrdinary Income Income ExtraordinaryExtraordinary Income Income Pre-ProvisioningPre-Provisioning Income Income Provisioning for Loan Losses OperatingOperating Income Income Net Net Interest InterestGeneral Income Income & Administrative Expenses Gains Gains on on Disposition Disposition & Valuation & Valuation Fees Fees from from Advisory Advisory Fees Fees Related Related Structured Structured to to Securities Securities Other Other Fees Fees catescates ciaryciary Fees FeesCertifi Certifi Related Related Benefi Benefi to to Brokerage Brokerage Fees Fees Fees Fees from from Subscription Subscription & Arrangement & Arrangement [ Hana Securities Performance ] GeneralGeneral Operating Operating Income Income Ⅳ

MD&A . 090 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 091 -- % % -0.2-0.2 - - - - 3.1 3.1 3.1 281.8% 281.8% 1.4 1.4 1.4 17.5% 17.5% 3.7 3.7 3.7 217.6% 217.6% 0.9 0.9 0.9 45.0% 45.0% 0.5 0.5 0.5 26.3% 26.3% 0.5 0.5 0.5 12.5% 12.5% 0.8 0.8 0.8 200.0% 200.0% 5.0 5.0 38.2% 38.2% 8.5 8.5 177.1% 177.1% YoY YoY YoY YoY 17.4 17.4 17.4 88.8% 88.8% 12.4 12.4 12.4 190.8% 190.8% 15.2 15.2 15.2 99.3% 99.3% 12.2 12.2 12.2 12.2 12.2 187.7% 187.7% 187.7% 187.7% 632.1 632.1 632.1 16.4% 16.4% 380.4 380.4 20.1% 20.1% 668.4 668.4 73.5% 73.5% -476.3-476.3 -2.4% -2.4% (Unit: KRW in Billions, %) -550.0-550.0 -7.8% -7.8% (Unit: KRW in Billions, %)

- - 1.1 1.1 1.1 1.7 1.7 1.7 1.9 1.9 1.9 2.0 2.0 2.0 4.0 4.0 4.0 0.4 0.4 0.4 8.0 8.0 8.0 4.8 4.8 6.5 6.5 6.5 6.5 6.5 6.5 -0.2-0.2 13.1 13.1 13.1 15.3 15.3 15.3 19.6 19.6 19.6 2005 2005 909.6 909.6

- - 1.2 1.2 1.2 2.4 2.4 2.4 2.9 2.9 2.9 9.4 9.4 9.4 4.5 4.5 4.5 4.2 4.2 4.2 5.4 5.4 -0.2-0.2 18.1 18.1 18.1 37.0 37.0 37.0 18.7 18.7 18.7 18.7 18.7 18.9 18.9 18.9 13.3 13.3 13.3 30.5 30.5 2006 2006 4,857.3 4,857.3 4,857.3 6,464.5 6,464.5 -1,607.2 -1,607.2 -24.9% -24.9% 1,578.0 1,578.0 1,578.0 6,495.1 6,495.1 6,495.1 7,045.1 7,045.1 2,276.2 2,276.2 1,895.8 1,895.8 4,483.2 4,483.2 3,851.1 3,851.1 19,689.8 19,689.8 20,166.1 20,166.1 4. Daehan Investment Trust Management Management Trust Investment Daehan 4. _

)

) △ △ (

1 Performance Results of Affiliates of Results Performance

BondsBonds MMFMMF OthersOthers Derivatives,1. Real Estates, Mutual Funds, Fund of Funds & etc. EquityEquity MixedMixed Funds Funds The status of operation for each fund isas follows. Net income stood at 13.3 billion won, a 177.1 percent increase fromNet billion income4.8 billion instood2005 13.3 at resultas177.1 won,a a enhancingof the share productsof generating high fee income and efforts made tability.for greater The saleprofi of indirect investment securities through Hana Bank,percent in increase particular, from 2005, contributing showed a greatly tability. higher improvements to than in overall profi 55 offer We indirect investment ed needs customers, the of products Group’s meet to utilizingthe diversifi DI&S and Hana Bank as sales channels, and rank third in the asset management industry in terms of the amount handled. Income Expenses Tax ( NetNet Income Income 2006,Inequity billion percent rise.fundsBondwon billion668.4funds 73.5 or posted percent recordedincrease,a won 632.1 or andmixed funds16.4 a a drastic percent billion 24.9 decrease won. Thus, the 1,607.2 entire to balance dropped percent billion 2.4 by or 476.3 won. OperatingOperating Income Income Equipment EquipmentNon-OperatingNon-Operating Expenses Expenses Income Income OrdinaryOrdinary Income Income ExtraordinaryExtraordinary Income Income IncomeIncome before before Income Income Taxes Taxes Investment Investment Management Management Fees Fees Commission CommissionOperating Income Income Expenses Interest Interest Income Income Commission Commission Expenses Expenses Salaries Salaries and and Wages Wages [ DIMCOPerformance ] OperatingOperating Revenues Revenues Investment Investment Fees Fees Trust Trust (DIMCO) Ⅳ ------% 7.1% 7.1% - - - - 0.1 0.1 0.1 1.7 1.7 1.7 28.8% 28.8% 0.7 0.7 0.7 175.0% 175.0% 4.9 4.9 4.9 62.8% 62.8% 0.6 0.6 0.6 300.0% 300.0% 4.0 4.0 -90.9% -90.9% 0.5 0.5 3.5 3.5 159.1% 159.1% 5.2 5.2 64.2% 64.2% YoY YoY -0.8-0.8 -100.0% -100.0% -0.5-0.5 -7.6% -7.6% -0.2-0.2 -2.6% -2.6% (Unit: KRW in Billions, %) Billions,in KRW (Unit: ------7.7 7.7 7.7 7.8 7.8 7.8 7.0 7.0 7.0 8.1 8.1 8.1 0.4 0.4 0.2 0.2 6.6 6.6 0.8 0.8 5.9 5.9 2.2 2.2 -4.4-4.4 2005

- - - - 0.1 0.1 0.1 7.6 7.6 7.6 7.5 7.5 7.5 7.5 7.5 6.1 6.1 6.1 1.4 1.4 1.4 5.7 5.7 5.7 0.8 0.8 0.8 -0.4-0.4 -0.3 -0.3 12.7 12.7 12.7 13.3 13.3 13.3 2006 5. Hana Capital Hana 5. ) ) △ ) ) △

) ) △

Performance Results of Affiliates _ Affiliates of Results Performance

Net income billion amounted won, 7.5 to a 0.2 billion won decrease from the previous real However, year. net income increased billion by 0.6 won, if the extraordinary income of 0.8 billion won made in 2005 is taken into account. As for income composition, the share of sales-related incomeinterest/non-interest increased greatly, laying the groundwork tability. for future improvement of profi est income increased by 63 percent year-on-year to 12.7 billionLease-relatedwon. commissionsincomeestincreased percent12.7 63year-on-year to increased by 800million 300percent won. 2005to from by General operating income billion stood at 13.3 won in 2006, 64.2 percent increase from the preceding year. Under such a business environment, our lease assets posted a whopping percent318 or 208 billion won year-on-yearexpanded increaseimported leaseed carproducts.lease on190 155.5 billionpercent marketLoans the roseand by won diversifi or from the same strengthperiod2005. in Inter- of the in particular, has made very rapid growth due to changes in the public’s attitude toward imported marketcars for machinery and andcar construction lease. has Theshown graduallease/installment expansion on a long term basis,purchase although that market is highly dependent on the situation of the relevant business. NetNet Income Income Since 2000, the local lease market has made steady growth, particularly in automobile lease associated with liquidity. The imported car lease market, OrdinaryOrdinary Income Income ExtraordinaryExtraordinary Income Income Coporate Income ( Tax Provisioning for Loan Losses ( OperatingOperating Income Income Non-OperatingNon-Operating Income Income General & Administrative Expenses ( Other OtherPre-ProvisioningPre-Provisioning General General Operating Operating Income Income Income Income Net Net Interest Interest Income Income Fees Fees and and Commissions Commissions Income Income Gains Gains on on Disposition Disposition & Valuation & Valuation [ Hana Capital Performence ] GeneralGeneral Operating Operating Income Income Ⅳ

MD&A . 092 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 093

% % 2.0 2.0 2.0 N/A N/A N/A N/A 10.3 10.3 10.3 4.6 4.6 4.6 60.5% 60.5% 0.4 0.4 0.4 -21.1% -21.1% 5.0 5.0 37.9% 37.9% 4.5 4.5 450.0% 450.0% 0.3 0.3 -2.3 -2.3 -2.3 -14.3% -14.3% -0.1 -0.1 -0.1 YoY YoY YoY -0.7-0.7 -15.2% -15.2% -4.6-4.6 77.8 77.8 77.8 173.3% 173.3% 14.3 14.3 14.3 108.3% 108.3% 10.7 10.7 10.7 72.6 72.6 72.6 149.7% 149.7% -53.1 -53.1 -53.1 -39.3% -39.3% -72.7 -72.7 -72.7 -63.7% -63.7% -69.5-69.5 -72.0% -72.0% (Unit: KRW in Billions, %) (Unit: KRW in Billions, %) (Unit: KRW in Billions, %)

7.6 7.6 7.6 -1.9 -1.9 -1.9 1.0 1.0 1.0 1.9 1.9 1.9 5.7 5.7 5.7 4.6 4.6 -0.1 -0.1 -0.1 -4.9-4.9 16.1 16.1 16.1 13.2 13.2 13.2 13.2 13.2 13.2 44.9 44.9 48.5 48.5 96.5 96.5 2005 2005 114.1 114.1 114.1 135.2 135.2 135.2

------1.5 -1.5 -1.5 5.8 5.8 5.5 5.5 3.9 3.9 27.5 27.5 27.5 82.1 82.1 82.1 27.0 27.0 27.0 41.4 41.4 41.4 12.2 12.2 12.2 13.8 13.8 13.8 18.2 18.2 2006 2006 121.1 121.1 121.1 122.7 122.7 122.7 6. Hana Life Insurance Life Hana 6. ] 1 ] 1 ) ) ) ) △ △ ) ) △ ) ) △ ) ) ) )

△ △ ) ) △ Performance Results of Affiliates _ _ Affiliates of Results Performance

ing new channels such as independent agency. Investment earnings rose ve billion by fi won dueto the ow continued of infl insurancereduced business premiums expense received by 2.3 andbillion stablewon through investment higher operation.operational ciency, thus We effi contributing also particularly greatlyto remarkable the increase result inif we netconsider income. that Suchpolicy reserveis a increased with the adoption decreasedof IBNR followingand changesthe deferred in the acquisition amount expense of defermentacquisition method. expenses willfocuswe our efforts2007 In increasingon sales through expansion bancassurancethe of sales network cooperationin withHana Bank utiliz-and on In 2006, we recorded 5.8 billion won in net income,billion a 10.7 won year-on-year increase. The rise is attributed improvementsto made in the income structure through a shift in sales strategy from general account to separate account, and from goods In actuality,paid forinsurance by lump premium sum received to those in thepaid separate for accountmonthly. increased from 44.9 billion billion won to 122.7 won, compared to the decrease in the general account billion from billion 135.2 won. won 82.1 to GrossGross Written Written Premiums Premiums Claims Paid ( NetNet Investment Investment Gain Gain Change in Policyholders’ Reserve ( nancial The foregoing 1. statements fi were drawn up using the generally accepted insurance industry method. NetNet of of Other Other Income Income & Expense & Expense NetNet Income Income before before Tax Tax Income Expense Tax ( NetNet Income Income [ Hana Life Insurance Performance_ Separate Account Claims Paid ( Reinsurance Reinsurance Operating Operating Results Results OperatingNetNet Investment Investment Expense Gains Gains ( Amortization DAC Change in Reserve Expenses ( ( [ Hana Life Insurance Performance_ General Account InsuranceInsurance Operating Operating Net Net Results Results Gross Gross Written Written Premiums Premiums Ⅳ -- % 0.1 0.1 0.1 - - 0.1 0.1 0.1 10.0% 10.0% 0.1 0.1 0.1 10.0% 10.0% 1.9 1.9 1.9 40.4% 40.4% 1.9 1.9 1.9 51.4% 51.4% 1.9 1.9 1.9 51.4% 51.4% 1.5 1.5 1.5 53.6% 53.6% 2.0 2.0 2.0 43.5% 43.5% 0.4 0.4 0.4 80.0% 80.0% 2.52.5 41.0% 41.0% 0.60.6 42.9% 42.9% 0.40.4 44.4% 44.4% 0.00.0 YoY YoY (Unit: KRW in Billions, %)

- - 0.1 0.1 0.1 6.1 6.1 6.1 1.0 1.0 1.0 1.4 1.4 1.4 1.0 1.0 1.0 4.7 4.7 4.7 4.6 4.6 4.6 3.7 3.7 3.7 3.7 3.7 3.7 0.5 0.5 0.5 2.8 2.8 0.90.9 2005

- - 1.1 1.1 1.1 1.1 1.1 1.1 0.1 0.1 0.1 1.3 1.3 1.3 2.0 2.0 2.0 0.9 0.9 0.9 6.6 6.6 6.6 5.65.6 5.65.6 6.66.6 4.34.3 8.68.6 2006 7. Qingdao International Bank (QIB) Bank International Qingdao 7. ) ) △ ) ) △ ) ) △

Performance Results of Affiliates _ Affiliates of Results Performance

. worth of loan loss reserve, billion a 0.1 won increase from the same period in 2005. generalQIB’s and administrative expenses stood billionat 2.0 won, billiona 0.6 won increase from 2005 due the to opening of the branch in in Yantai June 2006. In 2006, QIB posted 4.3 billion won in income, a 1.5 billion won increase from the preceding year. In net interest income, it recorded 6.6 billion won, In 2006, QIB posted 4.3 billion won in income, a 1.5 billion won increase from the2 billionpreceding won year-on-year year. Inincrease net on interestthe back income,of a 58.7 percentit recordedrise in 6.6 loans, billion tablea crucial asset.won, Inprofi contrast, it hadto set billionaside1.1 won OrdinaryOrdinary Income Income Coporate Income ( Tax NetNet Income Income Provisioning for Loan Losses ( OperatingOperating Income Income Non-OperatingNon-Operating Income Income General & Administrative Expenses ( Other OtherPre-Pre- General General Provisioning Provisioning Operating Operating Income Income Income Income Net Net Interest Interest Income Income Fee Fee and and Commission Commission Income Income Gains Gains on on Disposition Disposition & Valuation & Valuation [ QIB Performance ] GeneralGeneral Operating Operating Income Income Ⅳ

MD&A . 094 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 095 www.hanafn.com Independent Auditors’ Report(Non-Consolidated) Independent Auditors’ Report(Consolidated) The full version Report the Auditors’ of including can footnotes be downloaded from Hana Financial Group homepage. 104 Consolidated105 Consolidated107 Statement Consolidated StatementOf Income StatementOf Changes Of In Cash Shareholders’ Flows Equity 097 Balance098 Sheet Statement099 StatementOf100 Income StatementOf Appropriations Of Cash FlowsOf102 Retained Consolidated Earnings Balance Sheet

FINANCIAL SECTION FINANCIAL

Auditors’ Report Auditors’ Independent Independent Independent Auditors’ Report (Non-Consolidated)

The Board of Directors and Stockholders Hana Financial Group Inc.

We have audited the accompanying balance sheets of Hana Financial Group Inc. (the “Company”) as of December 31, 2006 and 2005, and the related statements of income, appropriations of retained earnings and cash fl ows for the year ended December 31, 2006 and the period from December 1, 2005 (inception) to December 31, 2005, all expressed in Korean won. These fi nancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these fi nancial statements based on our audits. Our opinion, as it related to the equity accounting for Hana Bank, was based on the audit report of other auditors on the fi nancial statements of Hana Bank as of and for the year ended December 31, 2005.

We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the fi nancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the fi nancial statements. An audit also includes assessing the accounting principles used and signifi cant estimates made by management, as well as evaluating the overall fi nancial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audit and the report of other auditors, the fi nancial statements referred to above present fairly, in all material respects, the fi nancial position of Hana Financial Group Inc. as of December 31, 2006 and 2005, and the results of its operations, appropriations of retained earnings and cash fl ows for the year ended December 31, 2006 and the period from December 1, 2005 (inception) to December 31, 2005 in conformity with accounting principles generally accepted in the Republic of Korea.

We have previously issued our audit report dated March 6, 2007 on the Company’s fi nancial statements as of and for the year ended December 31, 2006. As described in Note 25 to the accompanying fi nancial statements, the Company’s cash dividends of ￦95,333 million, as determined during the March 6, 2007 Board of Directors meeting, was revised to ￦116,518 million when the shareholders were approving the appropriations of the retained earnings during the shareholders’ meeting held on March 23, 2007. As such, we are issuing this reissued audit report after the Company revised its fi nancial statements to refl ect the change in the dividend amount.

We have also reviewed the translation of the 2006 fi nancial statements mentioned above into United States dollar amounts on the basis described in Note 2 to the accompanying the fi nancial statements. In our opinion, such statements have been properly translated on such basis.

Accounting principles and auditing standards and their application in practice vary among countries. The accompanying fi nancial statements are not intended to present the fi nancial position, results of operations and cash fl ows 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 fi nancial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying fi nancial statements are for use by those who are knowledgeable about Korean accounting principles and auditing standards and their application in practice.

March 23, 2007 INDEPENDENT AUDITORS’ REPORT AUDITORS’ INDEPENDENT This audit report is effective as of March 23, 2007, 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 signifi cantly affect the accompanying fi nancial statements and may result in modifi cations to this report.

096 Independent Auditors’ Report (Non-Consolidated)

Balance Sheet As of December 31, 2006 and 2005

[ Assets ] December 31, 2006 December 31, 2005 Korean won U. S. dollar Korean won U. S. dollar in millions in thousands in millions in thousands Cash and due from banks ￦ 60,621 US$ 65,211 ￦ 421 US$ 453 Held-to-maturity securities 7,776 8,365 - - Equity method investments 7,659,129 8,239,167 6,321,090 6,799,796 Loans less allowance for possible losses of ￦ 300 million as of December 31, 2006 59,700 64,221 - - Fixed assets 4,420 4,755 2,201 2,367 Other assets 11,794 12,687 711 765 Total assets ￦7,803,440 US$ 8,394,406 ￦ 6,324,423 US$ 6,803,381

[ Liabilities And Shareholders’ Equity ] Borrowings ￦ - US$ - ￦ 4,434 US$ 4,770 Severance and retirement benefi ts 2,532 2,724 - - Other liabilities 1,579 1,698 173 186 Total liabilities 4,111 4,422 4,607 4,956 Commitments and contingencies Shareholders’ equity: Common stock - par value ￦5,000 (Korean won in units) • Authorized - 800,000,000 shares • Issued and outstanding - 211,851,593 and 204,256,243 1,059,258 1,139,477 1,021,281 1,098,624 • shares as of December 31, 2006 and 2005, respectively Capital surplus: • Paid-in capital in excess of par value 5,290,915 5,691,604 5,075,488 5,459,862 • Gain on disposal of treasury stocks 2 2 - - Retained earnings 1,199,945 1,290,819 211,717 227,751 Capital adjustments: • Capital adjustment arising from equity method investments 238,480 256,541 11,330 12,188 • Stock-based compensation 10,729 11,541 - - Total shareholders’ equity 7,799,329 8,389,984 6,319,816 6,798,425 Total liabilities and shareholders’ equity ￦7,803,440 US$ 8,394,406 ￦6,324,423 US$ 6,803,381 HANA FINANCIAL GROUP ANNUAL REPORT 2006 REPORT GROUP ANNUAL FINANCIAL HANA

. 097 Independent Auditors’ Report (Non-Consolidated)

Statement Of Income Year ended December 31, 2006 and Period from December 1, 2005 (inception) to December 31, 2005

Period from December 1, 2005 Year ended December 31, 2006 (inception) to December 31, 2005005 Korean won U. S. dollar Korean won U. S. dollar in millions in thousands in millions in thousands Operating revenue: Valuation gain on equity method investments ￦ 1,125,839 US$ 1,211,101 ￦ 221,439 US$ 238,208 Interest income 1,473 1,584 - - 1,127,312 1,212,685 221,439 238,208 Operating expenses: Valuation loss on equity method investments - - 18 19 Interest expense 1,187 1,277 12 13 Fees, commissions and other expenses 2,843 3,059 243 261 Provision for possible loan losses 342 368 - - Administration expenses 18,573 19,979 1,018 1,095 22,945 24,683 1,291 1,388 Operating income 1,104,367 1,188,002 220,148 236,820 Non-operating income (expenses): Non-operating income 11 12 - - Non-operating expenses (24,946) (26,835) (1) (1) (24,935) (26,823) (1) (1) Income before taxes 1,079,432 1,161,179 220,147 236,819 Income tax expense - - - - Net income ￦ 1,079,432 US$ 1,161,179 ￦ 220,147 US$ 236,819 Basic earnings per share (Korean won and U.S. dollar in units) : Ordinary income ￦ 5,202 US$ 5.60 ￦ 1,078 US$ 1.16 Net income ￦ 5,202 US$ 5.60 ￦ 1,078 US$ 1.16 Diluted earnings per share (Korean won and U.S. dollar in units) : Ordinary income ￦ 5,202 US$ 5.60 ￦ 1,078 US$ 1.16 Net income ￦ 5,202 US$ 5.60 ￦ 1,078 US$ 1.16 INDEPENDENT AUDITORS’ REPORT AUDITORS’ INDEPENDENT

098 Independent Auditors’ Report (Non-Consolidated)

Statement Of Appropriations Of Retained Earnings Year ended December 31, 2006 and Period from December 1, 2005 (inception) to December 31, 2005

Period from December 1, 2005 Year ended December 31, 2006 (inception) to December 31, 2005 Korean won U. S. dollar Korean won U. S. dollar in millions in thousands in millions in thousands Retained earnings before appropriations: Unappropriated retained earnings carried forward ￦ 169,276 US$ 182,097 ￦ - US$ - from the prior year Interim dividends • Cash dividends (Current year: 7% of par value) (72,205) (77,673) - - Net income 1,079,432 1,161,179 220,147 236,819 Retained earnings adjustment arising from equity method investments 1,427 1,534 (8,430) (9,068) 1,177,930 1,267,137 211,717 227,751 Appropriations: Legal reserve 107,943 116,118 22,015 23,682 Dividends • Cash dividends (Current year: 11% of par value Prior period: 1% of par value) 116,518 125,342 10,213 10,986 • Stock dividends (Prior period: 1% of par value) - - 10,213 10,986 116,518 125,342 20,426 21,972 Reserve for dividends 95,333 102,553 - - 319,794 344,013 42,441 45,654 Unappropriated retained earnings carried forward to the next year ￦ 858,136 US$ 923,124 ￦ 169,276 US$ 182,097 HANA FINANCIAL GROUP ANNUAL REPORT 2006 REPORT GROUP ANNUAL FINANCIAL HANA

. 099

------19 19 77 77 187 187 453 (765) 4,770 4,770 4,770 (1,107) (3,210) (2,445) (237,926) (238,209)

------18 18 72 72 173 173 421 421 US$ 453 421 421 (711) (711) 4,434 4,434 (1,029) (1,029) (2,273) (2,273) (2,984) (2,984) 220,147 220,147 US$ 236,819 (221,176) (221,176) (221,439) (221,439) Period from December 2005 1, in millions in thousands ￦￦ Korean won S. U. dollar

(inception) December to 2005 31, - (20) 368 453 998 (158) (158) 1,512 1,512 1,721 1,721 1,003 1,003 2,590 (2,858) (2,858) (3,386) (8,365) 26,787 26,787 64,758 64,758 (79,153) (79,153) 237,360 237,360 276,821 276,821 (64,544) (93,449) (88,659) 252,461 252,461 (281,591) (281,591) (923,819) (923,819) (1,211,101) (1,211,101)

- (20) 928 928 342 342 932 421 421 (148) (148) 1,406 1,406 1,600 1,600 2,409 2,409 (3,147) (3,147) (7,776) (7,776) (2,657) (2,657) 60,621 US$ 65,211 60,200 24,901 24,901 (82,417) (82,417) (86,871) (86,871) 257,333 257,333 220,651 220,651 (73,580) (60,000) 234,688 (261,767) (261,767) (858,781) (858,781) 1,079,432 1,079,432 US$ 1,161,179 (1,125,839) (1,125,839) in millions in thousands Korean won S. U. dollar ￦￦ ended Year December 2006 31,

through dividends

Other liabilities Decrease in equity method investments Other assets Payment of severance ts and retirement benefi - - - - provided(used by in)operating activities:

Valuation gain on equity method investments Valuation loss on equity method investments Non-operation expense Changes in operating assets and liabilities: Stock-based compensation Provision for severance ts and retirement benefi Depreciation expense Provision for possible loan losses • • • • • • • •

Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Decrease in capital surplus Payment of dividends nancing Net cash activities provided (used by in) fi Cash fl ow from fi nancing activities: fromow fi Cash fl Increase in borrowings Decrease in borrowings xed assets Acquisition of fi Increase in other assets Net cash used in investing activities Cash fl ow fromow investing activities:Cash fl Acquisition of held-to-maturity securities Increase in loans adjustments Total Net cash provided (used by in) operating activities

Net income Adjustments reconcile to net income net to cash Cash ﬂ ows from operating activities:Cash ﬂ Statement Of Cash Flows Cash Of Statement 2006 December ended 31, Year and from Period December 2005 1, 2005 (inception) December to 31, Independent Auditors’ Report (Non-Consolidated) Report Auditors’ Independent

INDEPENDENT AUDITORS’ REPORT . 100 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 101 ThisThis auditaudit reportreport isis effectiveeffective asas ofof MarchMarchthethe auditors’auditors’ 23, 23, 2007, 2007, reportreport date.date. Accordingly,Accordingly, certaincertain materialmaterial subsequentsubsequent eventsevents oror circumstancescircumstancesoccurredoccurredhavehave maymay duringduring periodperiodthethe fromfromauditors’auditors’thethe report reporttimetime thethethisthisauditaudit to to reportreportdatedate used.used.isisSuchSuch eventsevents andandcircumstancescircumstances cantlycantly couldcould signifi signifi affectaffect the the accompanying accompanying nancialnancial statementsstatements consolidated consolidated cationscations to to thisthisandand may may report.report.resultresult fi fi in in modifi modifi consolidated fi nancial statementsconsolidated may differ fi from those generally accepted and applied in other countries. Accordingly, this report and the accompany- nancial ingstatementsconsolidated are for use by thosefi who are knowledgeable aboutKorean accounting principles and auditing standards and their application in practice. MarchMarch 2007 2007 23, 23, in Note 2 to the accompanying nancial consolidated statements. Infi our opinion, such consolidated statements have been properly translated on such basis.* Accounting principles and auditing standards and their application in practice vary amongments countries.are not Theintended accompanying to nancialpresent nancial consolidated position,the state-fi resultsfi of operations owsfl and in cashaccordance with accountinggenerallyaccepted principles countriesin otherthan Republicthe Korea. addition,andInof proceduresthe practicesandpractices utilized Republicthein audit Koreasuchto of In our opinion, based on our audits and the report of other auditors, nancial the consolidatedstatements referred fi to above present fairly, in all material nancial position Hana of Financialrespects, Group fi the Inc. subsidiariesand its 2006 2005,December of and resultsthe as and operations31, its of and changes in shareholders’ equity for the year ended December 2006 and 31, the period from December 2005 (inception)1, Decemberto 2005, and 31, ows for the year ended December2006 cash 31, in fl conformity with accounting principles generally accepted in the RepublicKorea. of nancial statements mentioned United alsoreviewed translationStates dollar consolidated haveinto thebasis above thethe described amounts We on of fi We We conducted our audits in accordance with auditing standards generally acceptedand performin thethe audit Republic to obtain reasonableof Korea.assurance Thoseabout whetherstandards nancialthe consolidated statementsrequire fi are thatfree of materialwe plan misstatement. includes An audit examining, on a test basis, evidence supporting the amounts and nancial disclosures statements. in theAn fi audit also includes assessing the accounting principles cant estimates used made andby signifi management, as well as evaluating nancial thefi overall statement consolidated presentation. believe We that our audits provide a reasonable basis for our opinion. 2006and2005, andthe related consolidated statements incomeof andchanges shareholders’in equity fortheyear ended December2006 andthe 31, period from December 2005 (inception)1, ows for the yearDecemberto 2005,ended and cash31, December2006, fl 31, all expressed inKorean won. nancialThese statements consolidated are the responsibility fi of the Company’s management. Our responsibility to expressis an opinion on these con- nancial statementssolidated based fi on our audits. Our opinion, as it relatedto the consolidation of Hana Bank, was based on the audit report of other nancial statementsauditors of Hana on theBank fi as of and for the year ended December2005. 31, The Board of Directors and Stockholders Hana Financial Group Inc. have We audited the accompanying consolidated balance sheets ofHana Financial Group Inc. and its subsidiaries (the “Company”) as ofDecember 31, Independent Auditors’ Report (Consolidated) Report Auditors’ Independent

58,878 58,878 25,934 481,772 481,772 574,623 574,623 116,588 116,588 770,633 770,633 395,949 1,159,130 1,159,130 1,581,371 1,581,371 3,524,629 3,524,629 2,463,669 3,330,583 14,066,007 14,066,007 71,400,390

December 2005 31, 24,108 24,108 54,733 54,733 447,855 447,855 534,169 534,169 716,381 716,381 368,074 368,074 108,380 6,221,959 US$ 6,693,157 95,859,128 95,859,128 US$ 103,118,684 in millions in thousands Korean won S. U. dollar ￦￦

4,045 17,600 17,600 65,713 65,713 576,595 576,595 805,854

6,101,630 6,101,630 3,276,494 1,660,103 1,660,103 1,659,149 1,659,149 1,470,043 1,051,343 1,051,343 3,042,883 2,290,227 1,986,090 1,077,527 3,208,289 3,096,110 90,115,133 90,115,133 66,373,802 14,897,789 14,897,789 13,075,760

December 2006 31, 3,760 3,760 61,087 61,087 16,361 16,361 749,122 749,122 977,330 977,330 536,002 5,672,074 5,672,074 2,982,425 2,982,425 5,391,755 5,391,755 US$ 5,800,080 1,543,230 1,543,230 1,846,269 1,846,269 2,828,664 1,542,346 83,771,027 83,771,027 13,848,985 in millions in thousands 116,098,363 US$ 124,890,666 Korean won S. U. dollar ￦

￦ 808,008 million in 2005) and 45,758 million45,758 in 2006 ￦￦ 2,024 million2,024 in 2005) ￦

149 million149 in 2006 ( 14,121 million in 2005) 14,121 990,472 million in 2006 ( ￦￦

assetsTotal Prepaid income taxes Derivative assets Miscellaneous assets Accrued income Deferred income tax assets Other assets : Guarantee deposits Accounts receivable, less present value discounts of plus deferred loan fees of ( Fixed assets Equity methodLoans investments receivable, less allowance for possible losses of ￦ securities Trading Available-for-sale securities Held-to-maturity securities Cash and due from banks (Notes 3 and 19) Securities : [Assets] Consolidated Balance Sheet Balance Consolidated 2006As December of 31, and 2005 Independent Auditors’ Report (Consolidated) Report Auditors’ Independent

INDEPENDENT AUDITORS’ REPORT . 102 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 103

- - 19,263 19,263 83,267 (47,451) 469,370 469,370 223,293 455,204 393,956 466,954 3,120,181 3,120,181 1,440,158 1,440,158 7,131,180 7,131,180 1,098,624 1,098,624 6,054,397 11,039,642 11,039,642 10,853,734 95,987,504 95,987,504

- - December 2005 31, 17,907 17,907 77,406 77,406 (44,110) (44,110) 423,157 423,157 207,573 207,573 366,221 436,326 434,080 95,859,128 95,859,128 US$103,118,684 63,249,734 US$68,039,731 in millions in thousands Korean won S. U. dollar ￦￦

4,736 4,736 17,115 17,115 108,162 108,162 239,782 239,782 283,337 283,337 928,485 206,552 708,268 994,605

1,139,477 1,139,477 1,021,281 5,078,179 5,078,179 5,462,758 2,504,472 2,504,472 2,900,521 7,353,833 7,353,833 5,628,168 1,229,283 1,229,283 1,804,653 1,804,653 1,338,771 8,612,583 8,612,583 6,629,144 12,085,744 12,085,744 10,089,631 12,363,646 10,262,451

December 2006 31, 4,403 4,403 15,910 15,910 863,119 863,119 192,011 192,011 924,586 924,586 222,901 222,901 100,548 658,406 263,390 1,142,741 1,142,741 5,797,489 5,797,489 1,677,605 1,677,605 2,328,156 2,328,156 6,836,123 6,836,123 1,059,258 1,059,258 8,006,257 11,493,245 11,493,245 78,527,830 78,527,830 US$84,474,860 11,234,908 11,234,908 in millions in thousands 116,098,363 US$124,890,666 108,092,106 108,092,106 116,278,083 89,229,984 Korean won S. U. dollar ￦￦

on in unit) 34,463 million ￦￦

5,000 (Korean ￦

45,548 million in 2005) ￦

Total shareholders’Total equity liabilitiesTotal and shareholders’ equity shares in 2006 and outstanding - 211,851,593 shares (204,256,243 in 2005) Capital surplus 5,389,346 Retained earnings Capital adjustments Minority interests liabilitiesTotal Commitments and contingencies Shareholders’ equity: Common stock - par value Authorized - 800,000,000 shares Issued Income taxes payable Accrued expenses Accounts payable Deferred income tax liabilities Derivative liabilities Miscellaneous liabilities in 2006 ( Other liabilities : Severance ts, net and retirement benefi Allowance for possible losses on acceptances and guarantees Due trust to accounts [ Liabilities And Shareholders’ Equity ] Deposits Borrowings Debentures, less discounts on debenture of Independent Auditors’ Report (Consolidated) Report Auditors’ Independent

8,319 8,319 8,168 8,168 4,010 4,010 3,768 3,768 5,302 (7,006) 90,472 90,472 20,191 20,191 34,165 34,165 84,163 84,163 55,764 55,764 99,525 99,525 92,367 92,367 28,604 85,283 307,707 307,707 331,152 331,152 177,366 177,366 US$1.20 US$1.20 US$1.20 US$1.20 627,554 627,554 179,920 179,920 397,348 397,348 231,627 231,627 US$1.20 358,527 358,527 739,268 505,250 505,250 240,680 1,792,774 1,792,774 2,024,401 2,024,401

1,111 1,111 1,111 1,111 1,111 1,111

7,733 7,733 7,594 7,594 3,728 3,728 4,929 4,929 3,503 (6,513) (6,513) 31,761 31,761 18,768 18,768 51,839 51,839 84,103 84,103 79,279 79,279 92,520 92,520 26,591 26,591 78,238 85,864 216,003 US$232,361 167,254 167,254 687,224 687,224 215,319 215,319 583,374 583,374 307,839 307,839 369,375 369,375 164,880 164,880 333,287 223,736 286,043 469,680 1,666,564 1,666,564 1,247,323 1,247,323 US$ 1,341,785 Period from December 2005 1, ￦￦￦￦￦ in millions in thousands ￦ Korean won S. U. dollar

(inception) December to 2005 31, 8,433 6,792 6,792 8,643 15,286 14,950 14,950 43,702 43,702 (47,282) (47,282) 447,352 447,352 179,411 179,411 821,478 821,478 170,947 170,947 162,753 162,753 476,736 476,736 213,799 213,799 464,310 464,310 450,733 450,733 768,626 768,626 2,982,613 2,982,613 8,579,494 8,579,494 3,244,443 3,244,443 1,119,770 1,119,770 1,567,122 1,567,122 1,878,814 1,878,814 1,396,175 1,396,175 9,975,669 9,975,669 1,881,883 1,490,662 1,490,662 1,928,530 1,928,530 3,630,590

4,993 4,993 US$ 5.37 4,993 US$ 5.37 US$ 5.37 4,993 US$ 5.37 6,314 6,314 8,034 14,210 14,210 13,897 13,897 (43,955) 714,514 714,514 443,174 443,174 198,748 198,748 419,001 419,001 431,624 431,624 166,781 166,781 158,910 158,910 415,858 415,858 763,645 7,975,498 7,975,498 2,772,639 2,772,639 1,026,728 1,026,728 US$ 1,104,484 1,792,762 1,792,762 1,385,719 1,385,719 1,746,546 1,746,546 3,374,997 3,374,997 1,297,886 1,297,886 5,786,231 5,786,231 US$ 6,224,430

3,016,034 3,016,034 1,456,796 1,456,796 9,273,384 9,273,384 1,040,938 in millions in thousands Korean won S. U. dollar ￦￦￦￦￦￦

ended Year December 2006 31,

Loss from trading securities valuation and transactions Loss on foreign currency transactions Loss from derivatives valuation and transactions 40,626 Other Gain from trading securities valuation and transactions Gain on foreign currency transactions Gain from derivatives valuation and transactions 151,295 Other • • • • • • • • Consolidated net earnings per share : units) in dollar U.S. and won Consolidated (Korean share per earnings Diluted net earnings per share Consolidated ordinary earnings per share Consolidated net income : units) in dollar U.S. and won (Korean share per earnings Basic Consolidated ordinary earnings per share Income tax expenses Income before minority interest income Minority interest income Other, net Income before income tax expenses Gain (loss) on valuation of equity method investments, net Gain on disposal of available-for-sale securities, net Gain on disposal of loans receivable, net 7,839 Non-operating income (expense): xed assets, Gainnet on disposal of fi Rental income Selling and administrative expenses Operating income

Other operating expenses: Operating expenses: Interest expense Fees and commission expenses

Interest income Fees and commission income Other operating income: Operating revenue: Consolidated Statement Of Income Of Statement Consolidated 2006 December ended 31, Year and period from December 2005 1, 2005 (inception) December to 31, Independent Auditors’ Report (Consolidated) Report Auditors’ Independent

INDEPENDENT AUDITORS’ REPORT . 104 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 105

- 6,629,144 6,629,144 ￦￦

- 396,260 - (1,810) - - 232,361 - 426,269 - - 67,072 - 15,448 (13,959) (9,068) - (1,946) - 216,003 - - - 62,350 - 14,361 (12,976) (8,430)

366,221 - ￦￦ - - 7,733 7,733 - - - - - (6,740) 8,319 (6,740) 8,319 - - - (6,266) (6,266) (44,110) (44,110) - ￦￦ 14,361 - 391,759 - - - - 421,427 - - 67,072 15,448 (13,959) - - - - (499,604) - 364,754 5,961,919 62,350 - (12,976) - - (537,439) 392,377 6,413,424

207,573 207,573 - ￦￦ U.S. dollars in thousands - - 232,361 ------(9,068) - 216,003 - - - - - (8,430) Korean won in millions - 5,078,179 5,078,179 ￦￦

- 4,501 - - (1,810) - - - - 4,842 - - - - - (1,946) ------

stock surplus earnings adjustments interests Total Common Capital Retained Capital Minority - 1,021,281 1,021,281 5,075,488 1,021,281 1,021,281 1,098,624 1,098,624 5,459,862 ￦

￦ US$ - US$ - US$ - US$ - US$ - US$ -

US$ 1,098,624 US$ 5,462,758 US$ 5,462,758 US$ 1,098,624 US$ 223,293 US$ (47,451) US$ 393,956 US$7,131,180

Changes in investees’ retained earnings Changes in minority interests Minority interest income Others Balance at December 2005 31, Common stock issuance Consolidated net income Disposal of treasurystocks Gain on valuation of available-for-sale securities Changes in investees’ capital account Changes in other capital adjustments Minority interest income Others Balance at December 2005 31, Balance at December 2005 1, Disposal oftreasury stocks Gain on valuation of available-for-sale securities Changes in investees’ capital account Changes in other capital adjustments Changes in investees’ retained earnings Changes in minority interests [ 2005 ] Balance at December 2005 1, Common stock issuance Consolidated net income Consolidated Statement Of Changes In Shareholders’ Equity In Shareholders’ Changes Of Statement Consolidated 2006 December ended 31, Year and period from December 2005 1, 2005 (inception) December to 31, Independent Auditors’ Report (Consolidated) Report Auditors’ Independent

- -

8,006,257 6,629,144 6,629,144 ￦￦

- 261,608 - - 1,104,484 - (88,659) - - (30,845) - 309,984 - 6,612 24,949 - 250 - 243,191 - - 1,026,728 - - (82,417) - (28,673) - 288,161 - 6,146 23,193 - 232

222,901 222,901 366,221 ￦￦

- - - (141,991) - - (94,797) - - (27,469) - 15,286 (27,469) 15,286 - - - (131,994) - - (88,122) - - (25,536) - 14,210 (25,536) 14,210 192,011 192,011 (44,110) (44,110) ￦￦

- - - - (87,542) - 309,984 - - 6,612 - 24,949 - - - - (81,379) - 288,161 - - 6,146 23,193 - 1,142,741 1,142,741 207,573 207,573 ￦￦ U.S. dollars in thousands - - - 1,104,484 - (88,659) (10,986) ------1,026,728 - (82,417) (10,213) - - - - Korean won in millions 5,389,346 5,078,179 5,078,179 ￦￦

- - - 47,194 - - - 56,697 - - - - (901) 1,151 - - - 43,872 - - - 52,706 - - - - (838) 1,070

27,764 27,764 215,427 10,213 10,213 10,986 10,986 29,867 29,867 231,741 stock surplus earnings adjustments interests Total Common Capital Retained Capital Minority 1,059,258 1,059,258 1,021,281 1,021,281 ￦￦

US$ 1,139,477 US$ 1,139,477 US$5,797,489 US$1,229,283 US$206,552 US$239,782 US$8,612,583 US$ 1,098,624 US$ 1,098,624 US$ 5,462,758 US$ 223,293 US$ (47,451) US$ 393,956 US$ 7,131,180

Minority interest income Others Balance at December 2006 31, Changes in investees’ capital adjustments Changes in other capital adjustments Changes in minority interests Stock dividends Changes in treasury stocks Gain on valuation of available-for-sale securities of Hana Securities Consolidated net income Cash dividends Balance at January 2006 1, Stock swap for acquisition of Hana Securities Acquisitionof common and preferred stocks

Balance at December 2006 31, Changes in minority interests Minority interest income Others Gain on valuation of available-for-sale securities Changes in investees’ capital adjustments Changes in other capital adjustments Cash dividends Stock dividends Changes in treasury stocks Acquisition of common and preferred stocks of Hana Securities Consolidated net income Balance at January 2006 1, Stock swap for acquisition of Hana Securities [ 2006 ] Independent Auditors’ Report (Consolidated) Report Auditors’ Independent

INDEPENDENT AUDITORS’ REPORT . 106 HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 107

(23) 221 221 1,431 1,431 56,119 56,119 (2,732) 24,767 24,767 (6,792) 18,777 18,777 78,341 78,341 (8,433) (8,643) 15,286 15,286 19,608 19,608 60,730 60,730 45,483 157,107 157,107 141,074 141,074 172,710 172,710 459,115 459,115 527,651 527,651 (13,777) (21,434) (35,221) (45,987) (88,659) (88,949) (84,006) 266,922 (179,411) (474,703) (245,168) (125,345) (629,818) (391,530) 1,115,872 1,115,872 (893,077) 1,324,004 1,324,004 6,693,157 6,693,157 (2,119,445) (1,734,302) 16,437,659 16,437,659 19,459,016 19,459,016 (19,722,275) (18,980,180) US$ 1,104,484 US$1,104,484 US$ 5,800,080

(21) (21) 205 1,330 1,330 52,167 52,167 17,455 17,455 (6,314) (6,314) (7,839) (7,839) 14,210 14,210 (2,540) (2,540) (8,034) 18,227 18,227 72,826 72,826 42,282 42,282 23,023 23,023 56,455 (32,741) (32,741) (42,749) (42,749) (82,417) (82,417) 131,018 131,018 248,131 248,131 (19,925) (19,925) (12,807) (12,807) (82,687) (82,687) 146,047 160,551 160,551 426,793 426,793 (78,090) 490,505 (166,781) (166,781) (116,396) (116,396) (441,286) (441,286) (227,909) (227,909) (585,481) (585,481) (363,966) 1,037,315 1,037,315 (830,204) 1,026,728 1,026,728 1,230,794 1,230,794 5,391,755 5,391,755 6,221,959 (1,612,209) (1,612,209) (1,970,238) (1,970,238) 18,089,105 18,089,105 15,280,448 15,280,448 (17,643,974) (17,643,974) (18,333,828) (18,333,828)

￦￦

ended Year December 2006 31, Korean won in millions S. U. dollar in thousands

Loss on foreign currency valuation, net Stock-based compensation Others, net Minority interest income Changes in assets and liabilities resulting from operations Gain on disposal of fi xed assets, Gainnet on disposal of fi Depreciation of lease assets Provision for acceptances and guarantees losses Provision for other allowances Loss from derivatives valuation and transactions, net Provision for severance ts and retirement benefi Interest expenses, net Gain on disposal of available-for-sale securities, net Impairment of available-for-sale securities, net Gain on valuation of equity method investments, net Gain on disposal of loans receivable, net Provision for possible loan losses Depreciation and amortization Gain on disposal of trading securities, net Gain on valuation of trading securities, net • • • • • • • • • • • • • • • • • • • • Adjustments to reconcile consolidated net income to net cash used in operating activities: operating in used cash net to income net consolidated reconcile to Adjustments Decrease in treasury stocks Increases in minority interests nancing NetactivitiesNet cash decrease provided in fi by cash and due from banks Cash and due from banks at the beginning of the year Cash and due from banks at the end of the year Increase in debentures Increase in due trust to accounts Increase in accounts payable Decrease in miscellaneous liabilities Settlement of stock options Decrease in capital surplus Cash dividends Increase in guarantee deposits Increase in accounts receivable nancing activities: fromow fi NetCash cash ﬂ used in investing activities Increase in deposits Increase in borrowings fromow investing activities: NetCash cash ﬂ used in operating activities Increase in available-for-sale securities Decrease inheld-to-maturity securities Increase in equity method investments Increase in loans receivable xed assets Increase in fi adjustments Total

ows from operating activities: Cash ﬂ Consolidated net income Consolidated Statement Of Cash Flows Cash Of Statement Consolidated 2006 December ended 31, Year Independent Auditors’ Report (Consolidated) Report Auditors’ Independent The images used in this annual report have been captured from the works of Bae, Kum-Ryong. He is a maestro of a traditional Korean lacquerware inlaid with mother-of-pearl. HANA FINANCIAL GROUP ANNUAL REPORT 2006 . 109 Leading Financial Group Financial Leading