Best Bank Expanding to Global Stable Portfolio Trusted Group HANA FINANCIAL GROUP ANNUAL REPORT 2014 Contents Highlights Key Highlights Financial Highlights Stock Information 2014 News Highlights Group Overview 12 Letter to Shareholders and Customers 16 Interviews with the Management 24 Vision 26 At a Glance 28 Risk Management 30 Corporate Governance 32 Board of Directors 34 Global Network Review of Operations 36 Retail Banking 41 Corporate Banking 46 Global Operations 48 IB & Asset Management 51 Credit Card 53 Trust & Pension 56 Corporate Social Responsibility Financials 61 Management’s Discussion and Analysis 97 Independent Auditors’ Report 98 Consolidated Financial Statements 104 Notes to the Consolidated Financial Statements 226 Corporate Information 227 Forward Looking Statements THE TRUSTED PREMIER GLOBAL FINANCIAL GROUP Last year Hana Financial Group drew up the new vision, 'The Trusted Premier Global Financial Group', together with its executives and employees, and took many steps in line with the vision. All of us at Hana Financial Group did our best to improve customer satisfaction and to enhance shareholders value in the face of challenging economic environments at home and abroad. In 2015, Hana Financial Group will continue moving forward toward its vision, creating synergy and improving upon its competencies in banking, securities, credit card, insurance, retail financing and overseas business. We also will do our share in building a better tomorrow for all, through pursuit of "Happy Finance". KEY HIGHLIGHTS In 2014, Hana Financial Group took many long-ranged steps toward realizing its vision, recording interim results indicative of the soundness of the strategy being employed; both low-cost deposits and low-risk loans grew markedly; operating income increased while general and administrative expenses decreased, all contributing to enhance profitability. Total Assets (Consolidated) KRW Loans 390 KRW in trillion 163 KRW in trillion 390 163 368 158 151 349 2012 2013 2014 2012 2013 2014 Sum of Hana Bank's and KEB's KRW loans Total Deposits (Ending Balance) Global Awards in 2014 190 KRW in trillion "Best Bank in Korea" Hana Bank The Banker 190 "Best Foreign Exchange Provider in Korea 2014" 177 Korea Exchange Bank 170 Global Finance "Best Private Bank in Korea" Hana Bank Euromoney 2012 2013 2014 Sum of Hana Bank's and KEB's KRW deposits WWW Hana Financial Group http://www.hanafn.com/eng/main.do Global Network As of April 2015 The Industry's Largest Global Network 136 Points of Operation 24 Countries Asia & Pacific 100 • Europe & Middle East 10 • America 26 Sum of Hana Bank's and KEB's KRW loans The Banker Future Finance Mobile Employees "Top 1000 World Banks 2014" Banking Users As of Dec. 2014 As of July 2014 As of Dec. 2014 84th 4,668,823 21,684 Hana Bank ranked 532nd (1993) FINANCIAL HIGHLIGHTS Hana Financial Group is strengthening its growth engines as a way to realize the vision. To rise above the challenge of the low interest rate environment and to grow into a premier global financial group, we will further strengthen our competitive advantages in the non-banking sector and overseas business, both of which still possess relatively high growth potential. (KRW in billion) Financial Summary 2014 2013 Profitability General Operating Income 6,331.6 6,239.7 Operating Income 1,243.4 1,165.0 Consolidated Net Income 937.7 933.9 ROA 0.32% 0.34% ROE 4.55% 5.16% EPS (KRW) 3,177 3,399 Cost to Income Ratio 62.17% 61.64% Business Volume Total Assets 390,486.7 368,486.4 Total Sales 267,121.2 252,143.2 (Total Deposits) 237,683.3 225,119.8 (Sales of Beneficiary Certificates) 29,437.9 27,023.4 Asset Soundness Substandard & Below (NPL) Ratio 1.35% 1.48% Substandard & Below (NPL) Coverage Ratio 123.30% 120.66% Delinquency Ratio 0.62% 0.58% Capital Adequacy* BIS CAR 12.63% 12.28% Cost to Income Ratio Tier 1 Ratio 9.67% 9.24% Common Equity Tier 1 Ratio 9.18% 8.63% BPS (KRW) 71,848 68,754 *Based on Basel III standards WWW Financial Information http://www.hanafn.com/eng/ir/financial/ summary/importantDetail.do Net Interest Income (Consolidated) ◦NIM ■ Int. Income Net Income (Consolidated) 4,671 KRW in billion 937.7 KRW in billion 2.13% 1.94% 1.91% 1,621.5 4,671 4,599 933.9 937.7 4,485 2012 2013 2014 2012 2013 2014 NPL Ratio Credit Cost (Cumulative) 1.35% 0.51% 0.71% 1.48% 1.35% 1.34% 0.53% 0.51% 2012 2013 2014 2012 2013 2014 Major Indices (Cumulative, %) 61.6% Cost to 51.0% Income Ratio 62.2% 10.56% ROE 5.16% 0.60% 4.55% ROA 0.34% 0.32% 2012 2013 2014 STOCK INFORMATION Despite the inert stock market, which negatively affected the Group's market capitalization, we maintained our unbroken dividend payout legacy, paying more in 2014 than in the two previous years. Going forward, we will continue our business strategy of depending less on interest incomes but relying more on low-cost core deposits, lending more to healthy SMEs and optimizing asset/liability portfolio management. Market Capitalization Consistent Dividend History ◦ Dividend Payout Ratio ■ Dividend per share (KRW) 9.28 KRW in trillion 600 KRW per share 19.1% 16.0% 14.5% 7.8% 12.73 600 600 9.28 8.64 450 8.43 400 2011 2012 2013 2014 2011 2012 2013 2014 Share Ownership As of Dec. 2014 31.21% 68.79% DOMESTIC FOREIGN Share Price Movements (KRW, Point) 2014 2013 2012 2011 2010 High 43,850 43,900 44,900 49,700 44,000 Low 31,450 31,850 30,350 29,000 28,700 Year-end 32,000 43,900 34,700 35,550 43,300 KOSPI index (year-end) 1,915.59 2,011.34 1,997.05 1,825.74 2,051.00 WWW Stock Information http://www.hanafn.com/eng/ir/irStock- Info01.do Outstanding Credit Ratings As of May 2015 BANK Moody's Hana Bank Korea Exchange Bank A1 A1 BANK BANK S&P A Hana Bank A Korea Exchange Bank Stock Performance –– Hana Financial Group –– KRX Bank –– KOSPI 300% 250% 200% 150% 100% 2014. 01 New Vision 'The Trusted Premier Global 2012. 01 Financial Group' promulgated The FSC approved the Korea Exchange Bank acquisition 2009 2014. 03 Successfully weathered a financial crisis 2013. 01 PT Bank KEB Hana, the integrated 50% BoD approved plan to turn Korea Exchange Bank into a 100% Indonesian subsidiary, launched 2010. 02 subsidiary through a share swap Hana SK Card inked JV pact with SK Telecom 2014. 12 2013. 04 Newly integrated KEB Hana Card launched 2010. 11 Korea Exchange Bank delisted, new shares of Hana Financial Newly integrated subsidiary, Hana Bank Signed to acquire Korea Exchange Bank Group listed (China) Ltd. launched 2009 2010 2011 2012 2013 2014 2015 20142014 NEWS HIGHLIGHTS New vision, 'The Trusted Premiere Global KEB Hana Card Launched Financial Group', promulgated On Dec. 1, KEB Hana Card held a launching ceremony at its HQ office, On Jan. 11, 2014, Hana Financial Group held a 'Start announcing the outcome of the 2014' event. Attended by 12,000 executives and integration of Hana SK Card and KEB employees, the event served as an occasion to Card. As a result of the complete in- promulgate the Group's new vision, 'The Trusted tegration of the two card companies, KEB Hana Card has emerged a mid- Premiere Global Financial Group', and to make the sized card company with 4.7 million in pledge to grow Hana Financial Group into a top-tier membership, KRW 6 trillion in assets, global financial group trusted by its shareholders and KRW 55.2 trillion in annual sales, and customers. over 8% in market share. By 2025 it aims to grow annual sales to KRW 140 trillion, net income to KRW 500 billion, and market share to 15%. Hana Bank Named "Best Global Private Bank" At the 6th Global Private Banking Awards on Oct. 30, 2014, Hana Bank won the 'Global Best Digital Com- Integrated Indonesian munication Private Bank' award. Hana Bank (China) Launched Subsidiary Launched Jointly organized by 'The Banker' In Dec. 2014, Hana Bank (China) was On Mar. 10, 2014, Hana Financial and 'PMW', the annual event held at emerged through the consolidation Group launched PT Bank KEB Hana, Geneva, Switzerland, identifies and of the two local subsidiaries of Hana a new Indonesian subsidiary into honors global financial institutions Bank and Korea Exchange Bank. With which the two local subsidiaries of with private banking performances about CNY 45 billion in assets and Korea Exchange Bank and Hana Bank outstanding not only by their national CNY 5.2 billion in equity, the newly have integrated. The emergence of but also by global standards. integrated Chinese subsidiary aims the new Indonesian subsidiary is the to become a top five foreign bank in first case of integrating the business assets by 2025 through expansion of operations of Hana Bank and Korea the branch network and the customer Exchange Bank, and is significant in base. that the subsidiary is in a position to better serve not only local customers but local corporate clients as well. GROUP OVERVIEW REVIEW OF OPERATIONS FINANCIALS 012 Hana Financial Group Annual Report 2014 LETTER TO SHAREHOLDERS AND CUSTOMERS Dear valued shareholders and customers, In 2014, Hana Financial Group focused all of its resources and energies on enhancing shareholders value in the face of challenging Fee income, another component of the economic environments at home and abroad. core incomes, performed even better, I am delighted to share with our shareholders recording a 5.2% increase.