IBK, Financial Partner for Better Future IBK will innovate continuously to fulfill your dreams as your true partner in finance

Annual Report 2018 CONTENTS

To Our Stakeholders 02 Message from the CEO 06 Financial Highlights 08 Key Highlights 10 Stock Information 12 Investment Highlights 15 Our Stakeholders 22 News Highlights 24 Digital Transformation 26 IBK Co-up Financing

Management Review 29 Vision and Strategy 30 2019 Business Strategy 32 Board of Directors & Senior Management 34 Corporate Governance 36 Subsidiaries 38 Risk Management 42 Ethical Management 44 Human Resource 46 Financial Consumer Protection 48 Corporate Social Responsibility

Business Review 52 Corporate Banking 62 Retail Banking 72 Global Markets & Treasury 80 Corporate & Investment Banking 86 Digital

Financial Review 93 Management’s Discussion and Analysis 97 Independent Auditor’s Report 100 Separate Financial Statements 107 Independent Auditor’s Report (based on consolidated financial statements) 110 Consolidated Financial Statements 116 At a glance 2018 118 Organizational Chart 120 Global Network & Contact Information IBK, Financial Partner for Better Future

IBK stands at the forefront of the financial industry with 58 years of experience and expertise representative of Korea’s historic economic growth. Now we drive innovation and growth as your trusted and longstanding financial partner.

We are poised to become a market-friendly policy bank with a partner financing strategy that will move us forward, beyond our role in financing support. We are committed to realizing our vision of becoming Asia’s premier SME financing bank and creating a prosperous future for you, our customers.

IBK ANNUAL REPORT 2018 3 Message from the CEO

2 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

IBK made a remarkable leap forward in 2018, with the best results and greatest progress in our 58-year history.

To our esteemed shareholders and customers,

On behalf of everyone at IBK, I would like to extend my sincere appreciation to our valued customers and shareholders for the warm support and encouragement you have shown towards IBK throughout the past year.

Despite economic uncertainties at home and abroad, all employees and management of IBK made con- certed efforts and turned the year of 2018 another historic year with great achievements.

For instance, the Bank alone generated KRW 1,511 billion in net income, a 15% increase from the previous year, surpassing the KRW 1 trillion mark for the fourth year in a row. The consolidated net income that com- bines IBK and the subsidiaries’ climbed to a record high of KRW 1,764.3 billion.

Also, we made history of the financial industry by becoming the first to exceed KRW 150 trillion in SME loan balance. Our customer base was strengthened further as the number of retail clients expanded to over 15 million while that of corporate clients crossed 1.5 million.

We made strides on the global stage, too, by broadening the ‘IBK Asia Financial Belt.’ Specifically, we made our very-first M&A of overseas banks in Indonesia to set up a local banking subsidiary, and our Phnom Penh Representative Office was upgraded into Branch in Cambodia. In addition, Vladivostok Representative Of- fice opened in Russia to serve as a strategic outpost in step with the Government’s ‘New Northern Policy.’

These achievements, together with your continuous support, enabled IBK to be named as one of the world’s Top 100 Banks by The Banker magazine. In fact, we were the one and only bank specializing in SMEs in the list.

Valued customers and shareholders,

Looking at the year ahead, slower growth is expected domestically, while the global economic outlook is clouded by increasing uncertainties posed by global monetary tightening and trade conflicts.

At the same time, technological developments and emergence of new breeds of enterprises are bringing rapid changes to the industrial ecosystem, while demographic shift is transforming the consumer market.

Against this backdrop, we believe self-driven innovation is a must for survival and sustainable growth, and thus will pursue the following initiatives in 2019.

IBK ANNUAL REPORT 2018 3 First, we will work to build a solid foundation for sustainable growth. To this end, our loan portfolio will be readjusted in a continuous, strategic manner to reduce the credit cost; and balanced income growth will be pursued to boost income from diverse sources—from non-interest in- come, to overseas operations and to subsidiaries—to ensure stable profit generation. We will also proactive- ly respond to regulatory changes in such areas as capital requirement and financial consumer protection, and maintain stringent control over asset quality.

Second, we will reinforce our competitiveness in SME financing through competency building. We will pursue optimal growth to reinforce our market dominance in SME lending, and continuously stream- line the branches to optimize the service network. Under our ‘Co-up Financing’ initiative—a new paradigm in SME financing, we will nurture startup companies through our startup incubator ‘IBK Changgong’, provide business solutions to support SMEs’ daily operation, and foster the SME M&A market for smooth exit.

Third, we will develop differentiated growth engines to spearhead changes. We will pursue transition to ‘Digital Core Bank’ and employ diverse digital technologies including artificial intelligence and big data to innovate work processes. Our 58-year-long experience and know-how in SME financing will all be built into a single business service platform for SMEs, called ‘IBK BOX’, and ‘i-ONE Bank 2.0’ will be deployed to provide the best mobile services. We will also strengthen the ‘IBK Asia Financial Belt’ to widen our global customer base and boost profitability. At the same time, IBK’s unique wealth manage- ment services will be expanded with a view to lead changes in the financial world.

Lastly, we will put priority on customers and frontline operations. We will make ceaseless efforts to read changes in customer trends, meet their changing needs, and foster a customer-centric organization. Also, we will uphold the basics and principles to maintain integrity in our business practices and win the trust from our customers.

With the conviction that we can weather any difficulties as long as we are fully prepared, all of us at IBK will spare no effort to realize our management philosophy of ‘Strong and Solid: Innovation Bank of Korea’.

I humbly ask for your unwavering support as IBK continues to grow and evolve, and extend my best wishes to you and your loved ones.

Thank you.

Kim Do-jin

Chairman & CEO Industrial Bank of Korea

Total Loans Net Income (KRW trillion) (KRW billion)

Consolidated 193.0 1,764

182.1 1,509 173.2 1,165

193.0 1,764

2016 2017 2018 2016 2017 2018

4 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Management Philosophy

The management philosophy of IBK’s CEO, Kim Do-jin, is to make IBK “Strong and Solid: Innovation Bank of Korea”. This will be done by enhancing the competitiveness, solidifying the organization and pursuing change and innovation.

Strong and Solid: Innovation Bank of Korea

Strong competitiveness Solid organization Powerful innovation · Strengthen SME financing · Manage based on principles · Overcome old practice · Diversify income sources · Focus on customer relations · Take on challenges · Enhance employee competency · Implement fair compensation · Produce practical results

IBK ANNUAL REPORT 2018 5 Financial Highlights

Credit Ratings (As of December 31, 2018)

2016 2017 2018

Moody’s Aa2 Aa2 Aa2

S&P A+ AA- AA-

Fitch AA- AA- AA-

Key Financial Data (in billions of KRW, %)

2016 2017 2018

Net Income (Consolidated) 1,165 1,509 1,764

Total Assets 1 292,875 307,925 320,973

Total Loans 2 173,247 182,094 192,989

Total Deposits 3 187,171 201,727 217,090

Total Shareholders’ Equity 17,422 19,005 20,071

ROA (Consolidated) 0.47 0.57 0.63

ROE (Consolidated) 6.53 7.97 8.72

BIS CAR (Consolidated) 13.13 14.20 14.48

Substandard & Below Ratio 1.36 1.36 1.32

Net Interest Margin (%)

2016 2017 2018

NIM 1.91 1.94 1.95

* Note 1: Including trust accounts (KRW 52,047 billion) * Note 2: Including foreign currency loans, based on total loans (excluding investments and receivables), card loans included in household loans * Note 3: Total Funding = Won-denominated Deposits + CDs + Cover Notes + Retail Funded RPs + SMIF + Foreign Deposits (excluding offshore foreign currency deposits) + Money Trusts

6 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Total Assets Net Income (Consolidated)

321 KRW in trillion 1.76 KRW in trillion

Total Loans NIM

193 KRW in trillion 1.95%

Total Deposits BIS CAR (Consolidated)

217 KRW in trillion 14.48%

IBK ANNUAL REPORT 2018 7 Key Highlights

Global Network (As of Dec. 2018)

28 overseas branches/offices in 12 countries

As of end 2018, IBK is operating 28 sites in 12 countries including 16 branches under the Chinese subsidiary as well as representative offices in Indonesia, Myanmar and Russia.

London Shenyang Vladivostok Beijing Shenyang BeijingTianjin Vladivostok New York Tianjin Yantai Yantai Qingdao Tokyo Qingdao Suzhou Tokyo Wuhan SuzhouShenzhen New Delhi Hong-Kong Wuhan Hanoi ShenzhenYangon Manila New Delhi Phnom Penh HoHong-Kong Chi Minh City Hanoi Yangon Manila

Phnom Penh Ho Chi Minh City

Jakarta

8 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Date of establishment No. of employees (as of end of Dec. 2018)

1961 14,166

No. of corporate customers The Banker Top 100 World Banks 2018 (based on Tier 1 Capital) Manila 1.5 million rd

No. of retail customers 93

15.5 million

IBK ANNUAL REPORT 2018 9 Stock Information

Stock Price

IBK KRX BANK KOSPI

180%

14,050 KRW (2018 CLOSING PRICE)

140%

100%

40%

2016 2017 2018 2019

Market Capitalization (in trillions of KRW) Dividend Payout Ratio (Non-Consolidated)

9.46

8.07 7.30

8.07KRW trillion 30.1%

2016 2017 2018

10 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Credit Ratings Aa2 AA- AA- MOODY’S S&P FITCH

Share Ownership(%)

Domestic Foreign 76.4% 23.6% (The Government 50.9%)

IBK ANNUAL REPORT 2018 11 Investment Highlights

IBK overcame global instability and difficulties in the business environment to achieve solid results and robust growth in 2018.

Consolidated net income climbed to a new high once again to reach KRW 1,764.3 billion, and credit cost decreased to the lowest ever level thanks to steady improvement in asset quality. As a result, net income exceeded provisions for credit losses for the first time since the 2007-2008 financial crisis.

IBK is pushing ahead with plans to grow into a strong, solid and innovative bank that acts as a partner in innovation and growth of the Korean economy. Although challenging domestic and global conditions are expected to persist in 2019, IBK will continue its policy of supporting SME financing, proactively dealing with risk management, and securing a stable and long-term foundation for growth. We will boost assets through SME financing while satisfying regulations and also focus on increasing net income from banking operations.

The following pages describe our business results for 2018 and main plans for 2019. · Strengthened market dominance in SME lending on sustained loan growth

· Stable NIM contributed to posting record high net income · Income diversification via growth of non-interest income, non-bank subsidiaries and global business · Continued improvement in asset quality · High payout ratio and improved BIS ratio

Total Loans (KRW trillion) Large Crop. & Others 1. G ro w t h Households SMEs 193.0 Strengthened market dominance in SME lending through sustained loan growth 193.0 · SME loan balance increased 6.5% year-on-year to KRW 151.6 trillion 7.7 · Realized ‘partnership financing’ for SMEs in all stages of their growth 182.1 33.7 173.2 7.8 IBK’s total loan balance in 2018 amounted to KRW 193.0 trillion, up 6.0% 31.9 7.8 151.6 from KRW 182.1 trillion posted at the end of 2017. SME loans, which ac- 31.1 142.4 counted for 78.5% of total loans, increased to KRW 151.6 trillion from KRW 134.4 142.4 trillion in 2017. IBK became the first in the industry to surpass the KRW 150 trillion mark in SME lending. Household loans went up 5.5% to KRW 2016 2017 2018 33.7 trillion. Despite fiercer competition, our SME loan market share rose by 1bp over the previous year to 22.5% and we reinforced our market domi- nance in SME loans. In 2019, IBK aims to continue leading the SME loan segment with its strategy SME Loan Market Share (%) of serving as a financial partner. We will strengthen support for early startups IBK and mid-sized companies by providing financial services customized to their A 27.2% 22.5% growth stage. As a state-run bank that specializes in SME support, we will B develop diverse products for startups and smaller enterprises with the goal C D of contributing to the national economy and creating jobs. In this way, we will Others 14.6% extend our market dominance in SME lending and continue to serve SMEs 11.4% as a dependable partner. 11.5% 12.7%

12 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

NIM 2. Profitability (%)

Stable NIM contributed to posting record high net income 1.94 1.95 · Consolidated net income grew 16.96% to a new high of KRW 1,764.3 billion 1.91 · Net interest margin rose by 1bp to 1.95% · Interest income grew 7.2% to KRW 5,207.5 billion 1.95 Consolidated net income increased 16.96% over the previous year to KRW 1,764.3 billion (KRW 1,511.0 billion on separate basis), representing a new 2016 2017 2018 high and two consecutive years of double-digit growth. Interest income grew 7.2% to KRW 5,207.5 billion and the net interest margin (NIM) increased by 1bp to 1.95%. Growth of loan assets combined with the rise in NIM gave a boost to interest income and contributed to enhancing overall performance. Funding Portfolio IBK will continue working to improve NIM in 2019. As part of such efforts, (%) we will focus on growing low-cost deposits such as core deposits. We will SMIF Bonds(Retail) also harness our unique strength stemming from SMIF bond issuance, a key SMIF Bonds(Wholesale) Core Deposits source of funding exclusive to IBK. MMDA & Others CD, RP, Covered Bills 2.3% 32.4% 16.4%

SMIF Bonds 53.3% 20.9% 29.0%

Fee Income (KRW billion)

752.1 720.8 3. Enhancement 652.3

Income diversification via growth of non-interest income, non-bank 752.1 subsidiaries and global business · Non-interest income went up 89.4% to KRW 531.5 billion · Fee income increased 4.3% to KRW 752.1 billion 2016 2017 2018 · Profitability enhanced by diversifying non-interest income sources

Non-interest income posted strong growth of 89.4% to reach KRW 531.5 Income Comparison billion. Fee income rose 4.3% to KRW 752.1 billion. Commissions in KRW, (KRW billion) which comprise over 40% of total fee income, amounted to KRW 307.6 Subsidiaries billion, up 2.3% over the previous year. Credit card fees increased 17.0% to Bank KRW 207.4 billion. Increased gains on securities and loan asset disposal following adoption of IFRS9 rules also contributed to boosting profits. In 2019, we will further diversify our profit structure by pursuing growth in 317.9 non-interest income and non-banking operations. We are concentrating on growing F/X related fees, credit card and fund sales, in addition to expanding our business scope and products in the trust business and developing prod- ucts for greater synergy with subsidiaries. In these ways, we aim to uncover 1,511.0 new business opportunities and secure greater revenue stability. IBK is also continuing with various efforts to hone competitiveness in the non-banking sector via overseas expansion and market diversification.

IBK ANNUAL REPORT 2018 13 Substandard & Below Ratio 4. Stability (%) 1.36 1.36 Continued improvement in asset soundness 1.32 · Substandard and below ratio fell 0.04%p year-on-year to 1.32% as of end 2018 · Growth driven by sound loans, enhanced asset quality

Steady improvement in asset quality led to a sharp reduction in credit cost by 1.32 10bp to 0.59% in 2018. As a result, we achieved a ‘golden cross’ in which net income exceeded allowance for credit losses for the first time since the 2007- 2008 global financial crisis. The substandard and below ratio fell 0.04%p to 2016 2017 2018 1.32% and the NPL coverage ratio stood at 92.1%. Despite concerns of a slowing economy, IBK maintained profitable growth through systematic con- trol of asset quality while fulfilling its duty of supporting SMEs as a policy Credit cost (nominal) bank. (%) We will continue to rigorously manage asset quality in 2019 in view of the 0.69 economic variables at home and abroad and a possible economic slow- 0.63 0.59 down. We expect fiercer competition for SME loans amid stricter regulations on household loans and the loan-deposit ratio. Our SME-centered portfolio gives us an advantage over our competitors and is expected to yield benefits in this environment. Through preemptive risk management and tighter loan 0.59 2016 2017 2018 reviews, we will work to enhance asset quality and sustain profit growth.

Payout Ratio (%) IBK Industry Average 30.10(Other Shareholders) 5. Shareholder Value 30.89 30.76 24.3(Majority Shareholder) High payout ratio and improved BIS ratio · Payout ratio of 30.1% for non-majority shareholders, the highest in the banking sector 25.38 · Stable revenue structure enabled solid growth and high payout ratio 24.72 24.52 30.10 · Improved capital adequacy and maintained stable BIS ratio

2016 2017 2018 In 2018, IBK paid out different dividends for the majority shareholder and other shareholders for the first time in 14 years. The payout ratio for the government, the largest shareholder, was lowered to 24.3%, which gave BIS CAR us greater leeway for future asset growth. The ratio was 30.1% for other (%) shareholders, significantly higher than the industry average which was be- BIS Tier 1 low 25%. Thanks to record high earnings and a high payout ratio, the div- 14.50 CET 1 14.20 idend yield was 4.6%, indicating the enhanced appeal of IBK to investors. 13.12 Our capital adequacy ratio went up 0.27%p to 11.90% and the BIS ra- 11.90 11.63 tio rose by 0.30%p to 14.50%. Introduction of new regulations and phas- 10.56 ing-in of Basel III guidelines are expected to tighten capital adequacy re- 10.24 quirements in 2019. We will make sharp improvements to our loan asset 9.33 10.03 portfolio and strengthen management of risk weighted assets in order to enhance our profit levels. This will allow us to improve the BIS ratio and 2016 2017 2018 continue expanding financial support to SMEs.

14 IBK ANNUAL REPORT 2018 Our Stakeholders

5. Shareholder Value In 2018, IBK reaffirmed and strengthened its commitment to serve customers as their ‘Financial Partner for a Better Future.’ We expanded SME support and reached a milestone with 1.5 million corporate and 15.55 million retail customers. Having thus solidified our position as a leader in SME financing, we have a solid foundation for sustainable growth and profits.

Going forward in 2019, we will be steadfast and proactive in pursuing healthy results and sound growth as we continue to forge new ground and build a stronger, brighter future for our customers.

IBK ANNUALIBK ANNUAL REPORT REPORT 2018 15 2018 15 SMEs Financial partner in SME growth

Chung Tae-il Apr 27 @Chung Tae-il

@IBK “We hope you will strengthen your role as financial facilitator of SME growth.” To Our Stakeholders Management Review Business Review Financial Review

OSG KOREA

“Through excellence in quality and satisfied customers, OSG Korea became Korea’s top precision tool trading company. Our growth was possible because we had reliable financial support from IBK.”

Mr. Chung Tae-il is the CEO of OSG Korea, which has grown since its founding in 1985 to become Korea’s representative precision tool trading company. He was inducted into the Entrepreneurship Hall of Fame in 2012 and awarded a President’s citation for quality innovation in 2014. OSG Korea has gained trust from the global market with its emphasis on quality. It has been widely recognized in the past 24 years for its competitive edge and was the first SME to receive the Korean Quality Grand Award. It is reputed for pioneering Korea’s precision tool market which had relied solely on imports by locally manufacturing cutting tools like tabs, end mills, dices and drills.

Chung Tae-il CEO & President / OSG KOREA

IBKIBK ANNUAL ANNUAL REPORT REPORT 2018 2018 17 3 Ma Yeong-su Apr 27 @Ma Yeong-su

@SMEs “IBK is faithfully fulfilling its role as the leader in SME financing.”

IBK ANNUAL REPORT 2018 5 As the leader in SME financing, IBK is working to expand support for small- and medium- sized enterprises. In 2018, we increased SME loans by KRW 9.2 trillion to KRW 151.6 trillion and maintained a commanding lead over other banks with the largest market share of 22.5%.

Ma Yeong-su General Manager / Seongseogongdan sarang Branch, IBK

SME Loans (KRW trillion)

151.6

142.4 134.4

151.6 KRW trillion

2016 2017 2018 Shareholders Quality growth and investment attractiveness

Won Jae-woong Apr 27 @Won Jae-woong

@IBK “I hope IBK will continue to serve the public interest through SME financing while also pursuing shareholder- friendly policies.”

7 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

NH Investment & Securities

“IBK sustained growth and maximized profits in 2018 as it posted record high results. Its high dividend payout ratio also makes it very attractive to investors. I hope IBK continues its efforts to secure a stable foundation for growth and increase shareholder value.”

Won Jae-woong is a senior analyst at NH Investment & Securities covering the banking and securities sector. He was named one of Korea’s top analysts in 2018. In his report, Won says stable earnings will help drive up bank share prices along with a rebound in the Korean stock market. With foreign ownership exceeding 60%, bank stocks may continue to struggle due to market uncertainties and strengthened regulations. However, Won predicts that “along with stock market recovery, bank shares will start to rebound as sentiment spreads that they are deeply undervalued.”

Won Jae-woong Senior Analyst / NH Investment & Securities

IBK ANNUALIBK ANNUAL REPORT REPORT 2018 2018 19 8 Lee Kwon-tak Apr 27 @Lee Kwon-tak

@Shareholders “We will strive to create greater shareholder value through quality growth.” IBK strives to enhance profits to create greater shareholder value while carrying out its role as a SME financing specialist. In 2018, we continued quality growth and produced record high results for the second consecutive year with KRW1,764.3 billion in consolidated net income. In addition, we maintained the highest dividend payout level in the banking industry.

Lee Kwon-tak Deputy General Manager / IR Team, IBK

Dividend per Share (KRW)

690

617

480

690 KRW

2016 2017 2018 Customers Trusted partner in finance

An Ji-hwan Apr 27 @ An Ji-hwan

@IBK “I hope IBK continues its role as a trusted bank that helps the working class enjoy growth and security.”

12 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Mokdong WM Center, IBK

“Amid uncertainties and potential risks, IBK has been faithfully doing its part as a trusted partner in finance, helping the working class like the self-employed and small business owners enjoy growth and security. I hope the bank will continue to put customer value first and maintain their trust.”

An Ji-hwan is Korea’s voice actor and broadcaster. He debuted as a voice actor in 1993 through MBC, one of Korea’s major broadcasting channels. He gained popularity by narrating for numerous entertainment programs. From dramas and documentaries to animations, he has provided distinctive styles of voice that match each character. Currently, he appears on many TV programs and commercials and is recognized as one of Korea’ most famous voices.

An Ji-hwan VIP Customer IBK ANNUALIBK ANNUAL REPORT REPORT 2018 2018 21 13 Ryu Jung-ee Apr 27 @Ryu Jung-ee

@Customer “We are growing with our customers as their trusted partner in finance.”

IBK ANNUAL REPORT 2018 15 IBK sustained growth on the back of the trust of 15 million customers (as of end of 2018). After fifty years of standing by SMEs, we are now solidifying our position as the leading bank for all Koreans. We are focusing on leveraging new digital technologies to offer innovative services. Our goal is to further enhance customer satisfaction in a rapidly changing financial landscape.

Ryu Jung-ee General Manager / Mokdong WM Center, IBK

Retail Banking Customers (million)

15.5

14.9 14.6

15.5 million

2016 2017 2018 News Highlights

Here are IBK’s 10 biggest news stories of 2018. These stories show how IBK has grown with our customers as their true partner in finance.

Named Korea’s best call center Ranked as one of global top 100 12 years in a row banks for the first time In the customer satisfaction survey con- IBK climbed nine places to rank 93rd in ducted by Korea Management Associa- the list of Top 1000 World Banks 2018 by tion Consulting, IBK was named among The Banker, UK’s leading financial maga- Best-ever result in FSS’s finan- the country’s best call centers for the zine. It was the result of delivering strong cial consumer protection review twelfth year in a row. performance with gains in total assets and IBK obtained its best-ever result in the fi- capital base. nancial consumer protection assessment conducted by the Financial Supervisory Service. We were acknowledged as hav- ing best practices in protecting financial consumers in Korea with the rating of satisfactory and above across all assess- ment items.

Real-time AI-powered voice phish- ing detection, an industry first

We became the first in the financial in- dustry to develop an app that prevents voice phishing in real time. During a call, the app analyzes words and patterns fre- quently used in voice phishing and sends First bank to exceed KRW 1.5 real-time alerts. After a trial operation trillion in SME loans based on the system, we plan to launch a IBK saw its outstanding SME loans ex- nationwide service in the first half of 2019. ceed KRW 15 trillion, becoming the first in the financial industry to achieve this feat. We also passed the 15 million-mark in the number of retail consumers. In acknowl- edgment, we were awarded a presiden- tial commendation for excellence in SME support in May.

22 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

First in industry to open child- care center for SMEs

We opened IBK Namdong Sarang Child- care Center exclusively for SME workers in Incheon Namdong industrial complex. The center attracted a lot of attention from Extended work scope training ‘Along With the Gods’ seen by the public with the goal to help SME em- for contract and temporary 10 million moviegoers employees ployees achieve work and life balance and create a family-friendly work environment. The IBK-invested two-part movie series In an effort to create a non-discriminatory ‘Along With the Gods’ surpassed 10 mil- working environment and nurture total fi- lion moviegoers, becoming a huge box nancial consultants who can work without office success and bringing a breath of limits, we are conducting extended work fresh air into Korea’s film industry. scope training. By the year 2020, a total of 3,300 contract and temporary workers will take workshops, onsite training and self-directed studies.

Greater financial presence in Asia Net income surpasses allow- IBK took a step forward in becoming a ance for credit losses bigger financial player in Asia with the ac- Buoyed by efforts to enhance the overall quisition of two Indonesian banks. It was loan portfolio, net income surpassed al- our first successful overseas M&A. We lowance for credit losses for the first time plan to establish IBK Indonesia in 2019. since the global financial crisis. As of now, we have secured a total of 30 branches in the country.

IBK ANNUAL REPORT 2018 23 Digital Transformation

IBK is speeding up digital transformation by expanding solutions for SMEs in cooperation with fintech companies and revamping the banking app for retail customers. We believe digitalization embodies more than just online and mobile banking. This is why we set up the Digital Group in 2018. With the Digital Group leading the way, we are seeking ways to draw on digital technology to deliver more convenient and innovative services to our customers.

Overhaul of ‘i-ONE Bank (Corporate)’ Digital solutions for SMEs

Our corporate mobile banking app i-ONE Bank (Corporate) underwent We are expanding solutions developed with SMEs in mind. In cooper- a complete overhaul in February 2018. As a result, corporate clients can ation with WebCash, a leading fintech company in Korea, we launched use their mobile devices to transfer up to KRW 3 million a day without a digital secretarial service that helps SMEs manage their funds in using an accredited certificate or OTP (One Time Password), and make 2018 and debuted an accounting solution that makes it easier for real-time checks on their balance of deposit accounts and loans at other SMEs to manage receipts in early 2019. Both have been well received banks. The app features a product mall that gives users access to 218 in the market. In March 2018, we opened ‘IBK TMON’ on the social financial products including deposits, loans and funds. Services will be commerce website TMON. Two months later, we introduced an IoT expanded to allow users to open an account and submit documents for (Internet of Things)-based loan product, and that was followed by the loans via the non-face-to-face channel. launch of AI (Artificial Intelligence)-based robo-advisor service for fund and pension products in July.

Mobile ‘i-ONE Bank (Retail)’ First in Korea to apply Apple API for financial services We plan to revamp i-ONE Bank (Retail) to center on mobile-based services. The smart banking app i-ONE Bank and another app for In June, we unveiled message banking (SMS) and voice banking (Siri) non-face-to-face account opening will be converged into one. For en- for iPhone that allows users to transfer money and check their account hanced security, we will adopt a policy of one mobile device per cus- balance without using a banking app. This was the first time that Ap- tomer, akin to the practice of Internet banks. A notable feature of i-ONE ple API (Application Programming Interface) was applied to financial Bank (Retail) is the adoption of private certificates. services. In addition, we selected four more companies for the fourth round of ‘IBK Financial Group FinTech Dream Lab’, our program for fostering fintech startups. During the first three rounds, we selected and supported 11 companies.

Opening of ‘IBK Big Data Platform’

IBK Big Data Platform services were launched in May 2018. We ana- lyzed the vast amount of SME data we have accumulated to create a network structure that shows the business ties between companies. In addition to financial transactions data, we analyze unstructured data collected from external channels such as disclosures and news stories in order to identify signs of potential risks.

24 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

SME support platform ‘IBK BOX’

‘IBK BOX’ represents Korea’s first digital business support platform for SMEs. It will provide a wide range of solutions to help SMEs carry out their business activities, from securing funds and exploring sales channels to hiring and managing in- voices. From the standpoint of SMEs, INK BOX should bolster productivity and efficiency. For IBK, data amassed through INK BOX will be a useful resource for creating SME-friendly financial models.

1. Policy fund

6. Loan 2. Sales channel IBK BOX Platform

5. Producer network 3. Corporate real estate

4. Shopping mall mangement

7. Hiring 8. Invoice 9. Accounting 10. Training

IBK ANNUAL REPORT 2018 25 IBK Co-up Financing

As a pioneer in SME financing, IBK launched the ‘IBK Co-up Financing’ initiative to help foster the development of emerging businesses through each phase of their growth cycle. Signifying a new paradigm in SME support, the emphasis is on the bank’s role as a partner for SMEs’ growth. IBK’s role as a partner in finance not only includes initial funding, but also extends to comprehensive business support and exit strategies.

Key Direction of IBK Co-up Financing

“Supporting SMEs throughout their entire growth cycle” 3 Financing for virtuous cycle Cycle-up platform

Facilitate market entry/exit and restructuring through M&A, etc. 2 “Preserve jobs” Financing for next leap Level-up platform

Help firms in stable phase sharpen their competencies

1 Financing for growth Scale-up platform “Increase jobs”

Provide funds to support initial set-up and help overcome death valley curve

“Create jobs”

26 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Evolution of IBK’s SME Financing Function

Past Present Future

Financing provider Financing enabler Financing partner

Standard Cooperative Proactive Pre-defined Comprehensive Creative

Supplier Supporter Partner & Facilitator

High Growth Stage Plateau Stage Low Growth Stage

Performance in 2018

IBK Co-up Financing in finance platform took hold in 2018, producing viable and visible success stories for both IBK and customers.

ㆍLoans with 1% range interest rates, launch of IBK Only-One Partner Loan Scale-up ㆍFunding for startups (loan: KRW 24.6 trillion, investment: KRW 39.7 billion) ㆍIBK Partnership Consulting project (2018: 1,139 cases)

ㆍExtension of IBK global network to serve as overseas outposts for SMEs Level-up ㆍDevelopment of IBK-BOX, a digital support platform for SMEs

ㆍAssist SMEs’ market entry and exit, support business succession Cycle-up ㆍSupport for M&As involving SMEs

Plans for 2019

2019 will serve as the year of ‘IBK Co-up Financing 2.0’. We will continue to carry out and enhance projects already underway and secure upgraded ‘innovation momentum’ in all of our pursuits.

Boost startup funding, non-financial support ㆍStrengthen support lineup for small business owners Scale-up ㆍExpand startup incubator platform (open third IBK Changgong office in Busan) ㆍEnhance consulting services with upgraded mentoring function Promote globalization, digitalization and growth of SMEs ㆍIncrease support for innovative companies (invest KRW 40.0 billion) Level-up ㆍDiversify programs for supporting overseas expansion ㆍBoost assistance to raise SMEs’ digital capabilities (AI consulting for small business owners) ㆍStrengthen global networks (subsidiary in Vietnam, branch-to-subsidiary conversion in Myanmar) Support SMEs’ exit strategies and M&A Cycle-up ㆍEnhance support for exit (create Exit PEF #2) ㆍPromote M&A involving SMEs

IBK ANNUAL REPORT 2018 27 Management Review

29 Vision and Strategy 30 2019 Business Strategy 32 Board of Directors & Senior Management 34 Corporate Governance 36 Subsidiaries 38 Risk Management 42 Ethical Management 44 Human Resource 46 Financial Consumer Protection 48 Corporate Social Responsibility

28 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Vision and Strategy

Vision IBK, Financial Partner for Better Future

Strategic Direction

Until 2020, After 2020, SME-Centered Asia’s Top Comprehensive SME Player Financial Group

Strategies and Key Tasks

Focus on Diversify Maximize value of Revamp business key income new customer practices for competencies portfolio experiences greater efficiency

Strengthen market lead in Expand base for Assume leadership in Foster strategic SME financing non-interest revenue digital finance development of core personnel Build up success in Broaden scope of global Enhance customer retail banking and IB businesses experience across all Embed innovation in service channels corporate culture Reinforce role as Maximize synergies within policy bank IBK Financial Group Promote rights and Improve efficiency in interests of financial con- operations Retake leading position Pursue new business sumers in risk management areas Fortify communication with stakeholders

IBK ANNUAL REPORT 2018 29 2019 Business Strategy

2019 Business Slogan IBK, spearheading the future with innovation IBK will solidify its position as a blue-chip bank in the next three crucial years to lead the future of finance

Strategic Direction Strategies to innovate triple Fs (Fundamentals, Finance, Future) in 2019 Make headway in breaking the ‘2’ barrier’: 2019 will mark the era of KRW 2 trillion in consolidated earnings, KRW 20,000 per share, KRW 200 trillion in total loans

Innovate Innovate Innovate fundamentals finance future

Strategic Objective

Foundation for Strong lead in SME Differentiated future sustainability financing competencies Generate net income exceeding Provide qualitative and Enhance productivity via digital / KRW 5 trillion over 3 years quantitative support for SMEs process innovation

Increase profits and pursue Provide high-quality financial Pursue digital and process sustainable growth support for SMEs and shift innovation to boost efficiency loan portfolio toward future * KRW 5 trillion over 3 years growth drivers Solidify position as a SME- can increase SME loans to KRW oriented blue-chip bank by 30 trillion over the same period Manage special funds to focusing resources on core attract blue-chip companies competencies and innovative businesses

30 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Action Plans

Strategic Direction Action Plan (Example)

Firmly embed golden · Secure adequate level of net income to support sustainable growth cross of profits and · Qualitative improvement in profit structure (non-interest income↑, credit cost ratio↓) provisions · Rigorous cost control (efficient IT operation, branch management, budget)

· Provide further funding in more competitive areas Strengthen meticulous · Improve asset quality management risk management · Improve capital quality · Strengthen risk response system (Plan B, interest rate hike, household debts) Innovate fundamentals Boost financial consumer · Enhance financial consumer protection · Expanded services for financially vulnerable class Foundation for protection sustainability · Strategic social contribution activities

Innovate the way we work · Revamp corporate culture to boost productivity with changes in working · Promote on-field and practical duties environment · Establish healthy work-life balance environment

Pursue strategy to gain · Strategies for super lead (qualitative/quantitative) in SME financing · Improve asset portfolio (type of business, firm size, credit rating, etc.) a super lead in SME · Bolster ‘Partner in Finance’ strategy (BOX, M&A, jobs, etc.) financing · Restructure branch network to better and systematically support SMEs

Create ecosystem for · Build startup ecosystem (startup funds, tech incubator program Changgong, consulting) startups and innovative · Bolster financial support for new growth industries, 8 major innovative businesses companies · Boost productivity of technology finance Innovate finance Support vulnerable · Implement special programs to support small businesses and self-employed owners · Enhance the financial safety net for vulnerable industries and social enterprises Strong lead in population through CSR SME financing · Seek balanced regional development by supporting provincially located businesses

Build IBK-style retail · Develop financial products & services exclusively for SME employees · Strengthen retail financing with innovative products & services financing · Overhaul the network of city branches geared towards personal banking

· Provide convenient digital financial services Pursue digital CORE bank · Spearhead digital innovation · Innovate internal work process (efficient HR operation)

· Build Asian financial belt Expand global network · Strengthen role of key overseas business sites (London, Hong Kong, New York, etc.) · Strengthen support for SMEs’ global market entry Innovate future Strengthen asset · SME CEO-customized asset management Differentiated · Expand scope of managed assets future management capability · Strengthen market competitiveness in non-interest income business segments competencies

· Prepare for inter-Korean economic cooperation with a focus on SMEs Capture future market · Strengthen total financial services through cooperation among subsidiaries opportunities · Continue to discover new businesses · Strengthen employee competencies and nurture talent

IBK ANNUAL REPORT 2018 31 Im Sang-hyun Kim Do-Jin Deputy CEO & CEO Senior Executive Vice President Chairman of the Board Member of the Board

Kim Jeong-hoon Independent Director

Lee Seung-jae Independent Director Im Jong-sung Shin Chung-shik Board of Independent Director Auditor Kim Se-jik Directors & Independent Director Senior Management

Yang Chun-keun Bae Yong-deok

Senior Executive Senior Executive Vice President Vice President

Head of Management Head of Support Group Retail Banking Group

Kim Chang-ho Oh Hyuk-soo

Senior Executive Senior Executive Vice President Vice President

Head of Consumer Brand Head of Global Markets & Group Treasury Group

Choi Hyun-sook Cho Choong-hyun

Senior Executive Senior Executive Vice President Vice President

Head of Head of Chungcheong· Credit Management Group Honam Group

32 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Son Hyun-sang Suh Jung-hak Senior Executive Vice President Senior Executive Vice President Head of Risk Management Group Head of IT Group

Jeong Jae-sub

Senior Executive Choi Seok-ho Vice President

Senior Executive Head of Credit Card Vice President Business Group

Head of Head of Corporate Banking Group Trust Business Group

Lee Sang-kuk

Senior Executive Vice President

Head of Digital Group

Jern Kue-Baeg Kam Sung-han

Senior Executive Senior Executive Vice President Vice President

Head of Corporate & Head of Busan· Investment Banking Group Ulsan·Kyungnam Group

Suh Chi-kil

Senior Executive Vice President

Head of Management Strategy Group

Kim Ju-wuan

Senior Executive Vice President

Chief Compliance Officer

IBK ANNUAL REPORT 2018 33 Corporate Governance

Field management program, visit to Incheon/southern region (2018.03.15)

Board of Directors al)” at the sixth meeting on June 27. Additionally, it was briefed on the “2019 Business Plan (Proposal)” at the tenth meeting on November 30. IBK’s Board of Directors (BoD) consists of a total of five members who comprise the Chairman & CEO, Deputy CEO & Senior Executive Vice In 2019, IBK will strive to further enhance its governance structure President, and three independent director. through BoD activities. The BoD will support management efforts to spearhead open and transparent business practices, foster construc- The Chairman & CEO oversees IBK’s business operations and is ap- tive relationships with all stakeholders, and establish an advanced pointed by the President of the Republic of Korea on the recommen- governance structure. dation of the chairman of the Financial Services Commission (FSC). The Deputy CEO is appointed by the FSC on the recommendation of the CEO and serves a three-year term. The external directors, who Committees of the Board of Directors make up the majority of the BoD, are also appointed by the FSC on the recommendation of the CEO based on their expertise and experience There are three committees under the BoD, namely the Governance in areas such as management, economics and law. Committee, Management Compensation Committee, and Risk Man- agement Committee. The Management Compensation Committee is formed entirely of independent directors and the Risk Management Main Activities of the Board of Directors Committee is chaired by an independent director to ensure autonomy.

The BoD has the authority to make decisions on important issues per- Governance Committee taining to business activities at IBK. It held eleven meetings in 2018, The Governance Committee is headed by the Chairman & CEO and passed 52 resolutions and reviewed 36 reports. It passed a resolution consists of no more than five internal and independent directors. It is regarding “Contingent Convertible Bond Issuance (Proposal)” at the responsible for reviewing measures to improve the efficiency and func- second meeting on February 28 and the “Partial Revisions to Employ- tionality of the BoD and its committees. The Governance Committee ment Regulation Related to the Adoption of Flextime System (Propos- is also in charge of communicating with and collecting opinions from

34 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

stakeholders to raise shareholder value and protect stakeholders’ in- Ownership terests. It suggests independent director candidates to the Chairman The Government & CEO, who subsequently recommends candidates for nomination Korea Development Bank by the Financial Services Commission. The Committee also appoints Korea Eximbank executive officers based on the Chairman & CEO’s recommendations Other and deliberates on other issues deemed necessary by the BoD. 51% Management Compensation Committee The Management Compensation Committee, comprising three inde- 38% pendent directors, is responsible for overseeing remuneration for ex- ecutive officers and investment personnel, executives’ performance evaluations and benefits as well as other issues deemed necessary by the BoD.

Risk Management Committee The Risk Management Committee consists of three internal and in- dependent directors and is chaired by an independent director ap- 2% pointed by the BoD. Its role is to oversee all risks that may arise in the 9% course of the bank’s operations. It is responsible for the establishment and approval of risk management policies to maintain capital sound- ness at IBK.

Ownership Structure (as of Dec. 31, 2018) (No. of Shares, %)

Shareholder Common Stock Preferred Stock Total Ownership The Government 290,109,219 44,847,038 334,956,257 50.9% Korea Development Bank (KDB) 10,490,000 46,915,282 57,405,282 8.7% Export-Import Bank of Korea (Korea Eximbank) 8,501,153 6,210,000 14,711,153 2.3% Other 136,022,560 - 136,022,560 20.67% (Foreign investors) 114,855,883 114,855,883 17.46% Total 559,978,815 657,951,135 100.0%

* Preferred stock held by KDB and Korea Eximbank are convertible preferred stock.

IBK ANNUAL REPORT 2018 35 Subsidiaries

IBK Capital bilities, and anticipating and preparing for the future. IBK Insurance is Established in November 1986, IBK Capital offers new technology committed to helping customers prepare for their golden years as their financing, installment financing, lease financing, factoring, and in- financial partner. vestment banking services. With a strong focus on improving asset quality through profit-oriented management, the Company posted re- cord-high financial assets and net income of KRW 6,016.9 billion and IBK Asset Management KRW 91.4 billion, respectively, as of end of 2018. The one-month-and- IBK Asset Management was set up in October 2004 to better serve longer delinquency ratio and the ratio of non-performing loans to total the various needs of bank clients looking for high-quality investment loans improved significantly to stand at 0.88% and 1.11%, respectively. vehicles and to broaden the base for non-interest income. It offers a In 2019, the Company will continue to make rapid progress by over- wide variety of asset management products including equity-, hybrid-, coming challenges and pursuing innovation under the slogan ‘New bond-, and AI-type funds, and specializes in the collective investment Challenges and Innovative Growth, 2019’. It will strengthen business business. Its scope has recently expanded to include real estate, in- capabilities, innovate its risk management system, and create a strong frastructure, and alternative investment. In 2018, its assets under man- brand identity to lay the foundation for sustainable growth. IBK Capital agement and net income came to KRW 11.6 trillion and KRW 4.2 bil- will continue discovering new growth engines to realize its vision of lion, respectively. The Company also strives to follow the Bank’s lead ‘New Finance’ while also working toward its goal of ‘happy customers in promoting mutual growth with SMEs by introducing products like by thinking from the customer’s perspective and proactively executing the IBK Mid-Small Cap Korea Fund which invests in SMEs and MSEs. plans. Such efforts will help propel IBK Capital to the top as a member Plans for 2019 involve growing the alternative investment business, of IBK Group and Korea’s leading capital company. sharpening the competitiveness of new products, and expanding new sales channels to secure future growth engines. In the core business, the emphasis will be on boosting returns on investment. Through these IBK Securities efforts, IBK Asset Management will pave the way for healthy long-term IBK Securities was set up in May 2008 with the purpose of supporting growth and develop into a strong and compact industry leader while growth of small and mid-sized enterprises (SMEs) and middle-stand- serving customers as their lifelong partner. ing enterprises (MSEs) in the direct financing market. Its services ex- tend to such areas as initial public offerings (IPOs), rights offerings, M&A, and bond issuance. It also provides wealth management servic- IBK Savings Bank es and customized products targeting the investment needs of individ- IBK Savings Bank started business in July 2013 to support regionals SMEs ual clients. Despite a challenging business year in 2018 marked by in- and offer microcredit. Operating eight branches in major cities, its core creased market volatility, net income grew to KRW 57.0 billion to reach operations include deposits and installment savings accounts and loans. a new high for the seventh consecutive year. The Company increased From the outset, the focus has been on increasing microcredit, forming synergy with IBK by expanding hybrid branches that provide banking close ties with local communities, and developing a better loan struc- and securities services. It also concentrated on corporate finance for ture. In 2018, profit-generating loan assets grew to KRW 1,001.8 billion SMEs and supported listings on KONEX and KOSDAQ as it solidified and net income came to KRW 10.1 billion. The Company received the its identity as a specialized SME securities firm. highest possible corporate credit rating of ‘A’ and established itself in In 2019, IBK Securities will realize its vision of becoming a ‘policy fi- the industry as one of the top ten in asset rankings, moving closer to nance leader that grows with SMEs’ by further expanding its sales becoming a large-scale savings bank. capacity based on the SME support system it built last year. It will In 2019, IBK Savings Bank will pursue a growth strategy centered on diversify its income portfolio and add to the product lineup, specialize sound management. Along with an emphasis on relatively safe assets to in differentiated businesses and maximize synergy with IBK Group as secure financial soundness, it will focus on becoming a pioneering sav- it pursues sustainable growth. ings bank for the mobile era by drawing on synergy with IBK Group to discover quality customers and by expanding the i-Bang functions first introduced in 2018 to realize digital banking capabilities on par with in- IBK Insurance ternet banks. It will also carry out volunteer activities, grant scholarships, Established by IBK in July 2010 to diversify its business portfolio and and employ talented local residents to grow with local communities and increase non-banking revenues, IBK Insurance specializes in individu- continue fulfilling its role as a regional microcredit company. al and corporate retirement pensions. Life insurance companies incur high initial expenses and sell long-term products that last ten or more years, making it difficult for them to realize profits in a short period of IBK System times. Nonetheless, IBK Insurance turned a profit just a year after its IBK System is the IT partner for IBK and its affiliates, offering total IT founding and posted record profits seven years in a row with a net services with customer satisfaction as its core value. Boasting kno- income of KRW 57.5 billion in 2018. whow accumulated over the past 28 years and some 520 financial IT To become an innovative insurer with strong fundamentals, the Com- specialists, it develops and operates computer systems and solutions pany will focus on strengthening the competitiveness of its insurance for Group affiliates. The Company continues to upgrade the IT risk business, protecting profitability from declining, reinforcing core capa- management system to ensure smooth and stable services. Along

36 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

with integrated purchase of IT assets, it offers one-stop services that and parking management at IBK. In October 2018, an agreement was allow IBK Group customers to access integrated information on finan- reached on transitioning these workers to permanent positions via an cial assets through the integrated data center. affiliate. Consequently, the Company began operating with permanent Outside of IBK, the Company is asserting its competitiveness in not only employees on December 31, 2018. the banking and capital sectors but also the private IT market. Based on With the official establishment of IBK Service, the Company seeks to its experience of building IT systems for the Export-Import Bank of Ko- achieve the following. rea and Acuon Capital, IBK System has won contracts for Korea Hous- First, it will provide stable employment. The formation of the Company ing Finance Corporation’s next-generation system and Korea Housing & allows it to transition workers from temporary to permanent positions Urban Guarantee Corporation’s integrated system. operating under a stable contract with IBK. Second, it will improve the IBK System is realizing internal growth to sharpen digital competitive- quality of public services by boosting morale through higher wages ness and create greater synergy within IBK Group while simultaneously and better working conditions. Third, it will fulfill its responsibilities with strengthening its footing in outside markets. Going forward, it will focus a proactive mindset while adopting an efficient and transparent per- its capabilities on becoming the best strategic partner in financial IT. sonnel management system. IBK Service will play an exemplary role in improving labor conditions for service subcontract workers who struggled due to job insecurity IBK Credit Information and low wages while making every effort improve the quality of public IBK Credit Information, established in January 2000, carries out credit services in cooperation with IBK. research and analyses, issues credit-worthiness reports, and collects delinquent loans for IBK and its affiliates. 2018 was a difficult year due to the debt relief for long term debtors with small loans and tightening IBK (China) Ltd. of real estate policies. However, the Company posted record highs IBK first opened its Chinese branch in Tianjin in 1997. Then in June in both revenues (KRW 26.6 billion) and profits (KRW 3.0 billion) by 2009, we established IBK (China) Ltd. as our wholly owned subsidiary maintaining balance between credit review and debt collection and with paid-in-capital of RMB 2 billion. The goal was to explore the local expanding its external operations to capital companies and savings market to respond to China’s financial liberalization and to provide ef- banks. ficient and systematic financing to SMEs. In 2019, the Company will build the framework for future growth, includ- As of the end of 2018, IBK (China) maintains steady growth with USD ing efforts to secure new clients and increase business with existing 3.32 billion in total assets, USD 1.92 billion in total deposits, and USD clients. It will also pursue internal innovation by conducting more SME 1.34 billion in total loans. It has a nationwide network of eight branches field studies, strengthening support for the collection of outstanding and eight sub-branches spanning Tianjin, Qingdao, Shenyang, Yantai, debts of the Bank’s corporate customers, upgrading the personnel Suzhou, Shenzhen, Wuhan, and Beijing. system, and improving business operations using digital technology. Having three departments and thirteen divisions, the subsidiary pro- vides a variety of services and products that include loans, savings, and foreign currency exchange for individual and corporate clients as IBK Service well as online banking, debit cards, wealth management products, IBK Service was launched on December 14, 2018 in response to the CMS, and more. government policy on transitioning temporary employees in the pub- In 2019, IBK (China) Ltd. will continue to innovate and pursue localization lic sector to permanent positions. Previously, some 1,600 temporary to firmly establish itself as a top foreign bank. Efforts will focus on secur- employees in existing service companies were engaged in jobs related ing and growing a healthy customer base, optimizing financial products to cleaning, security at branches, administrative assistance, cooking, for the local market, and implementing preemptive risk management.

Main Business Date of Establishment IBK Ownership

Domestic Subsidiaries IBK Capital Installment Financing 1986 100.0% IBK Systems IT system development and management 1991 55.6% IBK Credit Information Credit information service 2000 100.0% IBK Asset Management Asset management 2004 100.0% IBK Securities IB, trading and wealth management 2008 83.9% IBK Insurance Pension insurance 2010 100.0% IBK Savings Bank Micro-financing 2013 100.0% IBK Service Security and protection services 2018 100.0% Overseas Subsidiaries IBK (China) Ltd. Corporate and retail banking 2009 100.0%

IBK ANNUAL REPORT 2018 37 Risk Management

The Risk Management Committee, which is under the Board of Directors, is the bank’s highest decision-making body for risk management matters. It determines key policies related to risk management and is in Risk Management charge of measuring and analyzing risks, Committee proceeding with the BoD’s direct approval when necessary. Other activities include setting the risk limit for each business group and risk type; measuring and monitoring risk levels; formulating and revising applicable rules; developing internal controls for the sales divisions; and developing credit rating models. The Committee also oversees matters concerning capital requirements and asset liability management to maintain the bank’s BIS capital adequacy ratio.

Risk Management Council

The Risk Management Council is the working-level decision-making body that conducts advance consultations and adjustments on key policies and issues related to risk management. As such, its role is to manage and Asset Liability supervise risk management practices and assist the Management (ALM) Risk Management Committee in determining policies. Committee

The ALM Committee carries out general asset and liability management duties and makes decisions on liquidity risk and interest rate risk management.

Risk Management Group

The Risk Management Group is divided into the general and supervisory departments. It is responsible for the execution of the Risk Management Committee’s policies.

38 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

2018 New Year kick-off meeting (2018.01.02)

Companywide video conferencing system (2018.06.29)

In a rapidly changing financial environment, IBK strives to ensure IBK applies a variety of methodologies to estimate the likelihood of a the transparency and stability of its business activities through ef- borrower or counterparty’s bankruptcy, which is the most important fective and systematic risk management. Our priority is to protect factor in measuring credit risk. Expected losses are measured based and increase value for our stakeholders whatever the external cir- on past records of bankruptcy probability and managed with bad debt cumstances. provisions. Unexpected losses are measured at a 99.9% confidence level and managed through the allotment of economic capital. IBK has established a risk management organization composed of industry-leading experts in order to prepare for uncertainties and We establish credit risk limits reflective of each group’s business plans maintain stability. Based on the organization, we are able to take a in order to supervise and regulate credit risk levels. These practices preemptive approach to managing various risks including credit, mar- are accompanied by a new credit risk rate system for risk arising from ket, operational and liquidity risks. Since the creation of the Risk Man- new credit exposures. The portfolio management system allows for agement Team in April 1998, IBK has worked consistently to develop stronger preemptive risk management, while an early warning system and maintain thorough risk management practices. IBK was the first in and the credit review program enables more accurate measure of po- Korea’s financial industry to successfully adopt the risk-adjusted per- tential delinquencies. The total exposure system is used to set and formance measure (RAPM) system, advanced-internal rating based manage limits on concentration risk that comes from a single large- (AIRB) model for credit risk, and a risk review structure that combines sum exposure or from exposures concentrated on a specific country systematic and human inspections for greater efficiency. or industry.

2. Market Risk Risk Management Organization Market risk refers to the threat of a decline in asset value or an increase in liability value related to exposure for short-term trading purposes The risk management organization consists of the Risk Management Com- such as marketable securities, derivatives, and foreign currency po- mittee under the BoD, Risk Management Council (working-level), Asset Lia- sitions. bility Management (ALM) Committee, and Risk Management Group. Since it is difficult for a single indicator to reflect all aspects of market risk, IBK uses both statistical and non-statistical methods, including 1. Credit Risk value-at-risk (VaR), VaR back testing, sensitivity limits, stress testing, Credit risk refers to the potential for financial losses resulting from the loss limits, investment ceilings, and stop loss trading. The General Risk bankruptcy or credit deterioration of borrowers, counterparties, or se- Management Department sets the market risk limits and loss stand- curities issuers. Such losses can occur in the process of carrying out ards. Based on historical simulations, it uses the daily VaR as an in- lending activities and capital market transactions. dicator to measure market risk and set limits. The department is also

IBK ANNUAL REPORT 2018 39 MOU with KORAMCO Reits&Trust to support SMEs (2018.12.21)

Induction ceremony for 15th Entrepreneurship Hall of Fame (2018.07.27)

responsible for internal control over all of the trading departments as funding or the sale of assets at unfavorable prices. laid out in IBK’s rules and guidelines for risk management. IBK sets target liquidity coverage ratios and net stable funding ratios IBK measures risk by applying recent daily data to past time series for assets and liabilities pertaining to bank and trust accounts denom- data. However, as this does not reflect crises that have not yet oc- inated in the KRW and foreign currencies that entail cash flows. In ad- curred, we focus on preemptive risk management which involves crisis dition, we monitor liquidity levels based on daily, monthly and quarterly analysis incorporating irregular scenarios and stressed VaR calcula- data, and conduct daily checks to ensure the Financial Supervisory tions used to determine the amount of capital required in a crisis. Service’s regulations are being met.

3. Operational Risk We have strengthened management of foreign currency liquidity since Operational risk is the risk of loss incurred through inadequate or failed the global financial crisis. Related measures include management of internal control processes, inexperienced processing or unethical be- foreign currency liquidity of each overseas branch, diversifying foreign havior from the staff, or external events beyond the system and bank’s currency funding sources, and adding committed lines. We also short- control. ened the crisis analysis cycle to reinforce our ability to identify crisis situations. IBK has set up a comprehensive operational risk management frame- work that encompasses internal control and work processes and systems. For measuring operational risk, we adopted the Basel II Ad- Activities and Achievements in 2018 vanced Measurement Approach after receiving approval from the su- pervisory authorities in November 2008. The past year, IBK redoubled efforts to preemptively manage asset quality in anticipation of persistent low growth and industry restructur- To effectively supervise and regulate operational risk, IBK collects data ing. Moreover, we sharpened our ability to manage risks to strengthen on operational risk loss events, conducts risk self-assessments, mon- the foundation for continued growth. itors key risk indicators, and carries out scenario analysis. Doing so allows us to discover work processes that require improvement and First, we reinforced preemptive asset quality management with an ear- establish related plans in cooperation with working-level employees. ly warning system that allows us to pay closer attention to companies In addition, we instituted business continuity plans in preparation for with a high risk of default through continuous monitoring of corporate crisis situations based on regularly hold mock training exercises. credit risk. We also conducted corporate credit risk assessments and interim credit checks for early detection of potentially insolvent com- 4. Liquidity Risk panies so that they can undergo timely restructuring. We continued to Liquidity risk can be categorized largely as funding and market liquid- reduce loan loss provisions with enhanced company evaluations and ity risks. Funding liquidity risk refers to the risk of having insufficient tighter control over high risk loans. funds to meet financial demands because of asset-liability mismatch or unexpected outflow of funds. Market liquidity risk involves losses Second, we continued to improve our risk management system so that may occur when insufficient funds necessitate high interest rate that the related infrastructure is commensurate with asset volume.

40 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

IBK is the first Korean bank authorized to use the risk management Risk Outlook and Plans for 2019 advanced internal rating-based approach (A-IRB). It also received ap- proval to redevelop and change its personal card credit assessment This year brings concerns about worsening asset soundness due to model to better reflect the changing characteristics of customers and growing economic uncertainty. In addition to global trade disputes and new supervisory regulations. In addition, we developed an interest rate volatile interest rates, we face economic slowdown and long-term low risk in the banking book (IRRBB) system in line with changes in BCBS growth in Korea. regulations regarding interest rate risk. Under such conditions, IBK plans to further strengthen the foundation Third, improved earnings and successful issuance of contingent con- by taking a preemptive approach to managing asset quality and coop- vertible bonds coupled with a reduction in risk weighted assets al- erating bank-wide in response to stricter financial regulations. MOU with KORAMCO Reits&Trust to support SMEs lowed IBK to post its highest BIS ratio. Enhanced capital adequacy (2018.12.21) implies stability and a strong foundation for growth. First, we will continue to improve our lending system to pursue preemp- tive asset quality management. We will take measures such as improv- Fourth, we promoted a culture of risk management based on com- ing credit control costs and strengthening credit rating management. munication. To that end, we organized Group CRO meetings, work- shops for working-level staff, conference calls with regional directors, We plan to redevelop our retail credit assessment model to reflect and employee training programs to improve risk management synergy changes in the business environment and customers’ characteristics. across the entire IBK Group. We will also implement credit rating models that were developed us- ing new technologies like big data and machine learning. At the same time, we will improve our loan portfolio with tighter credit reviews for large loans and companies showing signs of insolvency.

We will raise the internal BIS ratio target to satisfy the increasingly tight capital requirements of Basel III and conduct regular crisis analyses to keep capital adequacy at healthy levels.

Finally, we will keep in step with IBK’s global expansion strategy by establishing a structured global risk management system. This will in- volve conducting risk assessments by sector in all overseas branches as well as setting exposure limits by country. We will also reflect the business characteristics of each subsidiary as part of our effort to en- hance the Group's risk management as a whole. Commemoration of 57th anniversary of the founding of IBK (2018.08.01)

Commemoration of 57th anniversary of the founding of IBK (2018.08.01)

IBK ANNUAL REPORT 2018 41 Ethical Management

Earning trust from customers and stakeholders is IBK’s top priority. That is why we are committed to building an ethics-first organizational culture that embodies core values of integrity, respect and transparency. We will continue to uphold the highest ethical standards in all aspects of our operation as a first-class financial institution.

We always think and act from the customer’s perspective to provide the best products and services that will bring our customers high levels of Customer return and satisfaction. Satisfaction

We focus our capabilities on maximizing shareholder value through prudent decision-making and efficient Shareholder management. IBK Value Code of Ethics

We respect the dignity and value of each employee and seek to improve the quality of their lives through fair personnel policies and equal Employee opportunities. Satisfaction

We contribute to economic and social development by respecting social values, observing rules and regulations, and taking the lead in establishing a Corporate Social sound financial order. Responsibility

42 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Fostering a culture of integrity and compliance Training to scale up culture of compliance As more emphasis is placed on the importance of internal control, In step with the introduction of the Improper and Solicitation and Graft we are providing targeted compliance training that addresses a wide Act, IBK is working to foster a culture that upholds integrity by imple- range of topics such as contracts, terms of service, product disclosure menting a robust compliance program and other policies and practic- and risk prevention. es to strengthen business ethics. Various platforms for ethics and integrity training IBK integrity ecosystem To help our employees understand and practice ethical management, To promote an ethical culture, we are implementing and upgrading we are offering a wide range of training options. These include itinerant our integrity initiative, in which employees are encouraged to take part training, online courses from the Cyber Training Center, and training in voluntarily. Newly established programs like the ethics pledge and at outside institutions, all of which are designed to make it easier for integrity self-assessment process are designed to raise employees’ employees to complete the necessary training. integrity awareness, while the integrity citizen monitoring system is be- ing used to get input from outside experts and improve policies and Training Status practices in the workplace. We have also expanded the customer in- Subject Details tegrity survey to include more participants to gain a wider perspective. Meanwhile, the third week of every month is designated as ‘integrity Compliance · Group training for employees in charge of contracts culture week’ to help embed ethical values in our organization. training & terms of service

Integrity · Integrity training for senior management Raise awareness · Expand culture of integrity and compliance leadership

· Compliance officer training for branch heads (17 times) · Training for new recruits (5 times) Obligatory training · Training for employees promoted to Rank 3 (3 times) on anti-corruption & · Training for employees promoted to Rank 4 (2 times) · Integrity pledge (new) integrity · Integrity self-assessment (new) · Pre-CEO training (branch heads) Awareness · Training for employees in charge of key tasks phase (audit, PB, overseas branches)

Code of Conduct · Training on revised Code of Conduct for all employees

· Integrity citizen monitoring system (new) Bring in experts → Improve practices Anti-money laundering activities Implementation · Integrity practices phase Integrity slogan, activity assessment In 2018, IBK strengthened internal controls by enhancing anti-money laundering efforts. In May, a separate department was established to oversee related activities in domestic and overseas branches. We re- fined the assessment process for new products and services to better identify, analyze and evaluate money laundering risks. We also imple- · Integrity culture week (new) Watch special broadcast on integrity mented a procedure to assess risks of customers from FATF non-co- Training and checklist operative countries and territories. In addition, we set up a cryptocur- Expansion · Integrity survey rency anti-money laundering system to better prepare us to address phase Expand participants and bitcoin related risks. analyze results We plan to implement an advanced system to combat money launder- ing and other financial crimes in 2019. Our focus will be on improving customer verification through the real name authentication process and strengthening anti-money laundering competencies of our em- ployees. We will also establish a comprehensive system to inspect and monitor compliance and anti-money laundering operations in IBK offices abroad to conform to stringent global compliance regulations.

IBK ANNUAL REPORT 2018 43 Human Resource

Appointment ceremony for new IBK employees (2018.07.26)

Digital Staff as a % of New Hires

25

16 IBK is expanding its pool of talented employees who will play a vital role in spearheading the new digital financial industry and driving our 25% transformation from a ‘good’ to a ‘great’ bank. We are also concen- 4 trating on maintaining an optimal HR management system to secure future growth drivers.

2016 2017 2018 Activities in 2018

We emphasize objectivity and meritocracy in our hiring practices with Worker exchange programs allow IBK personnel to develop skills the goal of facilitating strategic projects at IBK. In 2018, we increased across a wide range of fields. For instance, employees in the head hiring of digital talent who will enable IBK to lead the way in the new office gained experience working in a branch and vice versa. We also digital financial industry. To recruit the best people, we defined the pursued synergy creation through worker exchanges between in- traits required of IBK digital personnel and refined our testing and in- dustrial complex and metropolitan area branches. New recruits were terview process. We raised the share of digital personnel in total new mainly deployed to industrial complexes to give them broad work ex- recruits to 25% in response to the digitalization of the financial sector. posure.

We are setting the lead in creating a sound hiring culture with fair and IBK is making efforts to shorten work hours to realize a workplace with impartial procedures. We revised pertinent rules and processes to a 40-hour workweek and no overtime. We introduced a ‘PC-off’ sys- prevent graft and corrupt hiring. To eliminate subjective factors in the tem to nurture an efficient and productive work culture. PC use is limit- recruitment process, all applications and written tests are handled by ed if weekly overtime exceeds 12 hours. We expanded implementation an external organization and the written tests are composed entirely of flexible hours and flexible workplace and improved our meeting/ of objective questions. briefing culture. Moreover, we are actively pursuing computerization and automation in order to increase bank-wide productivity. Our HR system is designed to encourage employees to produce supe- rior results and enhance their skills. We put much emphasis on actual performance and experience gained on the job. Our system supports department and branch heads so they can produce their best results. Branch heads are deployed according to their performance in deposit and lending volume.

44 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Plans for 2019

In 2019, we will focus on recruiting people with digital and marketing skills. We will increase the number of digital qualifications we recognize and post capable youth interns to work in digital-related departments. In marketing, we will concentrate on verifying an individual’s on-site skills. We will strive to meet hiring requirements related to meritorious service and disabilities. We will continue to implement fair and impar- tial hiring practices to recruit high-caliber talent.

We will maintain an optimal HR system to secure innovation growth drivers. We will manage HR to best support IBK’s drive to expand its global network, cultivate future competencies and resolve difficulties in frontline operations. We plan to hold an in-house recruiting event to foster existing employees into specialists in diverse areas, from asset management, investing and finance to new channels and consulting.

Steps will be taken to simultaneously promote work efficiency and work-life balance. We will revise the ‘PC-off’ system to prepare for an era of 52-hour workweek including weekends. We will expand im- plementation of flexible hours and flexible workplace and improve the related electronic application system. We will improve the work culture MOU with Philippines’ Asian Institute of by compiling data on redundant work practices and providing relevant Management on talent fostering (2018.05.04) training. We will also boost RPA transactions to raise work process efficiency.

Appointment ceremony for new IBK employees (2018.07.26)

IBK ANNUAL REPORT 2018 45 Financial Consumer Protection

IBK declared 2018 the first year of financial consumer-centered man- munications and Manners’ for employees at IBK headquarters helped agement and reorganized products and services accordingly. We establish a positive corporate culture. made a concentrated effort to gain greater trust from customers by establishing a virtuous cycle to prevent customer complaints, aug- IBK was highly rated in government assessments and saw its public menting activities for the prevention of financial fraud and damages, image reach new heights. For the first time, we received an “above and pursuing systematization of internal activities to boost customer satisfactory” grade in all categories in the Assessment of Financial satisfaction. Consumer Protection Status, which has been conducted by the Fi- nancial Supervisory Service since 2016 to assess financial companies’ consumer protection levels. We also took first place among state-run Activities in 2018 financial institutions in the Public Service Satisfaction Index, the annual evaluation of consumer satisfaction levels at 236 public entities con- IBK established a virtuous cycle for the prevention of customer com- ducted by the Ministry of Economy and Finance. plaints. This helped us acknowledge complaints, no matter how trivial, to improve the quality of services. As part of our responsible manage- ment practices, we encouraged employees to take a greater interest in Plans for 2019 this issue and reorganized the way complaints are processed. We also worked to make systematic improvements, including the introduction In 2019, IBK will enhance its practice of financial consumer-centered of thematic complaint management. management to become the top bank for financial consumer protec- tion. We will make every effort to accommodate our customers with We were committed to protecting consumers’ valued assets from in- higher levels of consumer protection. creasingly common financial fraud. Working in cooperation with the Financial Supervisory Service, we raised social awareness of finan- First, we will strive to strengthen consumers’ trust in us by maintaining cial fraud through our ‘Zero Voice Phishing Campaign’ and measures a strong rating in external reviews. We will prepare even more system- to educate high risk customers like foreigners or those with multiple atically for the rigorous Assessment of Financial Consumer Protection loans. Internally, we circulated model case studies of financial fraud Status and be ready later in the year to receive the consumer-centered prevention to train employees. management (CCM) certification again from the Fair Trade Commis- sion and Korea Consumer Agency. IBK also made systematic efforts to boost customer satisfaction. We implemented new evaluation standards to encourage employees’ vol- untary participation in CS activities. Training programs like ‘CS Con- sultation Visit’ and ‘IBK Every 1’ for branches and ‘Level-Up Com-

46 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

IBK will continue to upgrade the complaint response process to pre- vent complaints, deliver quick resolutions, and stop recurring com- plaints. We will establish a ‘Complaint Prevention 119’ system so em- ployees can report issues with products and practices at any time. We will also reduce the response time for complaints by instituting the ‘Complaint Response 337 Campaign’ that limits the timeframe at each step of the handling process.

Furthermore, we will reinforce efforts to prevent financial fraud with an end goal of zero damages. To that end, we will establish a promo- tional system for effective training and upgrade the monitoring system to reduce financial fraud cases. We will also identify branches where financial frauds occur frequently and designate them as ’vulnerable locations’ to better address the problem.

As part of our steadfast dedication to improving customer satisfaction, we will adopt a new net promoter score (NPS) in customer satisfaction surveys and offer digital options for CS training to maximize the effects Overseas branch compliance officers & local employees meeting of training programs. (2018.11.13)

Overseas branch compliance officers & local employees meeting (2018.11.13)

IBK ANNUAL REPORT 2018 47 Corporate Social Responsibility

Emergency donation of ice water, refrigerators, coolers to the poor (2018.08.02)

At IBK, we believe that giving truly makes people happier. Under the IBK Youth Mentoring for Hope is one of our most iconic CSR programs. slogan ‘Truly Good Bank’ we are conducting a wide range of social It is a program in which IBK’s new recruits help SME workers’ college activities geared to help and support our neighbors, from low-income students prepare for employment by offering advice on resume writing SME employees, disadvantaged children and the culturally isolated to and interviews and more. Then the college students who received the young entrepreneurs and athletes in less popular sports. Our aim is to help pay it forward by mentoring underprivileged children. As of 2018, fulfill our social responsibility as a company that is admired and trusted an accumulated number of 189 college students succeeded in finding by customers. jobs and 3,834 children from low-income families received mentorship on academics and career path.

Activities in 2018 As a part of our efforts to improve the quality of life for SME workers, we provided AED (automated external defibrillator) in 42 SME work- Improving quality of life for SME Employees places and supported CPR training to help save people’s lives in med- To improve welfare of SME employees and their families as well as ical emergencies. the underprivileged, we set up the IBK Happiness Sharing Foundation in April 2006. As of 2018, our contribution to the Foundation totaled Caring for the underprivileged KRW 41.5 billion. The Foundation has provided KRW 11.4 billion in Since 2012, IBK has been running the Truly Good Food Truck pro- scholarships to 7,153 children of SME employees, KRW 9.8 billion to gram that offers free meals to low-income communities. The meals help treat 2,209 patients with intractable pain and rare diseases, and are provided by 3.5-ton food trucks that come complete with facili- KRW 11.5 billion to support various programs for the less fortunate. ties for cooking, refrigerating and supplying water and can feed up to These efforts are not a one-time event. For instance, the Foundation 300 people at once. In 2018, the trucks were dispatched to 30 loca- continues to pay for medical bills until the patients of rare diseases fully tions across the country. With a KRW 1.5 billion budget, we worked recover from their illnesses. in collaboration with local volunteer centers and offered meals to the needy elderly and disabled people. During the summer heat wave, we To help SME employees achieve work and life balance and create a provided KRW 100 million worth of water and coolers to the poorest family-friendly work environment, we opened IBK Namdong Sarang neighborhoods. Childcare Center in April 2018 in Incheon’s Namdong Industrial Com- plex. It is first time set up by a financial institution in partnership with Another initiative for the underprivileged is IBK Eco Tour. Launched in Korea Workers’ Compensation and Welfare Center. We plan to open a 2014 in partnership with Korea National Park Service, it offers people second center in Gumi Industrial Complex in North Gyeongsang Prov- in need a chance to go out and enjoy nature. It is also a great learning ince. experience as expert guides give wonderful insights into nature and

48 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

history. As of 2018, a total of 59,094 senior citizens living alone, indi- viduals with disabilities, and other underprivileged neighbors took part in outings to 21 national parks and historic sites.

Creating new jobs and supporting social enterprises IBK is leading the way in creating an environment for youth employ- ment through the IBK Social Venture Growth Project that discovers and supports social ventures and youth-run startups with growth po- tential. In 2018, we provided KRW 120 million in financial support as well as business consulting to 9 such companies.

Meanwhile, we helped a total of 121,047 people find jobs through IBK Job World. Aimed at resolving the workforce shortage in SMEs and youth unemployment, the project achieved its 10-year goal of finding jobs for 100,000 people in just 8 years and 10 months. We continued our success in 2018 by connecting 21,047 people with jobs.

Nurturing new artists to boost arts and culture We launched the IBK New Artist Contest with total prize money of KRW 50 million in order to nurture new artists and boost arts and culture. A total of 25 artists were selected as winners and their art- works were exhibited at the IBK headquarters. The contest provided a platform for new artists to showcase their talent and for the public to enjoy easy access to art. Opening of IBK Namdong Sarang Childcare Center (2018.04.04) Caring for the world through global volunteering As a global bank, IBK is committed to making a better world by em- bracing our social responsibility to the global community. Since 2011, our overseas volunteer group comprised of IBK employees has been lending a helping hand in Myanmar, Cambodia and Indonesia. In 2018, we helped improving local schools in Indonesia, doing library and wa- ter facility repairs and renovations. Other global CSR activities include cultural exchange programs with local children and community rejuve- nation projects like repairing murals and making flower gardens.

Promoting unpopular sports through sponsorship IBK has been sponsoring unpopular sports so that they can appeal to a wider audience. In 2018, we continued to support less popular sports, by donating KRW 100 million to the Korea Biathlon Union and KRW 200 million to the National Hockey Association. In addition, we gave KRW 100 million to the Korean national team to encourage and motivate athletes taking part in the 2018 Jakarta-Palembang Asian Launch ceremony for 13th global volunteer group (2018.04.23) Games.

IBK ANNUAL REPORT 2018 49 One of our key sponsorship programs is the IBK Altos Women’s Vol- Going beyond conventional CSR strategies leyball Team established in August 2011. The team emerged as a IBK is going beyond conventional thinking in pursuing CSR initiatives. powerhouse in women’s professional volleyball in a very short time, One of our new projects is installing fire alarms at traditional markets. becoming the season champion in 2012-2013. Since then, the team We will help merchants install smoke detectors to prevent major fires has solidified its reputation as the best in the league by winning the from occurring. Designed to offer real assistance in times of trouble, 2013, 2015 and 2016 KOVO Cup titles; the 2014~2015 and 2016~2017 the project is expected to contribute to strengthening capabilities of season championship finals; and the regular league championships small and independent businesses, which is one of the government’s’ in the 2013-2014 and 2015-2016 seasons. In connection, we created key policies. the Spike of Love program, which offers a win-win scenario for both IBK and the local communities. Under the initiative, KRW 30,000 is Another unique project is distributing high-efficient, environment-friendly accumulated for every point scored during the team’s winning game cook stoves to underdeveloped countries as clean cooking is becoming and is donated to social welfare facilities in the team’s home ground vital to combating global climate change and reducing environmental of Hwaseong. degradation. We will also continue to expand our volunteering program to various parts of the globe and seek ways to motivate employees to IBK also boasts a rifle shooting team. Team members not only con- get more involved in volunteer activities. tributed to winning gold medals at the 2014 Incheon Asian Games, but four members were selected to represent Korea at the 2016 Rio Operating winning sports teams Summer Olympic Games. Since its foundation, the IBK Altos Women’s Volleyball Club has been very successful due to the solid teamwork. The goal is to continue its winning streak to capture the most championship titles in the Women’s Plans for 2019 V-League. We also plan to establish the IBK Altos volleyball team for kids to support physical activities of disadvantaged children, discover Pursuing mutual prosperity with SMEs future players, and revive interest in youth volleyball to expand the fan Creating an environment that balances work and family will be our key base. initiative in 2019. We opened the first SME joint daycare center in 2018 at Namdong Industrial Complex in partnership with Korea Workers’ The IBK Rifle Shooting Team is training hard with the goal of winning Compensation and Welfare Service, and the second facility is planned medals in both domestic and international competitions. Currently, to open in spring 2019 in Gumi. We will also work to enhance quality their focus is on the 2020 Summer Olympics in Tokyo. of life for SME workers by continuing to award scholarships and help with medical bills. Additionally, we will donate more defibrillators and Making sports a part of everyday life support related CPR training to help save lives. IBK is working to make sports a part of everyday life and inspire more people to play sports. We hope to boost popularity of volleyball by We plan to upgrade our IBK Social Venture Growth Project in line with organizing an amateur volleyball tournament for office workers. We will the government policy of reviving the economy through social firms also hold an amateur shooting tournament for high school students to and creating jobs for young people. We will increase the number of discover new talent and increase the appeal of the sport. firms we fund and provide more effective marketing and training assis- tance by linking social enterprises with IBK consulting services.

IBK New Artist Contest Award (2018.11.26)

Ceremony for ‘IBK Design for Hope’ talent donation, mom&pop storefront sign designs (2018.10.23)

50 IBK ANNUAL REPORT 2018 Business Review

52 Corporate Banking 62 Retail Banking 72 Global Markets & Treasury 80 Corporate & Investment Banking 86 Digital

IBK ANNUAL REPORT 2018 51 Key Highlights Corporate Banking

As the leader in SME financing, IBK faithfully carries out its role as a partner for growth of small and medium-sized enterprises.

No. of Corporate Clients SME Loans

1.5 million 151.6 KRW trillion 1.5 million corporate clients as SME loan balance grows of November 2018 by KRW 9.2 trillion to KRW 151.6 trillion

SME Loan Market Share SME Consulting

22.5 % 6,494 IBK accounts for 22.5% of total SME Free consulting to 6,494 SMEs since loan balance (sole bank with over 20% 2011, customized support according market share) to growth phase

SME Job Creation

100,000 jobs Targeting creation of 100,000 jobs through i-ONE JOB by 2020

52 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Dominant player in SME finance

Choi Seok-ho Senior Executive Vice President

1

2

3

1. Corporate Banking Group 2. Induction ceremony for 15th Entrepre- neurship Hall of Fame (2018.07.27) 3. MOU to nurture SME youth employment (2018.05.31)

IBK ANNUAL REPORT 2018 53 SME Loans

IBK continued to play a leading role in supporting SMEs that face difficulties due to a shortage of funds. In 2018, we extended SME loans worth KRW 9.3 trillion, equivalent to 24.7% of the annual net increase in SME loans of the domestic Kim In-tae General Manager banking sector which amounted to KRW 37.6 trillion. Corporate Banking Dept

MOU with Samsung SDS to strengthen SME logistics competitiveness (2018.06.20)

As of the end of 2018, IBK’s total loans stood at KRW 193 trillion, of Product Development which SME loans accounted for 78.5% of the total at KRW 151.6 tril- lion. Our share of the SME loan balance was 22.5%, making IBK the As a policy bank specializing in SME finance, IBK has developed a sole domestic bank with a market share exceeding 20%. variety of products catering to SMEs and startup companies with a view to advancing the national economy, creating jobs and promoting In September 2018, IBK opened a new chapter in Korea’s financial entrepreneurship. history by becoming the first in the industry to see SME loans surpass One of our loan products extends funds at low interest rates to small KRW 150 trillion. We will continue to support SMEs as their steadfast business owners who are going through tough times due to the slug- partner and the leader in SME financing in the year ahead. gish economy.

54 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Partner in Finance MOU with BC Card to support SMEs (2018.07.06)

CEO visits OSG Korea (2018.05.30)

Our ‘Expert’ startup loan program provides capital to seasoned veter- No. of Corporate Clients ans who have at least five years of experience in their respective fields (10,000 companies) and wish to start a new business. 150.0 Our product line-up includes loans that help companies commercial- 140.0 ize innovative technologies through the timely provision of necessary funds. The IoT-based loan secured by smart assets offers borrowers 130.6 favorable loan ceilings and interest rates by accepting IoT (Internet of Things) technology as the main collateral. Technology-rich companies 150.0 can also access funds through a product under which the bank ac- quires convertible bonds issued by these borrowers without a public offering process. 2016 2017 2018 IBK pursues stable and healthy growth by introducing new products for SMEs that also increase high-quality assets in our loan portfolio. The IBK facility assistance program extends capital at competitive interest rates to companies with sound credit ratings and healthy fi- SME Loans (KRW in trillion) nancial conditions that need funds for capex. Another capex product offers favorable borrowing terms such as preferential interest rates 151.6 for loans to pay the balance on mortgages for facilities designated as knowledge industry centers. 142.4 134.4 The ‘MOTIE R&D Project Loan’ is available to successful corporate participants of industrial technology R&D projects led by the Ministry of Trade, Industry and Energy (MOTIE) and companies that have prom- 151.6 ising technologies. The ‘Industrial Technology Growth Loan’ aims to help commercialize innovative R&D results. These technology-orient- ed products are intended to support SMEs while strengthening IBK’s market footing. 2016 2017 2018

IBK ANNUAL REPORT 2018 55 SME Support Services IBK Hidden Champions (Companies)

The ‘IBK Hidden Champion Exporters and Technologies Program’ provides comprehensive support to SMEs, from customized loans to 1,055 1,054 non-financial assistance. It is designed to benefit companies that pos- 1,044 sess globally competitive exports or technologies based on a screen- ing process. In 2018, we designated 71 ‘hidden champions’ and 61 ‘innovative champions’. We plan to select an additional 60 and 50 in the respective categories in 2019 to help companies with strong po- 1,054 tential succeed on the global stage.

The ‘IBK Friend Service’ provides SMEs with complimentary access to contents about leadership, business trends, etc. via a website that 2016 2017 2018 exclusively serves IBK customers. The site was set up to help SME management and employees gain business knowledge and sharpen their decision-making abilities. IBK Corporate Real Estate Advisory Service (Cases) The service has become a useful tool among SME users looking for reference materials or seeking to develop leadership capabilities. Ac- 183 cording to a survey in December 2018, 99% of the respondents said they were “very satisfied” with the service. IBK Friend Service has 142 141 emerged as a representative non-price service at IBK.

IBK offers corporate real estate advisory service in cooperation with a real estate consulting firm. SMEs can receive advice on a wide 141 range of issues, from real estate transactions to investment analysis and property management. As a service that responds to the related needs of SMEs, it serves as a useful tool to attract and retain clients. 2016 2017 2018

Movable finance onsite seminar with Financial Services Commission (2018.05.23)

62nd Hope SME Forum (2018.07.06)

56 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Service for SMEs

IBK is committed to fulfilling its role as the leading bank in SME finance and provides a wide range of services catering to the needs of SMEs at each stage of their growth. Choi Nak-hyeon General Manager Corporate Service & Consulting Dept.

Opening of IBK Changgong Guro (2018.10.01)

SME Consulting Plans for 2019 IBK will continue to carry out partnership consulting with a target of Guided by our objective of ‘partnership consulting’, IBK is working to reaching out to 1,200 companies. Under our new goal of exploring expand financial support and consulting services that meet the needs new areas in consulting and sharpening core competencies, we will of SMEs. develop tailored consulting for each stage of the life cycle and reinforce our ‘partner in finance’ function. Performance in 2018 IBK boasts the largest consulting organization in the financial industry. To that end, we will provide SME consulting services for each step The body is composed of some 70 experts with prior experience in in the following sequence: growth → take-off → virtuous cycle. The diverse fields including global consulting agencies and major account- planned services include on-site coaching for financial statement ing firms. Drawing on their expertise, the seasoned veterans provide preparation and ‘value-up’ consulting for invested companies in the SMEs with useful advice on matters such as business strategy, per- growth phase, productivity review and workplace innovation consult- sonnel management, labor relations and production. Their consulting ing for take-off, and consulting for early detection of delinquencies to scope also extends to business succession, tax, accounting, M&A, promote a virtuous cycle. legal affairs, environment, patents and other issues pertinent to SMEs. We hope to reach even more SMEs by widening our consulting scope. We have organized solutions and support for management problems In addition to online and offline training and business advisory, we plan into different stages of corporate growth so that we can customize our to offer a business support e-book to extend our consulting knowhow advice and counsel SMEs to create value. This service has helped a to- to the online platform. IBK consulting service will contribute to sustain- tal of 6,494 companies since 2011 at no expense to the SME customers. ing growth of SMEs, which play a vital role in the Korean economy. At

IBK ANNUAL REPORT 2018 57 SK Mutual Growth Partner Firm Job Fair (2018.05.31)

MOU with Nihon M&A Center to cooperate on SME M&As (2018.03.29)

the same time, it will help to form long-term partnerships with clients IBK will continue with efforts to assist new ventures that lack sufficient and strengthen the foundation for growth of IBK. collateral but possess superior technologies. Such measures include building a special support system for startups and developing prod- In 2018, IBK set up a team dedicated to M&As to promote smooth exit ucts tailored to their needs. To keep pace with government measures strategies for SMEs. 2019 will mark an important starting point for the to boost new ventures, we will also offer greater non-financial assis- team. Various steps will be taken to foster the yet premature M&A mar- tance such as consulting to help technology-oriented startups obtain ket such as activities to change the negative perception of M&As har- venture certification. bored by CEOs of client firms. We will draw on our 1.5 million-strong SME client base to seize an early lead in the SME M&A market. IBK Changgong ‘IBK Changgong’ (meaning blue skies) represents a new type of en- trepreneurship platform in the financial industry. Its goal is to find pro- Support for Startups active and creative ways to support companies through the difficulties that each stage of growth entails. As a policy bank, IBK is working to create an ecosystem that spurs innovation and entrepreneurship in step with government measures to IBK Changgong offers both financial and non-financial assistance encourage new business ventures. using accumulated SME finance and consulting knowhow. Rooted in the ‘IBK Startup 3H Philosophy’, the unique program encourages new Promoting New Ventures and Entrepreneurs ventures that have promising and high value-added technologies. Shortage of capital is a key concern facing new businesses. With that in mind, IBK plans to provide funds totaling KRW 100 trillion over the Companies selected for IBK Changgong can take advantage of vari- five-year period from 2017 to 2021 as part of its commitment to fi- ous benefits. These include free office space, loans and investments, nancing growth (‘scale-up’). In 2018, we extended KRW 24.636 trillion, domestic and overseas presentations, access to global capital, cus- representing an increase of KRW 4.248 trillion over the previous year. tomized mentoring and accelerating programs, and sales channels linked to IBK’s SME client base. These benefits well reflect the unique To stimulate the economy and promote entrepreneurship, we plan strengths of IBK Changgong. to provide KRW 20 trillion to foster a startup ecosystem and create jobs. We will give particular attention to startup companies that have relatively high risk but are pursuing new challenges armed with cut- ting-edge technologies

58 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

The program kicked off in December 2017 with the opening of IBK IBK has set up a job fund worth KRW 60 billion through which KRW Changgong Mapo office and that was followed by the launch of the 500,000 to KRW 1 million is given per person newly hired. IBK Scout Guro office in October 2018. It has discovered and nurtured 40 startup Service is a customized service in which headhunters find and recom- companies. In addition to investments worth KRW 4.6 billion and loans mend talented individuals to SMEs without charging their usual fees. worth KRW 3.89 billion, it has built up a track record of 296 cases of We also take steps to reach out to young job seekers and employment non-financial assistance in areas such as domestic and overseas IR, counselors at colleges and vocational schools in addition to support- consulting, mentoring and accelerating services. ing visits to promising SMEs. These efforts have the added effect of promoting SMEs with superior working environments. Another office is set for launch in the coastal city of Busan in the first half of 2019. Drawing on experience gained from the Mapo and Guro Plans for 2019 sites, the Busan office will offer both outbound and inbound support to We will uncover high-quality jobs and talented workers and step up promote global entrepreneurship. Based on geographical advantages activities to prop up i-ONE JOB to strengthen its position as a premier of Busan, the new office will help domestic ventures expand abroad job portal specializing in SMEs. and overseas startups enter the Korean market. We will strive to accelerate digital innovation while upgrading our em- We plan to offer follow-up assistance to companies that ‘graduate’ ployment services. We will utilize advanced technologies such as big from the IBK Changgong program. Graduates will be designated as data and artificial intelligence (AI) to better match job seekers with em- mentors to incumbent program participants to help produce synergy ployers and unveil new services linked to ‘IBK BOX’. Moreover, we will among companies in the same industry. They will be entitled to take discover and promote SMEs with strong potential through job fairs part in various training and consulting sessions so they can hone their and company visits to help raise SMEs’ profiles. We will continue to market competitiveness. upgrade our employment programs to attain our target of creating 100,000 jobs by 2022. Through IBK Changgong, we will not only act as a provider of funds but also fulfill our role as a partner for growth. The program’s target for 2019 is to uncover 95 startups (Mapo: 40, Guro: 40, Busan: 15). IBK aims to nurture 500 innovative companies through IBK Changgong by 2022. No. of Free Advisory Services Provided to SMEs (Cases)

Job Creation 1,166

IBK has carried out diverse job creation efforts as part of its commit- 1,088 ment to CSV (Creating Shared Value). We seek ways to resolve youth 1,075 unemployment and SMEs’ labor shortage to promote public interest and increase economic utility in the business sector. 1,166 Performance in 2018 IBK Job World offers comprehensive one-stop services related to em- ployment with access to a pool of solid companies that are recog- 2016 2017 2018 nized by external organizations. To provide enhanced functions, we constructed the new job hub platform i-ONE JOB.

Completed in October 2018, i-ONE JOB allows SMEs to place hiring ads at no charge. Featuring recommended functions, it enables better management of job applicants for HR managers, which in turn en- hances hiring rates. For job seekers, i-ONE JOB gives easier access Job Creation Target thru i-ONE JOB (No. of Persons) to job information by displaying job openings at SMEs verified by exter- nal organizations such as Korea Venture Business Association (KOVA) and Seoul Business Agency (SBA). 100,000

In 2018, IBK organized four job fairs. By bringing together companies in various industries and regions with job seekers, the fairs contributed to boosting local economies and resolving youth unemployment.

21,047 100,000

2018 2022

IBK ANNUAL REPORT 2018 59 Retirement Pensions

Retirement pensions allow companies to help their employees prepare for life after retirement. IBK’s pension products offer simple procedures, low costs and attractive returns. IBK was the first financial institution in Korea to have the Kim Gyeong-seop General Manager number of corporate subscribers pass the 100,000 mark. Retirement Pension Dept.

Performance in 2018 To spearhead the fast-changing retirement pension market and sus- Retirement pensions fall into three categories: defined-benefit (DB) tain growth, IBK will implement the following strategies. plan, defined-contribution (DC) plan, and individual retirement pension (IRP). Under the DB plan, an employee’s pension is predetermined and First, we will enhance return rates by sourcing and providing compet- the company is responsible for asset management. By contrast, the itive products with high returns and stability and presenting a product DC plan requires the company to set aside a predetermined sum while portfolio tailored to the customers. the employee is responsible for asset management. Second, we will continue to serve as a financial partner and ease the IRP subscribers receive and manage their pension, and are free to financial burden on startups and SMEs by offering fee reductions and invest additional savings. Since retirement pensions were first intro- exemptions. duced to Korea in December 2005, the market has grown to KRW 188 trillion and 400,000 corporate subscribers. Third, we will maximize customer convenience through means such as developing a new retirement pension system, introducing robo-ad- IBK recorded a net gain of KRW 1,674.7 billion over the previous year to visors using AI, enabling 24-hour transactions via non-face-to-face accumulate reserves of KRW 13,831.6 billion (market share of 7.36%). channels, and providing one-stop IRP services. The number of corporate subscribers stood at 101,640 (market share of 28.52%), making IBK the first among 47 financial institutions in Ko- rea to surpass the 100,000 mark and attesting to our credibility as a pension fund operator. We also ranked among the top in the banking sector in terms of the rate of return on DC and IRP plans.

Plans for 2019 The retirement pension market will likely grow in 2019 in view of the min- imum wage hike and mounting attention on IRP to prepare for life after retirement. However, the growth pace should slow given that most of the pertinent companies have already subscribed to the pension plans. Moreover, the spotlight is growing on the management of pension as- sets due to low interest rates and the expanding DC market segment.

IBK overhauls retirement pension commission system (2019.01.18)

No. of Corporate Subscribers to IBK’s Corporate Pension Fund Reserves Corporate Pension Plans (Companies) (KRW billion)

101,640 13,832

94,641 12,157 88,696 10,414 101,640 13,832

2016 2017 2018 2016 2017 2018

60 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

International Trade

IBK’s FX operations generated revenues of USD 133.8 billion in 2018. The healthy results were driven by successful marketing targeting corporate and retail customers as well as foreign investors. Kim Hee-sup General Manager International Trade Business Dept.

Plans for 2019 Amid rapid changes in the financial environment, we will strengthen the foundation for sustained growth. Our main pursuits in 2019 will be to diversify our FX operations to widen the profit base, step up efforts to promote global expansion of SMEs, and tighten risk management through process enhancement.

First, we will upgrade our export and import support services in co- operation with related organizations to carry out more strategic foreign exchange marketing and address major problems facing SME export- ers. In particular, we will pursue diversification to bolster future income generation. Specifically, we plan to introduce a product for online ex- port assurance with the Ministry of SMEs and Startups.

Second, we will further increase customer support services. We will

Comprehensive MOU with Poland’s PKO Bank (2018.09.13) expand P@yGOS to help export companies explore overseas mar- kets and organize seminars on overseas expansion for SMEs. We will also develop products exclusively for the non-face-to-face channels (Internet, smart banking) to keep pace with the shift in the trade envi- ronment from the offline to the online arena. Performance in 2018 In 2018, IBK’s FX operations recorded USD 133.8 billion in revenues Third, to hedge against FX risks, we will continue efforts to upgrade and operating income increased KRW 46.5 billion to KRW 190.9 bil- FAIS (Foreign exchange Abnormal transaction Investigation System) lion. Backed by our emphasis on profitability, we were able to attain for better risk management and internal control. We plan to strengthen our operating income goal by attracting high-profit-per-dollar SMEs training in FX compliance and share up-to-date information through and strengthening management of invisible trade by individuals. on-site training programs to react swiftly to major issues such as un- expected financial regulations. Based on cooperation with trade-related agencies, we drew up com- petitive support measures to encourage domestic-oriented compa- nies shift toward exports. We also carried out export counseling and on-site marketing activities to attract clients. In addition to various programs to assist trading companies, we expanded P@yGOS, our export receivables collection service for international e-commerce transactions. In these ways, IBK helped SME exporters find new sales channels and expand into overseas markets. Income from FX Business (USD in billion)

We newly introduced the ‘comprehensive report on financial transac- tions’ to respond to heightened focus on financial consumers’ rights 136.0 and related revision of foreign exchange transactions laws. 133.8

As a way to promote foreign direct investment, we designated strate- gic branches and offered advice and marketing assistance to compa- 113.3 nies seeking to attract foreign capital. One of our support programs 133.8 includes identifying potential foreign investors and matching them with IBK customers. We hosted a series of marketing events to broaden our retail customer base for FX and remittance services. We also held a number of customer-oriented seminars on FX remittance using the 2016 2017 2018 system of ‘foreign marketers’ of various countries.

IBK ANNUAL REPORT 2018 61 Key Highlights Retail Banking

IBK’s retail client base has grown to over 15 million. Our priority is always on the customers as we innovate products and services to satisfy diverse customers’ needs.

Retail Customers Retail Deposits

15.5 million 59.3 KRW trillion Retails customers number 15.5 million Retail deposits amount to KRW 59.3 trillion, as of end 2018 on steady efforts to a net increase of KRW 1 trillion year-on-year, expand the customer base for a market share of 11.44% (based on six commercial banks)

Household Loans Credit Card Use

33.37 KRW trillion 41.69 KRW trillion Household loan balance grows by Card usage in 2018 reaches KRW 41.69 trillion KRW 1.76 trillion year-on-year to KRW 33.37 trillion

Corporate Card Market Share

15.52 % Corporate card market share maintains commanding lead at 15.52%

62 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

1

2

3

1. Banking Department at IBK Headquarters 2. IBK ‘Keep Calm and Carry On Card’ 3. Retail Banking Group

Serving clients with a customer-first approach

Bae Yong-deok Senior Executive Vice President

IBK ANNUAL REPORT 2018 63 Retail Banking

IBK has served SMEs for half a century and is now growing into the nation’s leading bank for all Koreans. As we turn our 15 million retail customers into lifelong clients, we are laying the foundation for steady growth. Lim Hyung-kyun General Manager Retail Marketing Dept.

Banking Department at IBK Headquarters

Performance in 2018 As of the end of 2018, IBK’s total deposits (excluding funding of head- utilization, we introduced a structured customer management system. quarters) posted a net increase of KRW 1.1 trillion year-on-year to stand We also targeted the simple payment market with the goal of attracting at KRW 150.3 trillion. This represents a market share of 11.94% based new clients. We pursued joint marketing with social commerce com- on six commercial banks. Retail deposits showed a net increase of KRW panies and secured payment and settlement accounts to expand our 1 trillion to KRW 59.3 trillion for a market share of 11.44%. Core retail customer base centered on the economically active population. deposits grew by KRW 1.1 trillion to KRW 21.7 trillion thanks to concen- trated efforts at expanding core deposits from retail customers. As a result, the newly established index of core clients reached 658,000 within one year. We will step up marketing to attract new and Growth of retail customer base and core retail deposits : The number core clients to uphold stable growth of the retail client base. of retail customers stood at 15.007 million in January 2018, passing the 15 million mark some two years after reaching 14 million. As of the Marketing strategy and main products & services : IBK successfully end of 2018, retail customers increased year-on-year by 593,000 to launched new products including customer-centric products reflect- 15.5 million. ing the sensibility of seasonal themes. We introduced the ‘W New Year’s Resolution Account’ to celebrate the year of the dog (one of To attract core retail deposits, we established a system to support the 12 zodiac signs) and ‘W Installment Savings Account for Parents’ results-oriented marketing geared toward children and students. We to promote family month (May). Other new products include the social also revamped the ‘Personal VIP Class’ system for new clients to en- commerce product ‘IBK TMON Account’ and ‘IBK W Small Happiness able customer-centered, intuitive evaluations. To enhance marketing Account’ that encourages growth of SMEs.

64 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Total Deposits Plans for 2019 (KRW trillion) IBK will expand marketing geared toward new and core customers to reinforce the foundation for stable growth of retail customers. 193.7

Marketing to raise core deposits : In response to the decline in core 181.9 deposit per person amid the economic slowdown, we will expand our 170.8 customer base among the economically active population in their 30s to 60s to prop up core deposit funding. 193.7 Our plan is to boost simple payment partnerships with Payco, SSG Pay, etc. to broaden our marketing channels and to encourage greater transactions by customers from the non-face-to-face channels. We will also hold joint events with our partners to increase benefits for 2016 2017 2018 double reward clients.

We plan to raise funds by offering ‘W Special Savings Account’ fea- turing competitive interest rates. We will also develop and market ‘W Retail Banking Customers Frequent Clients Account’ that will offer favorable interest rates and (million) fees to clients with large and frequent transactions. Another product in the pipeline is ‘W Children’s Account’ which will offer the same fa- 15.5 vorable interest rate to qualifying parents and their children, a first in the banking industry. 14.9 14.6 Securing new customers and expanding the retail customer base : IBK is honing its future growth engine by expanding the customer base with new clients. We will pursue a ‘pincette marketing’ strategy 15.5 to target specified market segments such as professionals, military servicemen and children.

2016 2017 2018 When marketing to salaried workers, we will focus on customers using the bank for salary transfers in view of higher minimum wage and job creation in the public sector. For military servicemen, the focus will be on getting new accounts via the non-face-to-face channels and automatic payments for communication bills considering the sched- uled rule change that allows troops to use mobile phones. We will also target our marketing to address the needs of military officials who are expected to increase in number. Related to consumers eligible to receive child care subsidies, we will work to attract family customers by offering benefits such as vouchers for child-related products from partner companies.

IBK Tmon bankbook subscription event (2018.12.03)

Launching of “IBK W Small but Certain Happiness” bankbook (2018.12.04)

IBK ANNUAL REPORT 2018 65 Retail Loans

As of the end of 2018, the household loan balance amounted to KRW 33.37 trillion, rising by KRW 1.76 trillion from a year ago. In addition to mortgage and home lease loans, IBK offers various loan products to assist people with minimal Jung Yong-won General Manager access to financial services. Retail Loan Dept.

Performance in 2018 Plans for 2019 Mortgage loans stood at KRW 19.22 trillion, accounting for 57.6% The banking sector as a whole is likely to see a slowdown in house- of total household lending and the average LTV (Loan to Value) ra- hold loan growth given potential risk factors such as the DSR (Debt tio stood at 49.5%. The share of mortgage loans fell slightly following Service Ratio) regulations, limits on mortgages and home lease loans the tightening of mortgage loan regulations including the debt service for owners of multiple homes, and the rise of market interest rates. ratio (DSR) requirements and the government’s real estate measures IBK will implement advanced loan screening standards to focus on a unveiled in September. Nonetheless, home lease loans continued to borrower’s repayment ability and faithfully carry out the government’s rise steadily thanks to increased demand for home leases. Credit loans household debt control measures. Furthermore, we will offer loans were mainly directed at professionals and quality customers as well for end-users looking to purchase or lease a home, increase policy as for living stabilization funds for SME employees. The loan balance mortgage loans, strengthen non-face-to-face lending, and improve the increased by KRW 252.0 billion year-on-year to KRW 6.23 trillion. structure of mortgage loans to pursue sound and stable growth in household loans. IBK offered active support to low-income brackets and people with minimal access to financial services with products such as the ‘New To fulfill our social responsibilities as a policy bank and to support the Hope Seed Loan’, ‘Workers’ Livelihood Stabilization Loan’, ‘Switch government’s microfinance policy, IBK will reach out to people with Dream Loan’ and ‘Saittol Loan’. The amount extended through New minimal access to financial services by introducing new products and Hope Seed Loan reached KRW 360.3 billion, surpassing the goal of expanding support channels. To that end, we will introduce a youth KRW 270.0 billion by 33.4%. Through the Workers’ Livelihood Stabi- rent and lease loan, a low interest product to help reduce the burden lization Loan, we extended KRW 136.1 billion to low-income workers associated with interest rates and finding a residence for younger cus- with overdue wages, the unemployed, etc. in an exclusive partnership tomers. For borrowers with low credit ratings and low income levels with Korea Workers Compensation & Welfare Service. who have difficulty repaying loans, we will offer customized support such as reduction/exemption on the principal and extension period for default payments. Along with continued promotion of the New Hope Seed Loan and new products in the non-face-to-face channels, we plan to contribute further to the IBK Smile Microcredit Bank to support small business owners operating outside the metropolitan areas.

Household Loans (KRW billion)

33,370

31,614

30,784

New Hope Seed Loan II, the product for 33,370 low-income, low-credit working class people

2016 2017 2018

66 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Credit Cards

IBK overcame internal and external difficulties in the credit card market, such as lower merchant fees, sluggish economic growth, and intense competition in the payment market. We launched strategic new products, carried out marketing to Kim Munn-yeon General Manager increase card usage, and strengthened asset quality to produce sound results. Credit Card Business Dept.

Launch of 2 new IBK card products (2018.03.22)

Performance in 2018 Credit card usage in 2018 amounted to KRW 41.69 trillion. The figure Total Membership bypassed the KRW 40 trillion mark four years after reaching KRW 30 (in thousands) trillion in 2014 and just seven years after hitting KRW 20 trillion in 2011. Corporate credit card market share stood at 15.52%, up 1.10% from 8,785 a year earlier to give IBK a commanding lead in the market segment. Operating profit came to KRW 133.4 billion, marking the second year 8,435 in a row it reached KRW 100 billion thanks to higher than expected growth of card usage, rigorous cost control, and efforts to reduce al- 8,120 lowance for bad debt. 8,785 IBK distinguished itself in the development of strategic new products as well as in attracting the highest ever number of new card holders.

We launched competitive products like ‘Win-Win Growth-Success 2016 2017 2018 Card’ for SMEs, ‘Youth Support Card’ for young employees working in industrial complexes, and ‘GD Card’ for trendy young users. These cards helped us win new clients while fulfilling our social responsibil- ities as a policy bank. We secured 1.508 million new card holders in 2018 for our best ever results.

IBK ANNUAL REPORT 2018 67 Plans for 2019 Operating Income (KRW billion) The outlook for the credit card industry in 2019 is weighed down by various issues including reduced merchant fees, government-led sim- ple payment services, and concerns that rising interest rates may hurt 133.4 asset soundness. 126.4

IBK’s credit card business will focus on attracting new members based on profitability, increasing usage centered on quality custom- 82.3 ers, preemptive risk management, and expanding the digital founda- 133.4 tion for future growth. We will set up a screening process that runs 24-hours/365-days (i-ONE Bank 2.0), introduce card-based QR Pay, develop targeted products for quality corporate members and non- face-to-face products, direct marketing to increase VIP and overseas 2016 2017 2018 use, and upgrade risk monitoring to turn potential crises into a turning point for new growth.

Launch of GD Card (2018.02.27)

Launch of “Together with Youth Card” to support travel expenses for SME youth employees (2018.06.28)

68 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Private Banking

IBK provides a wide range of wealth management services for customers. These include asset management strategies for VIP clients, portfolio recommendations, Oh Young-kug post-retirement planning assistance, and more. Vice President & Managing Director Wealth Management Dept.

Opening of Pangyo WM Center, 19th Branch in Branch (2018.11.23) Mokdong WM Center, IBK

Performance in 2018 preserve principal, mid-risk/mid-return products reflecting mid to long More branches to strengthen total wealth management : We opened term trends, and alternative products invested in fintech and real es- ten new hybrid branches that offer consultation and sales of both tate. Through these efforts, we realized win-win growth with higher banking and securities products. This was the largest increase since returns for customers and improved margins at IBK. IBK began operating hybrid branches. It enabled us to build a nation- wide financial belt for wealth management and strengthen our total Plans for 2019 wealth management services. We also converted ten branches to ‘Win Continued channel expansion and stronger foundation : We will con- Class’ branches that are manned by wealth management consultants tinue expanding our network with hybrid branches offering both bank and to bring the total number of these branches to 230. securities services and Win Class branches where we post full-time con- sulting staff. The hybrid branches will act as regional hubs, allowing us to Wider variety of services for higher customer satisfaction : In July, we offer joint wealth management consulting to VVIP customers from nearby successfully launched robo-advisor wealth management based on ar- branches as we continue improving our service quality. tificial intelligence (AI). By automating investment portfolio recommen- dations for new assets, rebalancing information, and more, we were Specialized consulting and upgraded customer service : We will ex- able to expand portfolio services for a broad customer base. pand Top Service to help grow customers’ wealth and increase their satisfaction levels. We will also provide timely seminars that corre- We also contributed to increasing customers’ wealth through ‘Top spond to financial trends and offer customized programs that reflect Service’ that is provided by experts in investment strategy, real estate the unique characteristics of customers at different WM (Wealth Man- and taxation as well as through financial consulting for SME clients. We agement) Centers. enhanced customer convenience through ‘Call Up Service’, our tele- phone consulting service. Lastly, we helped satisfy customers’ diverse Differentiated financial products and solutions : We aim to offer more needs through premium seminars and various cultural performances. new products that combine stability and profitability based on IBK’s WM house view and will continue adding to our product lineup to sat- Greater competitiveness with expanded lineup of PB products : We isfy the diverse financial needs of our customers. We will introduce expanded our lineup of PB products to strengthen our competitive- prime products and provide customized portfolios for WM Centers’ ness and be better equipped to respond to changes in the global VVIP customers. Additionally, we will maximize customer satisfaction market. We broadened our investment scope to include products that with systematic follow-up care.

IBK ANNUAL REPORT 2018 69 Bancassurance

IBK offers competitive bancassurance products to better serve customers while contributing to the growth of IBK’s non-interest income. Lee Chan-soo General Manager Retail Product Dept.

Performance in 2018 Plans for 2019 In the face of reduced tax benefits and implementation of IFRS 17, Our emphasis will be on meeting diverse customers’ needs while grow- IBK stepped up marketing for high-yield pension and protection-type ing IBK’s non-interest income. We will continue marketing competitive insurance products. In 2018, insurance sales fees reached KRW 65.2 and profitable pension and protection-type products that meet cus- billion (including KRW 1.6 billion in deducted sales fees). We also tomers’ health coverage needs and help them enjoy their golden years. heightened our product lineup with the introduction of new products We will also sell a product that encourages long-term job tenures at like Alzheimer’s disease and dental insurance. SMEs to bolster growth of SMEs. We will carry out sound sales activi- ties and fully inform customers when selling insurance to preemptively stave off complaints. We will protect consumers’ rights with follow-up measures such as notifications regarding lapsed policies.

Opening of Gwangju WM Center, 18th Branch in Branch (2018.10.25)

Launch of “IBK FX Money Market Trust” investing in US dollar (2018.11.23) Funds

IBK is helping customers grow their wealth by offering funds that reflect market trends and services that capitalize on the latest technologies such as AI-based robo-advisors.

Performance in 2018 Plans for 2019 In 2018, we generated KRW 32.0 billion in non-interest income by of- Our 2019 target for beneficiary certificate sales commissions is KRW fering products reflecting market trends (funds that switch from equity 36.0 billion. To achieve that goal, we will continue offering competitive to bonds when certain conditions are met, etc.) and bond funds to products and increase assets under management to pursue balanced corporate customers. In July, we launched i-ONE Robo Fund which top- and bottom-line growth. We will expand our offering of products uses artificial intelligence (AI) based robo-advisors to offer fund invest- available on non-face-to-face channels to increase convenience for ment services. The product has proven popular with customers and customers. Additionally, we plan to launch short- to mid-term bond we have sold KRW 5.2 billion worth as of the end of December 2018. funds and foreign currency investment products targeting corporate customers.

70 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Trusts

IBK is satisfying customers’ needs with trust products that pursue stability and profitability and protecting their interests through stringent risk management. Lee Ho-ryung General Manager Trust Dept.

2018 IBK Retail Customer Awards (2018.07.30)

Performance in 2018 Plans for 2019 With a wide range of products that meet customers’ investment needs We will further increase the stability of products in response to growing and an emphasis on profitability, IBK’s trust business saw its non-in- volatility of the financial markets at home and abroad. The overall quality of terest income rise to KRW 24.8 billion, up significantly from KRW 14.5 trust services will improve as we successfully initiate a new trust system, billion in the previous year. strengthen customer services, and introduce new products. We will also take various measures so complete sales take root, including providing We introduced gold trusts, foreign currency trusts and other products manuals and revising and educating employees about relevant rules. that balanced stability and profitability while continuing to expand our special money trust lineup of bonds, funds and ELS. We also contin- ued on-site training to prevent incomplete sales, conducted self-as- sessments using a mystery shopper system for special money trusts, and recorded phone calls related to ELS.

IBK ANNUAL REPORT 2018 71 Key Highlights Global Markets & Treasury IBK is driving innovation under the vision of Asia’s No.1 bank in SME financing. We will continue to nurture future growth engines to stay on the growth track.

Overseas Network

28 locations in 12 countries Presence in 12 countries with 28 business sites including 16 branches in China

Overseas Bank M&A Funding

Indonesian 236.9 KRW trillion KRW 105.6 trillion in deposits, KRW 104.8 trillion banks in bonds and KRW 26.5 trillion in borrowings Pursuing acquisition of Indonesian bank, IBK’s first overseas bank M&A

FX Transactions FX Risk Management Visiting Consultations

4,74 5 USD million 382 FX transactions through non-face-to-face Advice on managing FX risk and FX volatility channels increase 18.9% year-on-year customized to an individual company’s needs

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3

1. Global Business Dept. 2. Global Markets & Treasury Group 3. Trading Dept.

Establishment of an Asian financial belt

Oh Hyuk-soo Senior Executive Vice President

382

IBK ANNUAL REPORT 2018 73 Global Business

The IBK global financial belt has expanded to include China, Vietnam, India, Philippines, Cambodia and Indonesia. Our global network will support SMEs that are planning to grow their business overseas. Choe Sung-jae Vice President & Managing Director Global Business Dept.

Opening of Cambodia Phnom Penh branch (2018.12.11)

Performance in 2018 We opened a new branch in Cambodia’s Phnom Penh in December. IBK operates in 28 locations spanning 12 countries, including 16 The opening followed a wait of three years and three months to re- branches in China as well as branches and representative offices in ceive local approval. This marked Cambodia’s first commercial bank Myanmar, Indonesia and Russia. approval for a Korean financial institution in nine years. The branch opening allowed IBK to ready an outpost for Korean SMEs wanting to The year 2018 saw IBK completing the basic framework for its Asian venture into Southeast Asia. financial belt. The most notable achievement was the successful ac- quisition of banks in Indonesia, representing IBK’s first M&A of an over- In regions that have a small presence of Korean SMEs or pose con- seas bank. The simultaneous acquisition of two banks was also a first straints on bank entry, IBK has entered into strategic alliances with in Indonesian banking M&A history. prominent overseas banks to provide local financing. In September, we added a new MOU with PKO Bank of Poland, raising the total In November, we opened a representative office in Vladivostok, Rus- number of overseas MOU partners to 17 as of the end of 2018. Nota- sia. Opening the office in a crucial area of the Korean government’s ble partners include ANZ of Australia, UniCredit of Italy, Santander of New Northern Policy enabled us to gain a bridgehead for entering the Spain and ENBD of the UAE. The total amount of financial assistance northern Asian market. At the same time, we completed the construc- provided through the partner banks is USD 348.5 million (1,267 cases) tion of an IBK Asian network connecting five ASEAN member nations by the end of 2018. and the Far East region.

74 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

We continue to hold Group-wide overseas business council meetings In Vietnam, we are in the process of sharpening our sales competitive- that are attended by working-level members from all Group affiliates ness by converting our two branches (in Ho Chi Minh City and Hanoi) including those from the banking, capital, investment securities and into a local subsidiary. Once local financial authorities complete their savings bank units. The meetings help formulate strategies and ac- evaluation process, we plan to set up an additional branch in industrial tion plans for overseas operations. Through such cooperation, we complexes favored by SMEs to provide enhanced services. Addition- have decided to pursue the establishment of comprehensive financial ally, the office in Myanmar’s Yangon will be converted into a branch or branches offering one-stop services for banking, securities, insurance local subsidiary to coincide with the opening of the country’s banking and installment financing in Vietnam, Indonesia and Cambodia. market.

Plans for 2019 IBK will continue to pursue entry into other markets outside Asia IBK is on course to pursue various businesses in 2019 to realize our with growth potential. Korean companies have recently been making vision of becoming Asia’s No. 1 bank in SME financing. This entails fur- headway in Eastern European, and this has led to our consideration ther expanding and strengthening our current network in Asia to pre- of opening an office in Poland. As a traditional production base of Eu- pare the groundwork for bolstering our presence in the global arena. rope, Poland has already attracted numerous global manufacturers and is fast emerging as a financial center of Eastern Europe. Along with the opening of overseas branches and offices, IBK is adopting a more aggressive stance in expanding its overseas network In countries where we already have a presence, IBK is localizing oper- through M&As or corporate conversions. In 2019, the two Indonesian ations to boost growth. The Chinese subsidiary, which celebrates its banks that were acquired in 2018 will be merged to launch IBK-Indo- 10th anniversary in 2019, has outlined a new mid-to-long-term strate- nesia Bank. Considering their 36 branches in Indonesia, the merger gy that reflects local market conditions. By increasing sales activities will result in IBK’s overseas network extending to approximately 70 targeting local firms and diversifying local network channels, the Chi- locations. nese entity aims to build a sustainable growth model.

We also plan to reinforce our global business infrastructure. In tune with our growing global network, IBK is rebuilding its international computing system dubbed ICONS. We are continuing to upgrade AML monitoring and compliance operations, such as local auditing activities to respond to the changing global compliance and regulatory environment.

Finally, IBK is maximizing efforts to enhance global synergy between Group affiliates and expand business with overseas MOU partners. Furthermore, we plan to steadily increase our global CSR activities through volunteering and sponsorships for the needy in local commu- nities where we do business.

ASEAN high-ranking public officials training (2018.11.07)

Opening of Russia Vladivostok Office (2018.11.20)

IBK ANNUAL REPORT 2018 75 Treasury

IBK is the first Korean organization to successfully issue USD 500 million in social bonds, fulfilling our public function of supporting SMEs as their partner in finance. Choi Tae-ho General Manager Treasury Dept.

Performance in 2018 IBK strengthened its funding structure by actively employing market by 0.58%p. We also enhanced the competitiveness of our branches funding. It recorded net growth of KRW 16.1 trillion in bonds and bor- by raising the appeal of SMIF bonds by easing requirements for retail rowings. Despite a decrease in total deposits, which marked a drop of investment in short-term SMIF bonds and providing special interest KRW 3.3 trillion compared to the previous year, low-cost core deposits rates for non-face-to-face channels. rose by KRW 2.2 trillion to contribute to qualitative improvement in funding. In the global capital market, IBK became the first Korean organization to successfully issue USD 500 million in social bonds, realizing our In the debt capital market, we reduced funding costs with a flexible public function of supporting SMEs as their partner in finance. We also stance on maturity in our issuance strategy, taking into account the expanded our foreign-currency funding base by newly securing global external environment and market demand. Additionally, we diversified SRI (Socially Responsible Investment). Moreover, IBK set a precedent the maturities of SMIF bonds for a stable funding base. Aggressive IR in the Korean financial industry by inking a contract with two mega and close market monitoring contributed to our successful issuance Japanese banks to exchange KRW/JPY committed lines, thereby pre- of KRW 350 billion in hybrid bonds and KRW 600 billion in subordi- paring ahead for any sudden changes in foreign currency liquidity. nated bonds. This lowered funding costs and improved the BIS ratio

Treasury Dept.

76 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Treasury Dept.

Plans for 2019 The year 2019 is forecast to bring more internal and external financial market uncertainties due to a general slowing of the global economy. Competition between banks to secure deposits is expected to inten- sify ahead of the introduction of new loan-deposit ratios. Accordingly, IBK plans to increase market funding to supplement deposit funding and focus on lowering funding costs.

A major strength of IBK is its ability to issue SMIF bonds which enables lower-cost funding compared to other commercial banks. We will use this competitive edge to issue Korean currency sustainable bonds and publicize our public policy function and provide competitive funds to promising SMEs. We also plan to upgrade the attractiveness of SMIF Core Deposits (KRW trillion) bonds to retail customers by offering an installment product with fa- vorable interest rates in the non-face-to-face channels. 56.1

With increasingly stringent Basel III Liquidity Coverage Ratio (LCR) and 52.0 Net Stable Funding Ratio (NSFR) standards, we will adjust the amount 45.0 of highly liquid assets to manage our liquidity. The newly established Interest Rate Risk in the Banking Book (IRRBB) will be systematically managed through the creation of a monitoring system. 56.1

As for foreign currency, we will maintain a steady funding structure to prepare for any global liquidity tightening. IBK will diversify funding currencies and methods to respond flexibly to market demand and 2016 2017 2018 conditions. For systematic liquidity management amid growing mar- ket uncertainties, we will continuously review our contingency plans such as the credit line and KRW/JPY committed line. The adoption of foreign currency Repurchase Agreement (RP) transactions will also contribute to our profitability. Total Deposits We will continue to build upon our fundraising capabilities through reg- (KRW trillion) SMIF ular IR activities and talent nurturing. By securing sufficient funds to Other Deposits support SMEs, IBK will fulfill its role as a policy financial institution. 193.7

181.9 90.6

170.9 93.9

86.3 103.1

88.0 84.6 193.7 2016 2017 2018

IBK ANNUAL REPORT 2018 77 Trading

IBK gives customers easy access to FX trading through its online and mobile spot/futures trading services. We also help export-import companies manage FX risk by providing customized solutions and onsite consulting. Park Sang-bae General Manager Trading Dept.

Trading Dept.

Performance in 2018 In April 2018, we extended the trading hours for the Internet and mo- IBK personnel visited export-import companies around the country to bile FX systems to enhance customers’ convenience. Stronger mar- provide consulting on FX risk management and advice on how to man- keting efforts led to a 18.9% increase over the previous year in non- age such risks and offered solutions to counter rapid FX fluctuations. face-to-face spot and futures trading volume. Currently, the ratio of non-face-to-face channel trade to total FX spot and futures trade is IBK offers Internet and mobile FX spot and future systems that allow 59.1% in terms of the number of trades and 31.8% in terms of amount. customers to conveniently conduct their FX trading through the PC This is making a significant contribution to reducing the workload at and smartphones at real-time market rates, eliminating the need to branches and prevention of incomplete sales. visit branches and fill out forms. IBK is the only domestic financial insti- tution to provide such services through mobile devices. To provide timely financial market information, IBK sends out MMS on FX market data and emails on the latest financial market issues twice a day.

78 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

FX Spot and Futures Trade (USD million)

4,745

3,989 3,198 4,745

2016 2017 2018

Plans for 2019 We plan to expand our visiting consultations on FX risk management and diversify our product offerings. Customer management will be further boosted by conducting surveys of corporate clients and or- ganizing seminars for VIP customers. Additionally, we will continue to advance non-face-to-face channel sales by improving the accessibility of the IBK Mobile FX Spot and Futures App and by adopting further solutions for the Internet and mobile FX systems. Such efforts should lead to greater customer convenience and satisfaction.

Trading Dept. As we predict FX fluctuations to intensify amid greater uncertainties at home and abroad, we will step up visiting consultations for differ- entiated and customized FX risk management. Increasing non-face- to-face transactions is also expected to assist in companies’ FX risk management.

IBK ANNUAL REPORT 2018 79 Key Highlights Corporate & Investment Banking

The CIB Group satisfies diverse corporate client needs through technology financing, investment banking, project financing, and creative content financing.

CIB Operating Income

182.6 KRW billion Record high operating income of KRW 182.6 billion

Technology Financing Creative Content Financing

32.7 % 628.4 KRW billion Accounted for about 30% of Funding for future growth engine industry total technology financing

Box office results of invested movies

12.27 million tickets sold ‘Along with the Gods: The Two Worlds’ attracts 14.41 million viewers (no. 2 at box office) and the sequel ‘Along with the Gods: The Last 49 days’ draws 12.27 million (no. 10 at box office)

80 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Strengthening CIB capabilities, ensuring new revenue

Jern Kue-baeg Senior Executive Vice President

1

2

3

1. Investment Banking Dept. 2-3. C reative Content Financing Dept.

IBK ANNUAL REPORT 2018 81 Investment Banking

IBK is actively creating synergy and exploring new markets to grow the IB business. We are taking a leading role in technology financing by extending loans to technologically advanced companies that have high growth potential. Kim Yi-kon General Manager Technology Finance Dept.

MOU with Korea Securities Finance Corp. on mutual growth (2018.09.20)

Performance in 2018 IB : The main focus areas for IB in 2018 was expanding the profit Technology Financing : We conduct a comprehensive review of a base and producing greater synergies. We concentrated on arrang- company’s financial information as well as its technology and credit ing profitable project financing and securitization activities and formed rating before extending financial support. Accounting for nearly 30% partnerships with leading venture capital and PE firms. A collaborative of all technology financing, IBK maintains a solid lead in the sector. In body was established to respond to the matrix organization of oth- the Financial Services Commission’s TCB (Tech Credit Bureau) com- er financial groups. This resulted in increased synergies with affiliates petency review for 2018, IBK obtained the highest rating of level 4 and such as our first joint overseas project. These efforts drove IB operat- has been conducting inhouse TCB assessments. This has allowed IBK ing income to a record high of KRW 182.6 billion. Systematic project to ready the foundation for consolidating technology and credit re- reviews that helped prevent unprofitable ventures and consistent fol- views and improve the accuracy of its evaluation model. low-up management led to the lowest ever precautionary and below rating (0% range). As indicated by these numbers, we boosted profits while maintaining asset soundness.

82 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Plans for 2019 IB : For 2019, the CIB Group will prioritize readying the framework for growth into a large IB, diversifying its portfolio, and carrying out its function as a policy bank.

1) Framework for large IB The CIB Group will pursue early-stage equity investment in major in- frastructure projects and participation in SME and venture investment funds to unearth landmark projects.

2) Portfolio diversification In line with government policy, the Group will expand investments into renewable energy and actively seek out overseas markets to over- come growing competition on the domestic front. By taking part in overseas PF projects and major acquisition financing, the goal is to expand the ratio of global assets to the 20% level by 2021. IB Operating Income (KRW billion) 3) Policy bank function IBK will continue to support the government’s policy of pursuing inno- 182.6 vative growth by investing KRW 100 billion over three years into new growth and innovative companies. 172.6

Technology Financing : The CIB Group plans to establish a uniquely 144.6 IBK style of technology financing by focusing on the basics – discov- ering technologically superior companies with high growth potential 182.6 and expanding credit loans. Experts in technology evaluation will be nurtured and actively employed to reveal those companies with the highest potential in startup and up-and-coming fields, which will then 2016 2017 2018 be connected to the related departments to promote investments.

Supporting social ventures of youth entrepreneurs (2018.05.09)

FSC Chairman Choi JongKu buys IBK KOSDAQ venture funds (2018.04.05)

IBK ANNUAL REPORT 2018 83 Creative Content Financing

Cultural contents represent a new growth sector that promises new jobs and added value by leveraging Koreans’ ingenuity and technology. IBK supports SMEs in the cultural contents industry by offering financial support for this new Lee Dong-youn General Manager growth driver befitting its role as a state-owned bank. Creative Content Financing Dept.

Performance in 2018 The ‘Along with the Gods’ series was the top grossing and most profitable IBK is increasing cooperation with cultural content-related organiza- movie among IBK-invested film productions. The first in the series ‘Along tions and companies. We were selected by the Ministry of Culture, with the Gods: The Two Worlds’ was seen by 14.41 million (no. 2 at box Sports and Tourism as a financial partner for the Contents Company office) people, while the sequel, ‘Along with the Gods: The Last 49 Days’ re- Secondary Preservation Project and launched related products. We corded 12.27 million (no. 10 at box office) to set a milestone as the first Kore- signed an agreement with the Korean Film Council for cooperation to an movie series to attract more than 10 million people for each installment. invigorate the Korean movie industry and create jobs and launched related products. We also inked the ’Along with the Gods’ Lotte Cul- Consistent efforts to strengthen internal capabilities are leading to ture Works-IBK Agreement to jointly support partner companies and higher returns on project financing. Among the 17 invested movies launched related products. IBK newly created an indirect investment released in 2018, nine exceeded their BEP (52.9%). The decision to cooperative to spur job creation and support overseas ventures in cul- carry out lineup investments in two film distributors that recently had tural contents. positive performances has reduced our exposure to box office risks and improved operational efficiency. Additionally, by investing a por- We are expanding new equity investments and helping to bolster tech- tion of returns from commercial film successes into independent and nology financing. Compared to one item worth KRW 1 billion in 2017, low-budget productions, IBK is doing its part to support a virtuous equity investments and Creative financing were tripled to three pro- cycle and eco-system of the Korean movie industry. jects worth KRW 3.8 billion in 2018.

Creative Content Financing Dept.

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Plans for 2019 Direct Investment (Equity) : IBK will continue to support the digitaliza- Direct Investment (Project) : We plan to step up investment in terms tion of cultural contents and expand investments into related technolo- of quantity and types of genres in line with the government’s focus on gies. We seek to raise value of promising contents companies through innovative growth. IBK will expand direct investments in various genres equity and project financing, and support the production of secondary such as variety shows, exhibits and TV animations to contribute to the content based on killer Korean contents. creative activity in the cultural contents industry. - (Movie) Greater investment in distributors’ lineup and independent/ Indirect Investment : We will execute our policy bank function by in- low-budget productions creasing new indirect investments in cultural contents and equity in- - (Drama) Uncover promising dramas through a larger network and vestment in fund of funds. increase investment - (Performance) Pursue initial lineup investment Financing : Joint financing in cultural contents companies will be ex- panded by pursuing new projects with contents industry organizations Furthermore, we seek to fortify our public function of supporting the and firms. This includes participating in the new initiative by Korea virtuous cycle of the industry by investing a portion of our investment Credit Guarantee Fund called ‘Cultural Industry Completion Guarantee profits into low-budget films and original productions. Project’, jointly pursuing a contents firm support program with Korea Creative Content Agency, and cooperating with IBK’s Indonesia entity to support export contents.

Creative Content Financing (KRW billion)

628.4

440.4

398.8 628.4

2016 2017 2018

Film financing for ‘Along With the Gods: The Last 49 Days’

MOU with Korean Film Council (2018.09.20)

IBK ANNUAL REPORT 2018 85 Key Highlights Digital

IBK utilizes digital technology to innovate work processes and strengthen marketing channels. Digital transformation will enable us to offer a completely new experience for customers.

Building a digital foundation Big Data Platform Created big data platform for data-based innovation across IBK

No. of average daily visitors to i-ONE Bank No. of individual i-ONE Bank (app) subscribers As of December, 2018 (cumulative) 1.17 mllion 7, 2 3 2, 5 8 8 43 out of 100 retail products Transitioning to mobile-centric banking in sold via online/smart banking response to digital channel strategy

No. of corporate i-ONE Bank (app) subscribers Work automation As of December, 2018 (cumulative) 582,377 80 % Established Korea’s leading corporate i-ONE Bot handled over 80% of inquiries at smart banking platform customer service centers

86 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

 Toward a digital core bank

Lee Sang-kuk Senior Executive Vice President

1-3. Digital Group 1

2

3

IBK ANNUAL REPORT 2018 87 Big Data Center

Our big data platform allows us to utilize internal and external data to strengthen marketing, risk management and customer service. We will harness the vast data we accumulate for a wider range of purposes to ultimately enhance customer Lee Yong-gi General Manager experience. Big Data Center

Inauguration of 4th FinTech Dream Lab (2018.05.17)

Activities in 2018 Plans for 2019 IBK is leveraging digital transformation to lead data-driven business We plan to perform log analysis to determine face-to-face and non- innovation. Creation of the big data platform allows us to collect, store face-to-face workloads. Our goal is to alleviate onsite workloads by and analyze structured and unstructured internal and external infor- digitalizing functions carried out by bank tellers. mation. Large-scale log analysis of the non-face-to-face channels will enable us to optimize i-ONE Bank’s user interface and user experience. Har- We are using newly collected big data for marketing and risk man- nessing crawling technology to collect business license and permit agement by applying machine learning techniques. For retail clients, data of corporate clients, we will work on attracting new customers. a big data-driven product recommendation model was developed to Moreover, we will offer multi-dimensional customer experience by go- predict an individual’s banking preferences and recommend custom- ing beyond the existing scope of enterprise network analysis to en- ized products to each and every one of IBK’s 15 million retail custom- compass relationships between businesses and individuals. ers. Meanwhile, we were able to discover business opportunities and potential risks for our corporate clients by using diverse external data and enterprise network analysis that recreates purchasing and sales relationships between corporate clients into a network structure.

Moreover, we have implemented an automated customer manage- ment process to boost face-to-face transactions. The process in- cludes setting a golden time for each phase of customer interaction. Product announcements, welcome messages, etc. are sent via SMS, ATM, customer service center and other channels within the golden time of each phase.

Launch of IBK Cube_Quick Branch (2018.11.28)

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Retail Digital Channel

IBK has gained an edge in digital finance through online and mobile banking platforms such as i-ONE Bank and IBK Cube that apply the latest trends and new technologies. Choi Jeong-tak General Manager Retail Digital Channel Dept.

Activities in 2018 i-ONE Bank positioned as IBK’s representative sales channel No. of Daily Customer Visits to i-ONE Bank IBK’s smart banking solution i-ONE Bank is designed to offer full digital banking services. Customers can use the app to carry out financial transactions, sign up for new products, and seek wealth management 1,170,000 services. As of December 2018, i-ONE Bank had daily visitors of 1.17 1,100,000 million. Attesting to the growing popularity of digital transactions, 43 out of 100 retail products and services were obtained by customers 850,000 through online and smart banking. 1,170,000 Enhancing digital marketing with mobile branch IBK Cube The new product distribution channel IBK Cube offers two distinctive features. One is customized mobile pages of 639 branches for onsite marketing and the other promotion of special products and events. It 2016 2017 2018 also facilitates quick and easy opening of bank accounts by featur- ing diverse banking channels and enabling users to sign up for prod- ucts without app installations. Compared to offline branches, mobile branches IBK TMON and IBK Kakaopay, which use external banking platforms, are enjoying nearly 10 times higher results.

Opening of IBK Mobile Branch at Kakaopay (2018.09.04)

IBK ANNUAL REPORT 2018 89 Harnessing cutting-edge technologies, i-ONE Bot and message voice Plans for 2019 banking Quantum leap in mobile platform via the creation of Korea’s leading In April, we rolled out AI based i-ONE Bot that offers automatic re- digital bank sponses to customers’ financial inquiries. The chatbot service was IBK will pursue banking channel innovation to prepare for the mo- first launched for deposits and e-banking, and that was followed by bile-only age. The plan is to create i-ONE Bank 2.0 and make a full service for credit cards in July and then chatbots for loans and foreign switch to digital banking. This mobile total bank will be a custom- exchange in October. At present, i-ONE Bot handles over 80% of in- er-centric digital platform offering better convenience, more hyper quiries at IBK customer service centers. personalization, more wellbeing financial solutions, and easier user interface and user experience. IBK introduced Korea’s first message voice banking for iPhone us- ers that employs voice recognition technology. Without opening an We will also overhaul our website design to be optimized for mobile app, users can text a message to quickly send money or use voice to devices. We want to turn the site into a digital marketing channel check their account balance and transfer money. IBK’s message voice that offers products and customized consultation. To attract foreign banking was awarded the top prize at the 2018 Internet Eco Awards, customers who prefer mobile banking, we also plan to implement a demonstrating its value as a viable financial innovation. foreigner-friendly platform with a multi-lingual mobile homepage that carries lifestyle information.

No. of individual i-ONE Bank (app) Continued commitment to customer-focused services subscribers (cumulative) IBK will drive customer-centric innovation to provide optimal financial experience and value to our customers. The One Notification system, 7,232,588 which currently sends deposit/withdrawal and card detail alerts, will 6,227,992 be expanded to offer financial wealth management service. i-ONE Bot, the AI based chatbot for financial consulting, will be upgraded to provide financial concierge service. We plan to keep pace with the 5,444,559 latest trends and technologies to improve services and develop new 7, 232,588 products such as account-based easy payment solution to respond to fast evolving market dynamics.

Channel innovation for stronger digital marketing

2016 2017 2018 IBK will continue to formulate strategies that will make non-face-to- face operations keep ahead of the competition. Following up on the launch of IBK TMON and IBK Kakaopay branches in 2018, we will ex- pand partnership with various platforms like Coupang, Paybook Auc- tion and Hana Tour in 2019. Our plan is to pursue joint marketing so that today’s busy customers can easily and quickly open an account with IBK.

Top Prize, Message, voice banking Internet Eco Award 2018 (2018.12.06)

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Corporate Digital Channel

Integrating artificial intelligence and other cutting-edge technologies of the fourth industrial revolution, IBK will provide corporate digital banking services that go well beyond convenience. Yoo Hee-sik General Manager Corporate Digital Channel Dept.

Overhaul of i-ONE Bank Corporate, mobile banking app for corporate clients (2018.02.27) Report on Beginning of Quantum Jump IBK i-ONE Bank Rebuilding Project (2018.11.06)

Activities in 2018 CEO Watch alarm Korea’s premier corporate smart banking We will provide timely business information by connecting smart The mobile UI/UX is designed to maximize convenience for users. The watches with i-ONE Bank (Corporate) app. By collecting, selecting and design is consistent with retail digital banking to ensure a cohesive and sending relevant and practical information for SMEs, IBK will support unified brand identity. Smart banking offers a wide range of services their success. that include the following. - Easy money transfer of up to a daily limit of KRW 3 million with a user Omni-channel automatic product recommendation password (no need for complicated authentication procedures) In order to be consistent in our marketing efforts, sales branches, cor- - Checking on account details including deposits/withdrawals and porate banking, customer centers and other channels will share infor- loans at all banks mation on corporate customers. - Mobile payment service that allows payment with previously set au- thentication number (no need to log in with an accredited certificate) AI tax support service The i-ONE Bank (Corporate) app will feature an automated tax filing Non-face-to-face bank account opening for individual business service, in partnership with fintech firms. The services to be provided Using the i-ONE Bank (Corporate) app, individual businesses can en- at a low cost will include filing tax returns, gathering relevant materials, joy non-face-to-face real name verification, open an account, and sign and sorting tax deductibles using algorithms. up for non-face-to-face e-banking service. It is the industry’s first ser- vice that allows individual businesses to open a new account at any time without a bank visit. With this service, identities are automatically No. of corporate i-ONE Bank (app) verified through scraping and identification solutions. subscribers (cumulative)

582,377 Plans for 2019 476,702 Zero-touch corporate banking IBK plans to introduce biometric verification technologies like voice- 370,353 print and speaker verification into the i-ONE Bank (Corporate) app. The speaker verification will allow users to perform quick and simple voice 582,377 searches. With voice becoming a popular way of interaction on mobile devices, we will proactively apply the technology.

2016 2017 2018

IBK ANNUAL REPORT 2018 91 Financial Review

93 Management’s Discussion and Analysis

97 Independent Auditor’s Report

100 Separate Financial Statements

107 Independent Auditor’s Report (based on consolidated financial statements)

110 Consolidated Financial Statements

116 At a glance 2018

118 Organizational Chart

120 Global Network & Contact Information

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Management’s Discussion and Analysis

Operating Results Condensed Income Statement (in billions of KRW, %)

2018 2017 Change (%) Net Interest Income 5,632.3 5,260.0 7.08% Non-Interest Income 626.4 339.4 84.56% Total Income 6,258.7 5,599.4 11.77% Labor Expenses 1,332.5 1,240.0 7.46% SG&A Expenses 966.2 948.5 1.87% Provisions 1,563.5 1,382.6 13.08% (Provisions for credit losses) 1,515.0 1,375.1 10.18% Operating Income 2,396.5 2,028.3 18.15% Net Non-Operating Income 3.0 ∆74.7 104.02% Income Before Taxes 2,399.5 1,953.6 22.82% Income Taxes 635.2 445.1 42.71% Consolidated Net Income 1,764.3 1,508.5 16.96% Controlling Interest 1,754.2 1,501.4 16.84% Non-Controlling Interest 10.1 7.1 42.25%

In 2018, consolidated net income increased by 16.96% to KRW 1,764.3 billion (KRW 1,511.0 billion on a separate basis), representing a new record high and the second straight year of double-digit growth. Moreover, it exceeded provisions for credit losses, which amounted to KRW 1,515.0 billion (KRW 1,455.3 billion on separate basis), for the first time since the 2007-2008 financial crisis.

Net interest income grew 7.08% to KRW 5,632.3 billion as interest-bearing assets increased KRW 14.2 trillion (up 6.35%) and net interest margin (NIM) went up 1bp. Non-interest income swelled 84.56% to KRW 626.4 billion.

Net non-operating income shot up 104.02%. One factor was KRW 33.5 billion in gains on disposal of tangible assets. Another reason was the 93 Management’s Discussion and Analysis comparison base created in 2018 by KRW 49.2 billion in contribution for cashier’s checks for which the statute of limitations expired.

97 Independent Auditor’s Report Net Interest Income (in billions of KRW, %) 100 Separate Financial Statements 2018 2017 Change (%) 107 Independent Auditor’s Report (based on consolidated financial statements) Interest Revenues 9,040.6 8,076.0 11.94% Interest on Loan Assets 7,943.0 7,171.8 10.75% 110 Consolidated Financial Statements Interest on Securities 879.6 707.9 24.25% 116 At a glance 2018 Other Interest Revenue 218.0 196.3 11.05% Interest Expenses 3,408.3 2,816.0 21.03% 118 Organizational Chart Interest on Deposit Liabilities 834.3 768.6 8.55% 120 Global Network & Contact Information Interest on Debentures 2,100.3 1,655.3 26.88% Interest on Borrowings 412.1 343.4 20.01% Other Interest Expenses 61.6 48.7 26.49% Net Interest Income 5,632.3 5,260.0 7.08%

IBK ANNUAL REPORT 2018 93 Interest revenues posted an increase of 11.94%. This was largely a result of the 10.75% rise in interest on loan assets that was driven by loan asset growth and the Bank of Korea’s policy rate hike.

Interest expenses went up 21.03% as debentures and borrowings both expanded.

Interest-bearing assets increased KRW 14.2 trillion (6.35%) and NIM climbed 1bp. This, in turn, pushed up net interest income by 7.08% to KRW 5,632.3 billion.

Non-Interest Income (in billions of KRW, %)

2018 2017 Change (%) Fee Income 2,139.8 1,990.6 7.50% Gains/Losses on F/X Derivatives 102.6 239.5 ∆57.16% Trust Income 104.3 83.1 25.51% Gains/Losses on Securities 398.2 232.1 71.56% Gains/Losses on Disposal of Loan Assets 259.3 ∆29.5 978.98% Other Non-Interest Expenses (∆) 2,377.8 2,176.4 9.25% Net Non-Interest Income 6,264 3,394 84.56%

Due to adoption of IFRS9 rules, gains on securities swelled 71.56% to KRW 398.2 billion and gains on loan asset disposal soared 978.98% to KRW 259.3 billion. Under IFRS9, fair value has to be reassessed when a financial instrument is derecognized. This led to a decrease in book value at the time of disposal which bolstered loan asset disposal gains. Due to a corresponding increase in provisions, however, there was no effect on net income.

The rise in gains on securities and loan asset disposal boosted net non-interest income by 84.56% to KRW 626.4 billion.

Labor and SG&A Expenses (in billions of KRW, %)

2018 2017 Change (%) Salaries 1,205.8 1,117.8 7.87% Retirement Benefits 123.6 119.6 3.34% Special Severance Benefits 3.1 2.6 19.23% Total Labor Expenses 1,332.5 1,240.0 7.46% Welfare Expenses 101.8 95.2 6.93% Depreciation 161.7 174.2 ∆7.18% Taxes and Dues 116.8 110.0 6.18% Advertising and Marketing Expenses 79.9 79.5 0.50% Computers & Software 76.9 73.2 5.05% Service Fees 137.4 131.0 4.89% Rent 98.7 101.7 ∆2.95% Communications Expenses 27.4 26.2 4.58% Other 165.6 157.5 5.14% Total SG&A Expenses 966.2 948.5 1.87%

Following wage hikes, salaries rose by 7.87% to KRW 1,205.8 billion. Depreciation and rent expenses fell by KRW 12.5 billion and KRW 3.0 billion, respectively, but welfare expenses went up by KRW 6.6 billion and taxes and dues by KRW 6.8 billion. Accordingly, SG&A expenses climbed 1.87%.

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Non-Operating Gains/Losses (in billions of KRW, %)

2018 2017 Change (%) Gains on Disposal of Tangible Assets 33.5 10.0 235.00% Gains from Real Estate Leases 4.3 2.7 59.26% Donations (∆) 47.8 22.2 115.32% Impairment Losses on Equipment & Intangible Assets (∆) 2.0 1.1 81.82% Retroactive Contribution of Cashier’s Checks (∆) - 49.2 ∆100.00% Other 15.0 ∆14.9 200.67% Non-Operating Gains/Losses 3.0 ∆74.7 104.02%

Non-operating gains increased by 104.02% to KRW 3.0 billion on the back of a rise in gains on tangible asset disposal and the 2018 comparison base. (The 2018 figures were affected by KRW 49.2 billion in retroactive contribution of cashier’s checks, for which the statute of limitations expired, to the Korea Inclusive Finance Agency following revision of the Microfinance Support Act in September 2017. The checks were treated as miscellaneous gains during 2012~2016.)

Financial Position Condensed Statement of Financial Position (in billions of KRW, %)

2018 2017 Change (%) Cash & Deposits 14,627.8 12,906.1 13.34% Securities 49,554.3 45,832.8 8.12% Loan Assets 214,523.1 202,916.2 5.72% Tangible Assets 1,949.0 1,970.3 ∆1.08% Other Assets 8,855.2 10,444.3 ∆15.21% Total Assets 289,509.4 274,069.7 5.63% Deposit Liabilities 109,556.3 112,590.6 ∆2.69% Borrowings 28,050.9 27,339.7 2.60% Debentures 109,979.1 94,200.6 16.75% Other Liabilities 20,829.0 20,137.1 3.44% Total Liabilities 268,415.3 254,268.0 5.56% Equity attributable to Controlling Interest 20,982.8 19,697.3 6.53% Paid-in Capital 3,289.8 3,289.8 - Hybrid Capital Instruments 2,381.0 2,031.5 17.20% Capital Surplus 551.2 559.3 ∆1.45% Retained Earnings 14,252.8 13,155.8 8.34% Other Accumulated Comprehensive Gains/Losses 508.0 660.9 ∆23.14% Non-Controlling Interest 111.3 104.4 6.61% Total Shareholders’ Equity 21,094.1 19,801.7 6.53% Total Liabilities & Shareholders’ Equity 289,509.4 274,069.7 5.63%

In line with IBK’s position as the leading bank in SME financing, SME loan balance increased by KRW 9.2 trillion to KRW 151.6 trillion. IBK was the first in the Korean financial industry to see SME lending pass the KRW 150 trillion mark. IBK upheld its leadership based on SME loans in 2018 with a market share of 22.54%.

With respect to funding, deposit liabilities decreased by 2.69% to KRW 109.56 trillion whereas debentures increased by 16.75% to KRW 109.98 trillion. As a result, total labilities grew 5.56% to KRW 268.42 trillion.

Total shareholders’ equity rose by 6.53% to KRW 21.1 trillion. Hybrid capital instruments stood at KRW 2,381.0 billion, up 17.20%. Retained earnings grew 8.34% to KRW 14.3 trillion on the back of net income attributable to controlling interest of KRW 1,754.2 billion and interest expense on the hybrids of KRW 89.1 billion.

IBK ANNUAL REPORT 2018 95 Loan Assets (in billions of KRW, %)

2018 2017 Change (%) Won-Denominated 199,791.4 187,796.5 6.39% Corporate 164,238.9 154,185.9 6.52% Retail 34,645.0 32,756.5 5.77% Public Funds 907.5 854.1 6.25% Foreign Currency-Denominated 3,988.3 3,531.6 12.93% Other 10,743.4 11,588.1 ∆7.29% Total 214,523.1 202,916.2 5.72%

As IBK continued to fulfill its role as provider of financial support for SMEs, corporate loans expanded by 6.52% to KRW 164.2 trillion.

Deposit Liabilities (in billions of KRW, %)

2018 2017 Change (%) Won-Denominated 91,866.4 93,151.1 ∆1.38% Demand Deposits 42,289.3 38,993.0 8.45% Savings Deposits 46,236.3 50,813.1 ∆9.01% Mutual Installments 3,340.7 3,345.0 ∆0.13% Foreign Currency-Denominated 13,566.3 13,859.5 ∆2.12% Certificates of Deposit 4,025.8 5,479.9 ∆26.54% Other 97.8 100.1 ∆2.30% Total 109,556.3 112,590.6 ∆2.69%

Won-denominated deposits decreased by 1.38% to KRW 91.9 trillion as savings deposits slid by 9.01% to KRW 46.2 trillion.

Key Financial Indicators (%)

2018 2017 Change (%) ROA 0.63 0.57 10.53% ROE 8.72 7.97 9.41% NIM 1.95 1.94 1.04%

ROA (return on assets) improved by 10.53% to 0.63%, while ROE (return on equity) went up 9.41% to 8.72%. The improvements were driven by growth in interest-bearing assets and higher NIM which, in turn, propped up net income.

Thanks to a rise in market interest rates, NIM climbed 1bp to 1.95%.

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Independent Auditor’s Report

To the Shareholders and Board of Directors of Industrial Bank of Korea

Opinion We have audited the accompanying separate financial statements of Industrial Bank of Korea (the Bank), which comprise the separate statements of financial position as at December 31, 2018 and 2017, and the separate statements of comprehensive income, separate statements of changes in equity and separate statements of cash flows for the years then ended, and notes to the separate financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of Industrial Bank of Korea as at December 31, 2018 and 2017, and its separate financial performance and its separate cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS).

Basis for Opinion We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the ethical requirements of the Republic of Korea that are relevant to our audit of the financial statements and we have fulfilled our other ethical responsibilities in accordance with the ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Provision for Expected Credit Losses of Trade Receivables at Amortized Cost

Reason why the matter was determined to be a key audit matter As stated in Note 2.2.5 of Critical Accounting Estimates and Assumptions of separate financial statements, the Bank recognized expected credit loss as provision for impairment and provision liabilities by considering all reasonable and supportable information including forward-looking data. We identified provisions for expected credit losses as a key audit matter for following reasons. 1) The fact that individually assessed expected credit loss is estimated using expected debtor’s cash flows which requires high level of management’s estimation and judgment. 2) The fact that collectively assessed expected credit loss requires management’s estimation and judgment on complex input variables and assumptions.

Trade receivables at amortized cost that are assessed on an individual or collective basis are ₩206,688,177 million, and its related provision for impairment is ₩2,434,570 million (Notes 9, 26, 47).

IBK ANNUAL REPORT 2018 97 How our audit addressed the Key Audit Matter

Individually Assessed Expected Credit Loss As at December 31, 2018, the key audit procedures we implemented regarding the Bank’s individually assessed expected credit loss are as follows.

1) Understanding and evaluating the designed internal controls applied by the management for calculation of individually assessed expected credit loss. 2) Performing analytic reviews on key financial metrics such as provision rate for impairment. 3) Inquiring on the key basis used for future cash flows estimation for the selected samples and inspecting the relevant documents. 4) Reviewing the reasonableness of key assumptions used for estimating future cash flows using sampling method.

Collectively Assessed Expected Credit Loss As at December 31, 2018, the key audit procedures we implemented regarding the Bank’s collectively assessed expected credit loss are as follows. 1) Understanding and evaluating the designed internal controls applied by the management for calculation of collectively assessed expected credit loss. 2) Performing analytic reviews on key financial metrics such as provision rate for impairment. 3) Reviewing the reliability of key information required in calculating provision for impairment on a collective basis using sampling method and verifying accuracy of the samples through recalculation. 4) Reviewing the reliability of STAGE classification information and re-performing the classification using sampling method. 5) Reviewing the key basis used for management’s estimation on credit risk components.

Other Matter Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries.

Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the separate financial statements in accordance with Korean IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations.

Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. · Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. · Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. · Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.

98 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

· Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Sungeun Jin, Certified Public Accountant.

Seoul, Korea March 12, 2019

This report is effective as of March 12, 2019, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

IBK ANNUAL REPORT 2018 99 Industrial Bank of Korea Separate Statements of Financial Position

December 31, 2018 and 2017 (In millions of Korean won)

Notes 2018 2017 Assets Cash and due from banks 26,46,47 ₩ 12,768,725 ₩ 10,927,160 Financial assets at fair value through profit or loss 4,26,47 5,937,049 4,763,620 Financial assets at fair value through other comprehensive income 5,26,47 11,556,515 - Available-for-sale financial assets 6,26,47 - 13,433,847 Securities at amortized cost 7,26,47 25,271,670 - Held-to-maturity financial assets 8,26,47 - 22,943,476 Loan receivables at amortized cost 9,26,47 204,612,277 - Loan receivables 10,26,47 - 194,286,451 Derivative financial assets for hedge accounting 11,26,47 37,824 40,708 Investments in subsidiaries and associates 12 1,677,782 1,680,135 Investment properties 13,24 73,928 78,854 Property and equipment 14,24 1,880,741 1,814,363 Intangible assets 15 168,560 194,053 Deferred tax assets 16 2,104 596 Other assets 17,26,47 4,939,419 5,967,579 Total assets ₩ 268,926,594 ₩ 256,130,842 Liabilities Financial liabilities at fair value through profit or loss 4,26,47 1,345,118 2,017,638 Deposit liabilities 18,26,47 105,631,409 108,945,455 Debts 19,26,47 26,459,950 25,145,340 Debentures 20,26,47 104,804,684 90,066,607 Derivative financial liabilities for hedge accounting 11,26,47 112,945 282,370 Net defined benefit liabilities 21 24,607 43,710 Provisions 22 456,008 372,287 Deferred tax liabilities 16 177,580 198,528 Other liabilities 23,26,47 9,843,376 10,054,335 Total liabilities 248,855,677 237,126,270 Equity Share capital 27,29 3,289,756 3,289,756 Hybrid capital instruments 27,29 2,381,018 2,031,543 Capital surplus 27,29 545,028 545,028 Accumulated other comprehensive income 27,29 550,013 675,378 Retained earnings 28,29 13,305,102 12,462,867 Regulatory reserve for credit loss (December 31, 2018: ₩2,437,246 million) (December 31, 2017: ₩2,172,777 million) Regulatory reserve (reversal) for credit loss estimated to be appropriated (December 31, 2018: ₩(141,525) million) (December 31, 2017: ₩264,469 million) Total equity 20,070,917 19,004,572 Total liabilities and equity ₩ 268,926,594 ₩ 256,130,842

The above separate statements of financial position should be read in conjunction with the accompanying notes.

100 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Industrial Bank of Korea Separate Statements of Comprehensive Income

Years Ended December 31, 2018 and 2017 (In millions of Korean won)

Notes 2018 2017 Interest income ₩ 8,345,873 ₩ 7,472,714 Interest expense (3,138,390) (2,613,330) Net interest income 30,45 5,207,483 4,859,384 Fee and commission income 752,101 720,827 Fee and commission expense (424,237) (403,599) Net fee and commission income 31,45 327,864 317,228 Net gains (losses) on financial instruments at fair value through profit or loss 32 322,047 (253,552) Net gains (losses) on derivative financial instruments for hedge accounting 11 (69,020) 114,693 Gains on disposal of financial assets at amortized cost 252,690 - Net gains on financial assets at fair value through other comprehensive income 33 69,032 - Other net gains from financial instruments 34 - 176,565 Net gains on foreign currency transactions 47,048 366,243 Gross operating income 6,157,144 5,580,561 Impairment losses on financial assets 5,7,9,10,45 (1,470,419) (1,373,446) Net operating income 4,686,725 4,207,115 General and administrative expenses 35 (2,131,531) (2,023,911) Other operating income 36 122,075 97,274 Other operating expenses 37 (580,785) (517,701) Operating profit 2,096,484 1,762,777 Non-operating income (expenses) 38 (38,971) (71,177) Profit before income tax 2,057,513 1,691,600 Income tax expense 16 (546,507) (377,518) Profit for the year 28 1,511,006 1,314,082 (Adjusted profit after provision of regulatory reserve for credit losses December 31, 2018 : ₩1,348,735 million December 31, 2017 : ₩1,049,613 million) Items that will not be reclassified to profit or loss: Changes in the fair value of equity investment at fair value 5,27 (95,986) - through other comprehensive income Remeasurements of net defined benefit liabilities 21,27 (14,553) (9,296) Items that may be subsequently reclassified to profit or loss: Changes in the fair value of debt instruments at fair value 5,27 38,698 - through other comprehensive income Changes in the fair value of available-for-sale financial assets 6,27 - 53,147 Exchange differences on translation of foreign operations 27 16,248 (48,179) Changes in valuation of hedges of net investment in foreign operations 11,27 (8,162) 23,323 Other comprehensive income for the year, net of tax (63,755) 18,995 Total comprehensive income for the year ₩ 1,447,251 ₩ 1,333,077 Earnings per share (in Korean won) 41 Basic earnings per share ₩ 2,161 ₩ 1,894 Diluted earnings per share ₩ 2,161 ₩ 1,894

The above separate statements of comprehensive income should be read in conjunction with the accompanying notes.

IBK ANNUAL REPORT 2018 101 Industrial Bank of Korea Separate Statements of Changes in Equity

Years Ended December 31, 2018 and 2017 (In millions of Korean won)

Accumulated Share Hybrid Capital Other Retained Total Notes Capital Surplus Capital Instruments Comprehensive Earnings Equity Income Balance at January 1, 2017 ₩ 3,289,756 ₩ 1,398,240 ₩ 545,028 ₩ 656,383 ₩ 11,532,720 ₩ 17,422,127 Comprehensive income Profit for the year - - - - 1,314,082 1,314,082 Other comprehensive income for the year Changes in the fair value of - - - 53,147 - 53,147 available-for-sale financial assets Exchange differences on translation of - - - (48,179) - (48,179) foreign operations Changes in valuation of hedges of net - - - 23,323 - 23,323 investment in foreign operations Remeasurement of the net defined - - - (9,296) - (9,296) benefit liabilities Total comprehensive income - - - 18,995 1,314,082 1,333,077 Transactions with owners Cash dividends 42 - - - - (315,817) (315,817) Dividends for hybrid capital instruments 42 - - - - (68,118) (68,118) Issuance of hybrid capital instruments 27 - 633,303 - - - 633,303 Total transactions with owners - 633,303 - - (383,935) 249,368 Balance at December 31, 2017 ₩ 3,289,756 ₩ 2,031,543 ₩ 545,028 ₩ 675,378 ₩ 12,462,867 ₩ 19,004,572 Balance at January 1, 2018 ₩ 3,289,756 ₩ 2,031,543 ₩ 545,028 ₩ 675,378 ₩ 12,462,867 ₩ 19,004,572 Changes in accounting policy 2 - - - (61,276) (174,094) (235,370) Restated total equity at the beginning of 3,289,756 2,031,543 545,028 614,102 12,288,773 18,769,202 the financial year

102 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

(In millions of Korean won)

Accumulated Share Hybrid Capital Other Retained Total Notes Capital Surplus Capital Instruments Comprehensive Earnings Equity Income Comprehensive income

Profit for the period - - - - 1,511,006 1,511,006

Other comprehensive income for the year Changes in the fair value of debt investment at fair value through other - - - 38,698 - 38,698 comprehensive income Exchange differences on translation of - - - 16,248 - 16,248 foreign operations Changes in valuation of hedges of net - - - (8,162) - (8,162) investment in foreign operations Changes in the fair value of equity investment at fair value through other - - - (95,986) - (95,986) comprehensive income Remeasurement of the net defined - - - (14,553) - (14,553) benefit liabilities Total comprehensive income - - - (63,755) - (63,755) Transactions with owners Cash dividends 42 - - - - (405,956) (405,956) Dividends for hybrid capital instruments 42 - - - - (89,055) (89,055) Issuance of hybrid capital instruments 27 - 349,475 - - - 349,475 Transfer of realized gains or losses on equity investment at fair value through other 5 - - - (23,880) 23,880 - comprehensive income Transfer of realized gains or losses on equity investment at fair value through - - - 23,546 (23,546) - other comprehensive income for hedge accounting Total transactions with owners - 349,475 - (334) (494,677) (145,536) Balance at December 31, 2018 ₩ 3,289,756 ₩ 2,381,018 ₩ 545,028 ₩ 550,013 ₩ 13,305,102 ₩ 20,070,917

The above separate statements of changes in equity should be read in conjunction with the accompanying notes.

IBK ANNUAL REPORT 2018 103 Industrial Bank of Korea Separate Statements of Cash Flows

Years Ended December 31, 2018 and 2017 (In millions of Korean won)

Notes 2018 2017 Cash flows from operating activities

Profit for the year ₩ 1,511,006 ₩ 1,314,082 Adjustments of expenses and revenues 46 (2,866,466) (3,166,844) Changes in operating assets and liabilities 46 (14,778,098) 1,006,658 Cash used in operations (16,133,558) (846,104) Interests received 8,121,991 7,235,216 Interests paid (3,039,059) (2,559,818) Dividends received 132,480 97,868 Income taxes paid (417,212) (380,384) Net cash inflow (outflow) from operating activities (11,335,358) 3,546,778 Cash flows from investing activities Net increase in financial assets at fair value through profit or loss (218,803) - Net increase in financial assets at fair value (445,003) - through other comprehensive income Net decrease in available-for-sale financial assets - 1,976,830 Net increase in securities at amortized cost (2,329,871) - Net increase in held-to-maturity financial assets - (9,361,878) Disposal of investments in subsidiaries 97,516 21,050 Disposal of investments in associates 4,862 7,806 Acquisition of investments in subsidiaries (97,864) (71,737) Acquisition of investments in associates (12,563) (14,318) Disposal of property and equipment and investment properties 41,245 10,139 Acquisition of property and equipment and investment properties (146,491) (65,118) Disposal of intangible assets 2,017 667 Acquisition of intangible assets (55,280) (40,566) Net cash outflow from investing activities (3,160,235) (7,537,125) Cash flows from financing activities Net increase in debts 1,240,761 870,103 Net increase in debentures 14,649,056 2,784,890 Proceeds in hybrid capital instruments 349,475 633,303 Payment of interests of hybrid capital instruments (89,055) (68,118) Dividends paid (405,956) (315,817) Net cash inflow from financing activities 15,744,281 3,904,361 Effects of exchange rate changes on cash and cash equivalents 67,693 (20,072) Net increase (decrease) in cash and cash equivalents 1,316,381 (106,058) Cash and cash equivalents at the beginning of the year 2,204,820 2,310,878 Cash and cash equivalents at the end of the year 46 ₩ 3,521,201 ₩ 2,204,820

The above separate statements of comprehensive income should be read in conjunction with the accompanying notes.

104 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Report on Independent Accountant’s Review of Internal Control over Financial Reporting

To the President of Industrial Bank of Korea

We have reviewed the accompanying management’s report on the effectiveness of the Internal Control over Financial Reporting (“ICFR”) of Industrial Bank of Korea (the “Bank”) as of December 31, 2018. The Bank’s management is responsible for designing and operating ICFR and for its assessment of the effectiveness of ICFR. Our responsibility is to review the management’s report on the effectiveness of the ICFR and issue a report based on our review. The management’s report on the effectiveness of the ICFR of the Bank states that “Based on the assessment results, President and ICFR Officer believe that the Bank’s ICFR, as at December 31, 2018, is designed and operating effectively, in all material respects, in conformity with the Best Practice Guideline.”

Our review was conducted in accordance with the ICFR review standards established by the Korean Institute of Certified Public Accountants. Those standards require that we plan and perform, in all material respects, the review of management’s report on the effectiveness of the ICFR to obtain a lower level of assurance than an audit. A review is to obtain an understanding of the Bank’s ICFR and consists principally of inquiries of management and, when deemed necessary, a limited inspection of underlying documents, which is substantially less in scope than an audit.

The Bank’s ICFR is a system to monitor and operate those policies and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards as adopted by the Republic of Korea. Because of its inherent limitations, ICFR may not prevent or detect a material misstatement of the financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on our review, nothing has come to our attention that causes us to believe that management’s report on the effectiveness of the ICFR, referred to above, is not presented fairly, in all material respects, in accordance with the Best Practice Guideline.

Our review is based on the Bank’s ICFR as of December 31, 2018, and we did not review management’s assessment of its ICFR subsequent to December 31, 2018. This report has been prepared pursuant to the Acts on External Audit for Stock Companies, etc. in Korea and may not be appropriate for other purposes or for other users.

Samil PricewaterhouseCoopers March 12, 2019

IBK ANNUAL REPORT 2018 105 Report on the Operations of the Internal Accounting Control System

To the Board of Directors and Auditor (Audit Committee) of Industrial Bank of Korea

We, as the President and the Internal Control over Financial Reporting (“ICFR”) Officer of Industrial Bank of Korea (“the Bank”), assessed the effectiveness of the design and operation of the Bank’s Internal Control over Financial Reporting for the year ended December 31, 2018.

The Bank’s management, including ourselves, is responsible for designing and operating ICFR.

We assessed the design and operating effectiveness of the ICFR in the prevention and detection of an error or fraud which may cause material misstatements in the preparation and disclosure of reliable financial statements. We followed the ‘Best Practice Guideline’ which is established by the Operating Committee of Internal Control over Financial Reporting in Korea (the “ICFR Committee”) to evaluate the effectiveness of the ICFR design and operation.

Based on the assessment results, we believe that the Bank’s ICFR, as at December 31, 2018, is designed and operating effectively, in all material respects, in conformity with the Best Practice Guideline.

We certify that this report does not contain any untrue statement of a fact, or omit to state a fact necessary to be presented herein. We also certify that this report does not contain or present any statement which cause material misunderstandings, and we have reviewed and verified this report with sufficient due care.

February 28, 2019 Do-Jin Kim, The President of Industrial Bank of Korea Chi-Gil Seo, Internal Control over Financial Reporting Officer

106 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Independent Auditor’s Report

To the Shareholders and Board of Directors of Industrial Bank of Korea

Opinion We have audited the accompanying consolidated financial statements of Industrial Bank of Korea and its subsidiaries (collectively referred to as the "Group"), which comprise the consolidated statements of financial position as at December 31, 2018 and 2017, and the consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS).

Basis for Opinion We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements of the Republic of Korea that are relevant to our audit of the consolidated financial statements and we have fulfilled our other ethical responsibilities in accordance with the ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Provision for Expected Credit Losses of Trade Receivables at Amortized Cost

Reason why the matter was determined to be a key audit matter

As stated in Note 2.2.5 of Critical Accounting Estimates and Assumptions of separate financial statements, the Bank recognized expected credit loss as provision for impairment and provision liabilities by considering all reasonable and supportable information including that which is forward- looking.

We identified provisions for expected credit losses as a key audit matter for following reasons. 1) The fact that individually assessed expected credit loss is estimated using expected debtor’s cash flows which requires high level of management’s estimation and judgment. 2) The fact that collectively assessed expected credit loss requires management’s estimation and judgment on complex input variables and assumptions.

Trade receivables at amortized cost that are assessed on an individual or collective basis are ₩ 216,737,965 million, and its related provision for impairment is ₩ 2,573,470 million (Notes 9, 26, 49).

IBK ANNUAL REPORT 2018 107 How our audit addressed the Key Audit Matter

Individual Assessment of Expected Credit Loss As at December 31, 2018, the key audit procedures we implemented regarding the Bank’s individually assessed expected credit loss are as follows. 1) Understanding and evaluating the designed internal controls applied by the management for calculation of individually assessed expected credit loss. 2) Performing analytic reviews on key financial metrics such as provision rate for impairment. 3) Inquiring on the key basis used for future cash flows estimation for the selected samples and inspecting the relevant documents. 4) Reviewing the reasonableness of key assumptions used for estimating future cash flows using sampling method.

Collective Assessment of Expected Credit Loss As at December 31, 2018, the key audit procedures we implemented regarding the Bank’s collectively assessed expected credit loss are as follows. 1) Understanding and evaluating the designed internal controls applied by the management for calculation of collectively assessed expected credit loss. 2) Performing analytic reviews on key financial metrics such as provision rate for impairment. 3) Reviewing the reliability of key information required in calculating provision for impairment on a collective basis using sampling method and verifying accuracy of the samples through recalculation. 4) Reviewing the reliability of STAGE classification information and re-performing the classification using sampling method. 5) Reviewing the key basis used for management's estimation on credit risk components.

Other Matter Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with Korean IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. · Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. · Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. · Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

108 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

· Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. · Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Sungeun Jin, Certified Public Accountant.

Seoul, Korea March 12, 2019

This report is effective as of March 12, 2019, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any.

IBK ANNUAL REPORT 2018 109 Industrial Bank of Korea and Subsidiaries Consolidated Statements of Financial Position

December 31, 2018 and 2017 (In millions of Korean won)

Notes 2018 2017 Assets Cash and due from banks 26,48,49 ₩ 14,627,769 ₩ 12,906,137 Financial assets at fair value through profit or loss 4,26,49 12,001,674 8,826,949 Financial assets designated at fair value through profit and loss 4,26,49 - 512,045 Financial assets at fair value through other comprehensive income 5,26,49 13,014,133 - Available-for-sale financial assets 6,26,49 - 15,115,370 Securities at amortized cost 7,26,49 25,907,490 - Held-to-maturity financial assets 8,26,49 - 23,528,889 Loan receivables at amortized cost 9,26,49 214,523,129 - Loan receivables 10,26,49 - 202,916,215 Derivative financial assets for hedge accounting 11,26,49 39,709 40,708 Investments in and associates 12 220,785 161,631 Investment properties 13,24 65,662 135,085 Property and equipment 14,24 1,883,310 1,835,215 Intangible assets 15 190,725 213,678 Deferred tax assets 16 11,398 15,471 Other assets 17,26,41,49 7,023,665 7,862,338 Total assets ₩ 289,509,449 ₩ 274,069,731 Liabilities Financial liabilities at fair value through profit or loss 4,26,49 ₩ 1,636,094 ₩ 2,297,583 Financial liabilities designated at fair value through profit and loss 4,26,49 1,826,273 1,427,235 Deposit liabilities 18,26,49 109,556,300 112,590,632 Debts 19,26,49 28,050,948 27,339,704 Debentures 20,26,49 109,979,080 94,200,567 Derivative financial liabilities for hedge accounting 11,26,49 118,073 283,584 Net defined benefit liabilities 21 26,856 43,810 Provisions 22 473,293 380,435 Deferred tax liabilities 16 216,226 233,893 Other liabilities 23,26,41,49 16,532,130 15,470,550 Total liabilities 268,415,273 254,267,993 Equity Equity attributable to owners of the Parent Company Share capital 27,29 3,289,756 3,289,756 Hybrid capital instruments 27,29 2,381,018 2,031,543 Capital surplus 27,29 551,221 559,315 Accumulated other comprehensive income 27,29 508,084 660,946 Retained earnings 28,29 14,252,837 13,155,814 (Regulatory reserve for credit loss December 31, 2018 : ₩ 2,494,095 million December 31, 2017 : ₩ 2,219,478 million) (Regulatory reserve (reversal) for credit loss estimated to be appropriated December 31, 2018 : ₩ (148,304) million December 31, 2017 : ₩ 274,617 million) 20,982,916 19,697,374 Non-controlling interest 47 111,260 104,364 Total equity 21,094,176 19,801,738 Total liabilities and equity ₩ 289,509,449 ₩ 274,069,731

The above separate statements of financial position should be read in conjunction with the accompanying notes.

110 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Industrial Bank of Korea and Subsidiaries Consolidated Statements of Comprehensive Income

Years Ended December 31, 2018 and 2017 (In millions of Korean won)

Notes 2018 2017 Interest income Interest income on financial assets at fair value through profit or loss ₩ 153,118 ₩ 122,081 Interest income on financial assets at fair value through other comprehensive 8,887,490 - income Interest income on loans and receivables, and investment assets - 7,953,909 Interest expense (3,408,322) (2,816,036) Net interest income 30,46 5,632,286 5,259,954 Fee and commission income 908,108 849,337 Fee and commission expense (456,953) (442,117) Net fee and commission income 31,46 451,155 407,220 Net gains (losses) on financial instruments at fair value through profit or loss 32 456,869 (154,978) Net losses on financial instruments designated at fair value through profit and loss 32 (27,509) (29,281) Net gains (losses) on derivative financial instruments for hedge accounting 11 (72,873) 113,571 Gains on disposal of financial assets at amortized cost 259,287 - Net gains from financial assets at fair value through other comprehensive 33 69,045 - income Other net gains from financial instruments 34 - 287,760 Insurance losses 41 (102,213) (58,991) Net gains on foreign currency transactions 96,932 308,079 Gross operating income 6,762,979 6,133,334 Impairment losses on financial assets 5,7,9,10,46 (1,516,873) (1,431,098) Net operating income 5,246,106 4,702,236 General and administrative expenses 35 (2,298,704) (2,188,527) Other operating income 36 233,180 173,125 Other operating expenses 37 (775,889) (658,511) Overlay adjustment 41 (8,258) - Operating profit 2,396,435 2,028,323 Non-operating income (expenses) 38 3,032 (74,697) Profit before income tax 2,399,467 1,953,626 Income tax expense 16 (635,189) (445,098)

(Continued)

IBK ANNUAL REPORT 2018 111 (In millions of Korean won)

Notes 2018 2017 Profit for the year 28 1,764,278 1,508,528 (Adjusted profit after provision of regulatory reserve for credit losses December 31, 2018 : ₩ 1,614,092 million December 31, 2017 : ₩ 1,233,911 million) Items that will not be reclassified to profit or loss: Changes in financial liabilities 27 36 - designated at fair value through profit or loss Changes in valuation of equity securities 5,27 (89,709) - at fair value through other comprehensive income Remeasurements of net defined benefit liabilities 21,27 (17,081) (9,740) Items that may be subsequently reclassified to profit or loss: Changes in valuation of debt securities 5,27 46,722 - at fair value through other comprehensive income Changes in the fair value of available-for-sale financial assets 6,27 - 50,972 Shares of other comprehensive income of associates 12,27 (3,312) (2,182) Exchange differences on translation of foreign operations 27 13,137 (67,980) Cash flow hedges 11,27 1,111 13 Changes in valuation of hedges of net investments in foreign operations 11,27 (8,441) 23,323 Overlay adjustment 27,41 4,588 - Other comprehensive income for the year, net of tax (52,949) (5,594) Total comprehensive income for the year ₩ 1,711,329 ₩ 1,502,934 Profit attributable to: Owners of the Parent Company 1,754,243 1,501,454 Non-controlling interest 10,035 7,074 ₩ 1,764,278 ₩ 1,508,528 Total comprehensive income attributable to: Owners of the Parent Company 1,702,280 1,495,804 Non-controlling interest 9,049 7,130 ₩ 1,711,329 ₩ 1,502,934 Earnings per share (in Korean won) 42 Basic earnings per share ₩ 2,531 ₩ 2,178 Diluted earnings per share ₩ 2,531 ₩ 2,178

The above separate statements of comprehensive income should be read in conjunction with the accompanying notes.

112 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Industrial Bank of Korea and Subsidiaries Consolidated Statements of Changes in Equity

Years Ended December 31, 2018 and 2017 (in millions of Korean won)

Attributable to owners of the Parent Company

Accumulated Hybrid Non- Notes Share Capital Other Retained Total Capital controlling Capital Surplus Comprehensive Earnings Equity Instruments Interest Income

Balance at January 1, 2017 ₩ 3,289,756 ₩ 1,398,240 ₩ 553,889 ₩ 666,596 ₩ 12,041,487 ₩ 97,440 ₩ 18,047,408 Comprehensive income

Profit for the year - - - - 1,501,454 7,074 1,508,528

Other comprehensive income for the period

Changes in the fair value of available-for-sale - - - 50,976 - (4) 50,972 financial assets

Shares of other comprehensive income of - - - (2,182) - - (2,182) associates

Exchange differences - - - (67,980) - - (67,980)

Cash flow hedges - - - 10 - 3 13

Changes in valuation of hedges of a - - - 23,323 - - 23,323 net investment in a foreign operation

Remeasurement of net defined benefit liabilities - - - (9,797) - 57 (9,740)

Total comprehensive income for the year - - - (5,650) 1,501,454 7,130 1,502,934

Transactions with owners

Cash dividends 43 - - - - (315,817) (206) (316,023)

Dividends for hybrid capital instruments 43 - - - - (68,118) - (68,118)

Issuance of hybrid capital instruments 27 - 633,303 - - - - 633,303

Others - - 5,426 - (3,192) - 2,234

Total transactions with owners - 633,303 5,426 - (387,127) (206) 251,396

Balance at December 31, 2017 ₩ 3,289,756 ₩ 2,031,543 ₩ 559,315 ₩ 660,946 ₩ 13,155,814 ₩ 104,364 ₩ 19,801,738

(Continued)

IBK ANNUAL REPORT 2018 113 (In millions of Korean won)

Attributable to owners of the Parent Company

Accumulated Hybrid Non- Notes Share Capital Other Retained Total Capital controlling Capital Surplus Comprehensive Earnings Equity Instruments Interest Income

Balance at January 1, 2018 ₩ 3,289,756 ₩ 2,031,543 ₩ 559,315 ₩ 660,946 ₩ 13,155,814 ₩ 104,364 ₩ 19,801,738 Changes in accounting policy 2 - - 446 (100,565) (153,589) (407) (254,115)

Comprehensive income

Profit for the year - - - - 1,754,243 10,035 1,764,278

Other comprehensive income for the year Changes in valuation of debt securities at fair - - - 46,722 - - 46,722 value through other comprehensive income Shares of other comprehensive income of - - - (3,312) - - (3,312) associates Exchange differences on translation of foreign - - - 13,137 - - 13,137 operations Cash flow hedges - - - 1,114 - (3) 1,111 Changes in valuation of hedges of net - - - (8,441) - - (8,441) investment in foreign operations Net losses on overlay adjustment - - - 4,588 - - 4,588 Changes in financial liabilities designated at fair - - - 28 - 8 36 value through profit or loss Changes in valuation of equity securities at fair - - - (89,709) - - (89,709) value through other comprehensive income Remeasurement of net defined benefit liabilities - - - (16,090) - (991) (17,081)

Total comprehensive income for the year - - - (51,963) 1,754,243 9,049 1,711,329

Transactions with owners

Cash dividends 43 - - - - (405,956) (1,746) (407,702)

Dividends for hybrid capital instruments 43 - - - - (89,055) - (89,055)

Issuance of hybrid capital instruments 27 - 349,475 - - - - 349,475

Transfer of realized gains or losses on equity investment at fair value through other comprehensive 5 - - - (23,880) 23,880 - - income

Transfer of realized gains or losses on equity investment at fair value through other comprehensive - - - 23,546 (23,546) - - income for hedge accounting

Others - - (8,540) - (8,954) - (17,494)

Total transactions with owners - 349,475 (8,540) (334) (503,631) (1,746) (164,776)

Balance at December 31, 2018 ₩ 3,289,756 ₩ 2,381,018 ₩ 551,221 ₩ 508,084 ₩ 14,252,837 ₩ 111,260 ₩ 21,094,176

The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.

114 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Industrial Bank of Korea and Subsidiaries Consolidated Statements of Cash Flows

Years Ended December 31, 2018 and 2017 (in millions of Korean won)

Notes 2018 2017 Cash flows from operating activities Profit for the year ₩ 1,764,278 ₩ 1,508,528 Adjustments of expenses and revenues 48 (3,462,045) (3,477,752) Changes in operating assets and liabilities 48 (13,947,682) 390,954 Cash used in operations (15,645,449) (1,578,270) Interests received 8,811,290 7,826,581 Interests paid (3,301,326) (2,767,146) Dividends received 226,872 142,092 Income taxes paid (488,273) (424,782) Net cash outflow from operating activities (10,396,886) 3,198,475 Cash flows from investing activities Net increase in financial assets at fair value through profit or loss (402,660) - Net increase in financial assets at fair value through other comprehensive income (977,459) - Net decrease in available-for-sale financial assets - 1,895,226 Net increase in securities at amortized cost (2,522,042) - Net increase in held-to-maturity financial assets - (9,395,214) Disposal of investments in associates 79,425 24,496 Acquisition of investments in associates (152,475) (103,572) Disposal of property and equipment, and investment properties 135,283 10,835 Acquisition of property and equipment, and investment properties (155,184) (140,855) Disposal of intangible assets 3,336 1,564 Acquisition of intangible assets (62,580) (44,632) Net cash outflow from acquisition of subsidiaries - (20,441) Net cash inflow(outflow) from investing activities (4,054,356) (7,772,593) Cash flows from financing activities Net increase in debts 653,064 700,367 Net increase in debentures 15,691,176 3,474,513 Issuance of hybrid capital instruments 349,475 633,303 Payment of interest of hybrid capital instruments (89,055) (68,118) Payment of dividends (407,702) (316,023) Net cash inflow from financing activities 16,196,958 4,424,042 Effects of exchange rate changes on cash and cash equivalents 81,113 (69,281) Net increase (decrease) in cash and cash equivalents 1,826,829 (219,357) Cash and cash equivalents at the beginning of the year 2,644,482 2,863,839 Cash and cash equivalents at the end of the year 48 ₩ 4,471,311 ₩ 2,644,482

The above consolidated statements of cash flows should be read in conjunction with the accompanying notes.

IBK ANNUAL REPORT 2018 115 At a glance 2018

January to December

June 1 Launched message banking and voice March 9 banking services Opened 1st online branch ‘IBK Tmon’

March 21 Launched mobile ‘i-ONE Home Lease Loan for Office Workers’

March 23 Launched ‘Co-up Success Card’ and ‘Co-up Growth Card’ for corporate clients

March 26 January 15 Opened WM Center in Busan and Daegu Opened IBK Namdong Sarang Childcare Center for SME workers January 29 Signed MOU with Suwon City (for job creation) March 27 June 28 CEO Kim Do-jin received top prize at 2018 Launched ‘Youth Co-up Card’ (support January 31 Korea Best Banker Award hosted by Seoul transportation expenses for SME youth No. of retail customers exceeded 15 million Economic Daily workers in industrial complexes) 01 03 05 02 04 06

February 2 April 9 Launched ‘Only-One Partner Loan’ with Selected IBK Leaders Club (role is to identify super low interest rate of 1% range onsite problems and deliver them to the top management)

May 28 Launched IoT-based ‘Smart Asset-backed Loan’

May 28 Opened ‘IBK Big Data Platform’ (for integrated analysis of bulk data)

116 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

November 20 Opened Vladivostok office in Russia

August 17 Special sale of 10-year fixed interest rate product ‘IBK long-term Fixed Mortgage Loan’

August 31 No. of valid credit card holders exceeded 5 million

November 28 Launched IBK Cube, a quick branch where customers can open mobile accounts without downloading an app

September 10 November 28 Became the first bank to exceed KRW 150 No. of corporate customers exceeded trillion in SME loans 1.5 million 08 10 12 07 09 11

July 9 October 1 December 3 Established new sales organization (‘dream Opened startup incubator ‘IBK Changgong Opened Phnom Penh branch in Cambodia corporate team’ renamed ‘corporate Guro’ growth branch’, corporate financial branch separated from the home branch to run as an independent corporate marketing branch)

July 17 Opened WM Center in Gwangju, Pangyo and Cheonan

December 13 Received grand prize at the 13th Kyunghyang Financial Education Awards

October 5 Received top prize in the financial consumer Received grand prize at Korea Economic protection category at 2018 Aju Business Daily TV’s 2018 Global Financial Awards Daily’s Financial Securities Awards

October 23 December 17 July 27 Received grand prize for management Exceeded KRW 40 trillion in credit card Launched ‘i-ONE ROBO’ (robo advisor innovation at MoneyToday’s 2018 Korea payment wealth management service) Financial Innovation Awards December 20 July 31 CEO Kim Do-jin awarded Mail Business Ranked as one of global top 100 banks for Newspaper’s Banker of the Year Award the first time by The Banker (ranked 93rd based on tier 1 capital, 97th based on total December 26 assets) Signed MOU with KIBO (financing for SMEs entering overseas markets)

December 28 Indonesian financial authorities (OJK) approved local bank takeover Organizational Chart

Chairman & CEO

Deputy CEO & Member of the Board Chief Compliance Officer

Legal & Compliance Dept. Chief Information Security Officer Anti-Money Laundering Dept. IT Security Dept.

IBK Economic Secretariat Research Institute

North Korea Economic Research Center

Corporate Division Retail Division

Corporate Banking Corporate & Investment Retail Banking Credit Card Trust Business Group Banking Group Group Business Group Group

Corporate Banking Dept. Technology Finance Dept. Retail Marketing Dept. Credit Card Business Dept. Trust Dept.

Startups Dept. Investment Banking Dept. Retail Product Dept. Credit Card Marketing Dept. Custody Dept.

International Trade Business Dept. Project Finance Dept. Retail Loan Dept.

Retirement Pension Dept. Corporate & Investment Wealth Management Dept. Banking Division

Corporate Service & Consulting Dept. Institutional Banking Dept.

Management Credit Management Management IT Risk Management Strategy Group Group Support Group Group Group

Strategy Planning Dept. Loan Planning Dept. Human Resources Dept. IT Planning Dept. Risk Management Dept.

Human Resources IT Management Information Financial Management Dept. Credit Approval Dept. Development Dept. Dept. Risk Review Dept.

IT Department of Financial Branch Management Dept. NPL Management Dept. Employee Happiness Dept. Service Development

Corporate Restructuring Dept. General Administration Dept. IT Channel Dept.

Private Equity Dept. Process Innovation Dept.

Security Dept.

118 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Auditor 15 Groups 2 Headquarters 1 Research Institute Audit & Examination Dept. 3 Centers 52 Departments

(as of Jan. 15, 2019)

Digital Global Markets & Busan·Ulsan· Consumer Brand Group Treasury Group Kyungnam Group Group

Financial Consumer Protection Digital Innovation Division Treasury Dept. Chungcheong· Dept. Honam Group

Digital Planning Dept. Trading Dept. Public Relations Dept.

Big Data Center Global Business Dept. Shared Happiness Dept.

Innovation R&D Center

Corporate Digital Channel Dept.

Retail Digital Channel Dept.

IBK Contact Center

IBK ANNUAL REPORT 2018 119 Global Network & Contact Information

Head Office Industrial Bank of Korea, Hanoi Branch Industrial Bank of Korea, 79, Eulji-ro, Jung-gu, Seoul, Korea, 04541 Unit 1209, 12F, Keangnam Landmark Tower, Vladivostok Representative Office (TEL) +82-31-888-8000 (overseas) Pham Hung St, Tu Liem Dist, Hanoi, Vietnam Lotte Hotel, Office 405, 29, Semenovskaya 1566-2566 / 1588-2588 (domestic) (TEL) +84-4-2220-9001 Str, Vladivostok, 690091, Russia (FAX) +82-505-075-0727 (FAX) +84-4-6282-2900 (TEL) +7-968-130-9911 (SWIFT) IBKOKRSE (SWIFT) IBKOVNVXHAN (FAX) 0505-077-0010 www.ibk.co.kr Industrial Bank of Korea, New Delhi Branch IBK (CHINA) LTD. Overseas Network No. 403, 4th Floor, Worldmark2 (Asset8), Industrial Bank of Korea (China) Limited, Industrial Bank of Korea, Hospitality District, Aerocity, Head Quarter New York Branch New Delhi - 110037, India Fl.30, 31, The Exchange 2, 189 Nanjing Road, 1250 Broadway 37th Floor, New York, (TEL) +91-11-4076-8000~3 Tianjin, China NY 10001 U.S.A (FAX) +91-11-4076-8045 (TEL) +86-22-5885-3500 (TEL) +1-212-268-6363 (SWIFT) IBKOINDDXXX (FAX) +86-22-5885-3598 (FAX) +1-212-268-0190, 6696 (SWIFT) IBKOCNBT (SWIFT) IBKOUS33 Industrial Bank of Korea, Manila Branch Industrial Bank of Korea (China) Limited Industrial Bank of Korea, Tokyo Branch Unit 801/802 One World Place 32nd St, Tianjin Branch Toranomon Waiko Building 6th Floor 12-1, Bonifacio Global City, Taguig City, #1201, Tianjin Center office Tower No 219, Toranomon 5-chome, Minatoku, Tokyo Metro Manila, Philippines 1630 Nanjing Road, Heping District of Tianjin, 105-0001, Japan (TEL) +63-2-643-0700 China 300051 P.R (TEL) +81-3-4477-8200~2 (FAX) +63-2-643-0701 (TEL) +86-22-2317-2317 (FAX) +81-3-4477-8203 (SWIFT) IBKOPHMMXXX (FAX) +86-22-2332-3050 (SWIFT) IBKOJPJT (SWIFT) IBKOCNBTTJX

Industrial Bank of Korea, Industrial Bank of Korea, Industrial Bank of Korea (China) Limited Hong Kong Branch Phnom Penh Branch Tianjin Xiqing Sub-Branch Suite 3113, 31/F, Two Pacific Place, Olympia City, Building s2-23, Preah Monireth 1F-B, Investment Service Center A, No.1 88 Queensway, Hong Kong Blvd(Streeet, 217), Sangkat Veal Vong, Khan 7 QianXuesen Road, Micro-electronics Industrial (TEL) +85-2-2521-1398 Makara, Phnom Penh, Cambodia park, Jingang Highway Xiqing District, Tianjin (FAX) +85-2-2596-0920 (TEL) +85-5-23-964-202 China (300385) (SWIFT) IBKOHKHH (FAX) +85-5-23-964-203 (TEL) +86-22-5868-0066 (FAX) +86-22-5868-0060 Industrial Bank of Korea, Industrial Bank of Korea, (SWIFT) IBKOCNBTTJX London Branch Yangon Representative Office Leaf B 38th Floor, Tower 42, 25 Old Broad Room No. 1006, Pyay Garden Office Tower, Industrial Bank of Korea (China) Limited Street, London, United Kingdom, EC2N 1HQ 346/354, Pyay Road, Sanchanung Township, Tianjin Wuqing Sub-Branch (TEL) +44-20-7256-8900 Yangon, Myanmar 1F, 5Lu Yuan Road, Wu Qing Development (FAX) +44-20-7374-2693 (TEL) +95-1-536135 Area, Tianjin, China (SWIFT) IBKOGB2L (FAX) +95-1-536135 (TEL) +86-22-5967-8833 (FAX) +86-22-5967-8830 Industrial Bank of Korea, Industrial Bank of Korea, (SWIFT) IBKOCNBTTJX Ho Chi Minh City Branch Jakarta Representative Office Room 604, 6th Floor, Diamond Plaza, Wisma GKBI, 20th floor Unit 2003, Jl Jend Industrial Bank of Korea (China) Limited 34 Le Duan St., Dist.1, HCMC, Vietnam Sudirman Kav. 28, Bendungan Hilir, Tanah Tianjin Dongli Sub-Branch (TEL) +84-8-3823-2660~1 Abang, Central Jakarta, Indonesia (10210) Tower A, Daheng Financial And Business (FAX) +84-8-3823-2669 Indonesia Center, NO.10 Yijing Road, Dongli (SWIFT) IBKOVNVX (TEL) +62-21-5790-5218 Development District, Tianjin, China (TEL) +86-22-5850-1515 (FAX) +86-22-5850-1523 (SWIFT) IBKOCNBTTJX

120 IBK ANNUAL REPORT 2018 To Our Stakeholders Management Review Business Review Financial Review

Industrial Bank of Korea (China) Limited Industrial Bank of Korea (China) Limited Contact Information Qingdao Branch Suzhou Branch International Trade Business Department 2F, International Development Center, 36 Room 209A, International Building, No.2 Import/Export: +82-2-729-7738 Miaoling Road, Qingdao, China Suhua Rd, Suzhou Industrial Park Dist., Letters of credit advising: +82-2-729-6091 (TEL) +86-532-8388-8900~3 Suzhou, Jiangsu, China (215021) Letters of credit issuance: +82-2-729-6083 (FAX) +86-532-8388-8990 (TEL) +86-512-6767-1112~3 Remittance inquiries: +82-2-729-7220 (SWIFT) IBKOCNBTQDX (FA X ) +86-512-6767-1114 (SWIFT) IBKOCNBTSZX Global Business Department Industrial Bank of Korea (China) Limited Correspondents banking: +82-2-729-7648 Qingdao Chengyang Sub-Branch Industrial Bank of Korea (China) Limited Overseas network information: +82-2-729-6165 1F, 76-18, 76-19, Zhengyang Road, Cheng- Suzhou Kunshan Sub-Branch yang District, Qingdao, Shandong, China Room 802,803, Dibao Financial Building 168, Trading Department (266109) Chunxu Road, Kunshan, Jiangsu Province, Financial derivatives: +82-2-729-6938 (TEL) +86-532-6895-8800 China (215300) Foreign exchange trading: +82-2-729-7920 (FAX) +86-532-6895-8801 (TEL) +86-512-3682-6000 (SWIFT) IBKOCNBTQDX (FAX) +86-512-3680-1962 Treasury Department (SWIFT) IBKOCNBTSZX Settlement: 82-2-729-6202 Industrial Bank of Korea (China) Limited Debt capital market: 82-2-729-6953 Qingdao Economic & Technological Industrial Bank of Korea (China) Limited Money market transaction: 82-2-729-7262 Development Zone Sub-Branch Suzhou Wujiang Sub-Branch 1F-2F, No. 435 Changjiang East Road, Qing- #2805 Pangjin Road, Wujiang Economic & Investment Banking Department dao Economic & Technological Development Technological Development Zone, Suzhou, Securities investment: +82-2-729-6653 Zone, Qingdao, Shandong Province, China Jiangsu, China (TEL) +86-532-8690-8899 (TEL) +86-512-6363-1115 Financial Management Department (FAX) +86-532-8690-8280 (FAX) +86-512-6363-2603 Investor relations: +82-2-729-7942 (SWIFT) IBKOCNBTQDX (SWIFT) IBKOCNBTSZX Legal & Compliance Department Industrial Bank of Korea (China) Limited Industrial Bank of Korea (China) Limited +82-2-729-6063 Shenyang Branch Shenzhen Branch Unit A,D, Floor 13, Maoye Center, No. 185-2, F,G,H,J 16F Main Building, Lvgem Square, Risk Management Department Qingnian Street, Shenhe District, Shenyang, Chegongmiao, Shennan Avenue, Futian +82-2-729-7234 Liaoning Province, China District, Shenzhen, China (TEL) +86-24-8315-1255 (TEL) +86-755-3320-5520 IT Channel Department (FAX) +86-24-8315-1256 (FAX) +86-755-3320-5508 +82-31-229-2764 (SWIFT) IBKOCNBTSYX (SWIFT) IBKOCNBTSHZ

Industrial Bank of Korea (China) Limited Industrial Bank of Korea (China) Limited © Industrial Bank of Korea Yantai Branch Wuhan Branch The information in this document is the property of Room 303 Sanshui Mansion, 75 Beima Road, 18F, PingAn International Finance Building, the Industrial Bank of Korea (IBK) and shall not be copied, communicated to a third party or used for No. 216 Gongzheng Road, Wuchang Area, Zhifu District, Yantai, Shandong, China any other purpose than for which it is supplied, with- (264000) WuHan, Hubei, China out the written consent of IBK. While this information (TEL) +86-535-665-2888~9 (TEL) +86-27-8725-8885 is given in good faith based upon the latest available (FAX) +86-535-665-2884 (FAX) +86-27-8725-8883 to IBK, no warranty or representation is given con- cerning such information, which must not be taken (SWIFT) IBKOCNBTYTX (SWIFT) IBKOCNBTWHX as establishing any contractual or other commitment binding upon IBK or any of our subsidiaries or asso- Industrial Bank of Korea (China) Limited Industrial Bank of Korea (China) Limited ciated companies. Yantai Economic & Technological Beijing Branch Published by Industrial Bank of Korea (IBK) Planned Development Zone Sub-Branch 15F, A Tower Sanlitun SOHO B/D, No.8 and Designed by Kudos·digm. No.106~109, Wanhang Square, No.18 Workers Stadium Road North, Chaoyang Hengshan Road,Economic & Technological District, Beijing, 100027, P.R. China Development Zone, Yantai, Shandong, China (TEL) +86-10-8527-0585 (TEL) +86-535-610-7131 (FAX) +86-10-8527-0591 (FAX) +86-535-665-2884 (SWIFT) IBKOCNBTBJX (SWIFT) IBKOCNBTYTX

IBK ANNUAL REPORT 2018 121 Please visit IBK IR website for more information.

http://eng.ibk.co.kr

79, Eulji-ro, Jung-gu, Seoul, Korea 04541 Tel +82-31-888-8000 Fax +82-2-505-075-0727 http://www.ibk.co.kr