Hci fy2013 ye_final

Hyundai Commercial, Inc. and Subsidiaries Consolidated Financial Statements December 31, 2013 (With Independent Auditors’ Audit Report Thereon)

Contents

Page

Independent Auditors’ Report 1

Consolidated Statements of Financial Position 3

Consolidated Statements of Comprehensive Income 5

Consolidated Statements of Changes in Equity 7

Consolidated Statements of Cash Flows 8

Notes to the Consolidated Financial Statements 9

KPMG Samjong Accounting Corp. 10th Floor, Gangnam Finance Center, 737 Yeoksam-dong, Gangnam-ku, Seoul 135-984, Republic of Korea

Tel +82 (2) 2112 0100 Fax +82 (2) 2112 0101 www.kr.kpmg.com

Independent Auditors’ Report

Based on a report originally issued in Korean

The Board of Directors and Shareholders Hyundai Commercial, Inc.: We have audited the accompanying consolidated statement of financial position of Hyundai Commercial, Inc. and its subsidiaries (collectively “the Group”) as of December 31, 2013 and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended. Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The accompanying consolidated statements of financial position of the Group as of December 31, 2012, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, were audited by other auditors, whose report thereon dated March 19, 2013, expressed an unqualified opinion. We conducted our audit in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. In our opinion, the consolidated financial statements referred above present fairly, in all material respects, the financial position of the Group as of December 31, 2013, and its financial performance and its cash flows for the year then ended, in accordance with Koran International Financial Reporting Standards. Based on our audits and the report of other auditors, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2013 and 2012 and its financial performance and cash flows for the years then ended in accordance with Korean International Financial Reporting Standards. The procedures and practices utilized in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report is for use by those knowledgeable about Korean auditing standards and their application in practice.

KPMG Samjong Accounting Corp. 10th Floor, Gangnam Finance Center, 737 Yeoksam-dong, Gangnam-ku, Seoul 135-984, Republic of Korea

Tel +82 (2) 2112 0100 Fax +82 (2) 2112 0101 www.kr.kpmg.com

KPMG Samjong Accounting Corp. Seoul, Korea March 13, 2014 This report is effective as of March 13, 2014, 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 the above report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

Hyundai Commercial, Inc. and Subsidiaries Consolidated Statements of Financial Position As of December 31, 2013 and 2012

3

(In Korean won)

Notes December 31,

2013 December 31,

2012

Assets Cash and due from bank 11 Cash and cash equivalents 29 W 280,489,429,324 282,825,795,422 Due from banks 6 9,000,000 9,000,000 280,498,429,324 282,834,795,422 Securities Available-for-sale securities 7,11 52,913,346,681 26,984,327,193 Investments in associates 8 258,117,765,424 285,401,945,483 311,031,112,105 312,386,272,676 Loans receivables 9,10,11,12 Factoring 4,145,309,432 108,000,000 Allowance for doubtful accounts (28,760,007) (270,108) Loans 3,003,414,808,167 2,800,613,129,940 Allowance for doubtful accounts (21,626,634,497) (19,258,899,976) 2,985,904,723,095 2,781,461,959,856 Installment financial assets 9,10,11,12 Auto installment financial receivables 281,894,747,216 333,721,265,726 Allowance for doubtful accounts (1,827,954,594) (2,351,089,917) Durable goods installment financing receivables 20,071,412,811 25,624,608,935 Allowance for doubtful accounts (135,964,512) (176,228,378) 300,002,240,921 356,818,556,366 Lease receivables 9,10,11 Financial lease receivables 13 213,536,302,589 132,356,464,281 Allowance for doubtful accounts (1,815,586,653) (1,026,910,813) 211,720,715,936 131,329,553,468 Property and equipment 14 Vehicles 38,087,150 69,799,497 Fixtures and furniture 3,259,138,554 2,701,927,277 Others 410,999,664 410,999,664 3,708,225,368 3,182,726,438 Other assets Intangible assets 15 4,474,389,846 3,453,010,248 Account receivables 11 18,117,506,853 15,919,893,264 Allowance for doubtful accounts 10 (42,153,646) (106,582,840) Accrued revenues 11 18,277,365,728 16,979,241,639 Allowance for doubtful accounts 10 (121,450,184) (120,891,875)

Advanced payments 11,320,091,953 1,157,855,722 Prepaid expenses 3,571,104,042 3,258,141,295 Leasehold deposits 11 2,126,867,765 11,083,913,915 Derivative assets 11,20 162,823,025 137,774,538 Other investment assets 3,914,564,740 3,885,995,860

61,801,110,122 55,648,351,766 Total assets W 4,154,666,556,871 3,923,662,215,992

See accompanying notes to the consolidated financial statements.

Hyundai Commercial, Inc. and Subsidiaries Consolidated Statements of Financial Position, Continued As of December 31, 2013 and 2012

4

(In Korean won)

Notes December 31,

2013 December 31,

2012

Liabilities Borrowings and debt securities issued Borrowings 11,16 W 596,955,176,683 723,883,961,368 Debentures 11,17 2,803,450,657,012 2,428,295,638,414 Securitized debts 11,12,18 259,852,347,235 309,637,147,861 3,660,258,180,930 3,461,816,747,643 Other liabilities Account payables 11 14,442,798,233 15,199,624,950 Accrued expenses 11 24,018,798,330 27,995,752,026 Unearned revenue 5,883,874,618 4,660,074,481 Advances 561,139,875 245,291,834 Withholdings 11 4,638,033,401 3,470,180,556 Net defined benefit liabilities 19 2,511,838,894 2,056,215,563 Leasehold deposits received 11 53,848,412,018 33,014,098,305 Current income tax liabilities 9,140,342,918 9,539,343,812 Deferred income tax liabilities 26 23,056,840,364 20,052,096,124 Derivative liabilities 11,20 1,937,593,381 7,505,990,273 140,039,672,032 123,738,667,924

Total liabilities 3,800,297,852,962 3,585,555,415,567

Equity Capital stock 1,21 Common stock 100,000,000,000 100,000,000,000 Preferred stock 25,000,000,000 25,000,000,000 125,000,000,000 125,000,000,000 Capital surplus 21 Paid-in capital in excess of par value 74,608,059,537 74,608,059,537 Accumulated other comprehensive income (loss) 28 Unrealized loss on valuation of derivatives 20 (950,104,066) (1,914,821,981) Unrealized gain (loss) on valuation of available-for-

sale securities

(1,908,746,117) 713,160,297 Accumulated comprehensive income (loss) of equity

method investee

(9,334,142,540) 3,811,298,060 Remeasurement of defined benefit plans (2,254,434,232) (1,670,150,616)

(14,447,426,955) 939,485,760 Retained earnings 22 Legal reserve 7,100,000,000 4,000,000,000 Voluntary reserve 15,389,637,505 3,457,191,901 Unappropriated retained earnings 146,698,613,822 130,082,243,227

(Appropriated regulatory reserve for credit losses - W(15,289,637,505) and W(3,357,191,901), respectively)

(Estimated provision (reversal) of regulatory reserve for credit losses W(761,453,510) and (W11,932,445,604), respectively)

169,188,251,327 137,539,435,128 Total equity attributable to owners of the Controlling Company

354,348,883,909 338,086,980,425

Non-controlling interests 19,820,000 19,820,000

Total equity 354,368,703,909 338,106,800,425 Total liabilities and equity W 4,154,666,556,871 3,923,662,215,992 See accompanying notes to the consolidated financial statements.

Hyundai Commercial, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income For the years ended December 31, 2013 and 2012

5

(In Korean won) Notes 2013 2012 Operating revenue

Interest income 23 W 9,434,233,198 11,194,567,834 Income on loans 23,24 281,391,820,093 272,663,892,191 Income on installment financial receivables

23,24 29,016,725,243 42,262,441,366

Income on leases 23,24 11,466,743,779 7,957,875,306 Gain on disposal of loans 3,988,547,540 6,163,108,697 Gain on foreign transactions 316,000,000 4,521,000,000 Dividend income 200,000,000 250,000,000 Gain on disposal of available-for-sale securities 3,267,027,980 - Other operating revenue 7,149,934,537 1,678,784,874

346,231,032,370 346,691,670,268

Operating expenses Interest expense 23 157,791,181,350 163,476,708,039 Bad debt expense 10 25,054,917,751 21,565,121,705 Loss on disposal of loans 7,510,206,205 3,302,529,161 Loss on foreign transactions 1,316 - General and administrative expenses 25 71,486,179,960 66,024,037,995 Loss on valuation of derivatives 83,414,242 4,948,370,220 Other operating expenses 8,435,402,416 4,566,451,085 270,361,303,240 263,883,218,205

Operating income 75,869,729,130 82,808,452,063 Non-operating income

Gain on equity method valuation 8 9,041,656,171 10,609,149,548 Gain on disposal of property and equipment 42,750,144 2,856,483 Miscellaneous income 641,755,608 659,947,262

9,726,161,923 11,271,953,293 Non-operating expenses

Loss on equity method valuation 8 25,292,131,269 18,716,248,681 Loss on disposal of property and equipment - 113,850,242 Donation 1,952,381 50,000,000 Miscellaneous losses 546,058,448 534,359,600 Other non-operating expenses - 8,582,824,000

25,840,142,098 27,997,282,523

Profit before income taxes 59,755,748,955 66,083,122,833

Income tax expenses 26 23,138,278,177 22,435,670,215

Profit for the period 22 W 36,617,470,778 43,647,452,618

(Profit adjusted by regulatory reserve for credit losses amounted to W35,856,017,268 and W31,715,007,014 for the years ended December 31, 2013 and 2012, respectively)

Profit attributable to:

Owners of the Controlling Company W 36,617,470,778 43,647,452,618 Non-controlling interests - -

Profit for the period W 36,617,470,778 43,647,452,618


Hyundai Commercial, Inc. and Subsidiaries Consolidated Statements of Comprehensive Income, Continued For the years ended December 31, 2013 and 2012

6

(In Korean won) Notes 2013 2012

Other comprehensive income, net of income taxes 28

Items that are or may be reclassified to profit or loss subsequently

W (14,802,629,099) (652,669,581)

Items that will not be reclassified to profit or loss (584,283,616) (729,564,515) (15,386,912,715) (1,382,234,096)

Total comprehensive income for the period W 21,230,558,063 42,265,218,522

Total comprehensive income attributable to:

Owners of the Controlling Company W 21,230,558,063 42,265,218,522 Non-controlling interests - -

Total comprehensive income for the period W 21,230,558,063 42,265,218,522

Earnings per share 27

Basic earnings per share W 1,531 1,882 Diluted earnings per share 1,465 1,746


Hyundai Commercial, Inc. and Subsidiaries Consolidated Statements of Changes in Equity For the years ended December 31, 2013 and 2012

7

(In Korean won) Capital stock

Capital surplus

Accumulated other

comprehensive income (loss) Retained earnings

Total attributable

to owners of the Controlling Company

Non-controlling interests Total equity

Balance as of January 1, 2012 W 125,000,000,000 74,608,059,537 2,321,719,856 147,407,217,933 349,336,997,326 19,820,000 349,356,817,326Total comprehensive income (loss)

Profit for the period - - - 43,647,452,618 43,647,452,618 - 43,647,452,618Other comprehensive income (loss)

Net unrealized loss on valuation of derivatives - - (831,874,468) - (831,874,468) - (831,874,468)Net unrealized loss on valuation of available-for- sale securities - - (5,334,677,551) - (5,334,677,551) - (5,334,677,551)

Other comprehensive income of equity method investees - - 5,513,882,438 1,484,764,577 6,998,647,015 - 6,998,647,015

Remeasurement of defined benefit plans - - (729,564,515) - (729,564,515) - (729,564,515)Total comprehensive income (loss) for the period - - (1,382,234,096) 45,132,217,195 43,749,983,099 - 43,749,983,099

Transactions with owners Annual dividends paid - - - (30,000,000,000) (30,000,000,000) - (30,000,000,000)Interim dividends paid - - - (25,000,000,000) (25,000,000,000) - (25,000,000,000)

Balance as of December 31, 2012 W 125,000,000,000 74,608,059,537 939,485,760 137,539,435,128 338,086,980,425 19,820,000 338,106,800,425 Balance as of January 1, 2013 W 125,000,000,000 74,608,059,537 939,485,760 137,539,435,128 338,086,980,425 19,820,000 338,106,800,425Total comprehensive income (loss)

Profit for the period - - - 36,617,470,778 36,617,470,778 - 36,617,470,778Other comprehensive income (loss)

Net unrealized gain on valuation of derivatives - - 964,717,915 - 964,717,915 - 964,717,915Net unrealized loss on valuation of available-for- sale securities - - (2,621,906,414) - (2,621,906,414) - (2,621,906,414)

Other comprehensive income (loss) of equity method Investees - - (13,145,440,600) 1,031,345,421 (12,114,095,179) - (12,114,095,179)

Remeasurement of defined benefit plans - - (584,283,616) - (584,283,616) - (584,283,616)Total comprehensive income (loss) for the period - - (15,386,912,715) 37,648,816,199 22,261,903,484 - 22,261,903,484

Transactions with owners Annual dividends paid - - - (6,000,000,000) (6,000,000,000) - (6,000,000,000)

Balance as of December 31, 2013 W 125,000,000,000 74,608,059,537 (14,447,426,955) 169,188,251,327 354,348,883,909 19,820,000 354,368,703,909


Hyundai Commercial, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the years ended December 31, 2013 and 2012

8

(In Korean won) Notes 2013 2012 Cash flows from operating activities Cash generated from (used in) operations 29 W 16,926,012,674 (62,299,924,616) Interest received 7,852,640,077 9,681,332,266 Interest paid (153,042,772,791) (158,384,342,272) Dividend received 200,000,000 250,000,000 Income taxes paid (20,254,938,110) (21,083,558,210) Net cash used in operating activities (148,319,058,150) (231,836,492,832) Cash flows from investing activities Proceeds from disposal of available-for-sale securities 8,759,859,472 - Acquisition of available-for-sale securities (44,267,937,586) (6,302,089,113) Acquisition of investments in associates (940,000,000) (138,913,060,000) Proceeds from disposal of vehicles 33,890,000 63,107,858 Acquisition of vehicles - (76,172,300) Proceeds from disposal of fixtures and furniture 11,675,000 1,360,000 Acquisition of fixtures and furniture (1,815,170,606) (1,418,127,063)

Acquisiton of other investment assets (28,568,880) - Acquisition of intangible assets (376,058,800) (1,030,108,684) Increase in advanced payments (11,522,462,304) - Decrease in leasehold deposits 9,303,000,928 1,106,291,200 Increase in leasehold deposits (289,147,437) (2,005,013,700) Net cash used in investing activities (41,130,920,213) (148,573,811,802) Cash flows from financing activities Proceeds from borrowings 673,059,902,143 757,578,850,000 Repayments of borrowings (799,773,487,454) (759,218,611,658) Issuance of debentures 1,250,875,138,454 1,128,866,743,000 Repayments of debentures (876,336,940,878) (635,000,000,000)

Issuance of securitized debts 170,000,000,000 - Repayments of securitized debts (220,000,000,000) (50,000,000,000) Liquidation of derivatives (4,711,000,000) - Payments of dividends (6,000,000,000) (55,000,000,000) Net cash provided by financing activities 187,113,612,265 387,226,981,342 Net cash increase (decrease) in cash and cash equivalents

(2,336,366,098) 6,816,676,708

Cash and cash equivalents at beginning of period 29 282,825,795,422 276,009,118,714 Cash and cash equivalents at end of period 29 W 280,489,429,324 282,825,795,422


Hyundai Commercial, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2013 (In thousands of won)

9

1. Reporting Entity Hyundai Commercial, Inc., the controlling company, and its subsidiaries (collectively, the “Group”) included in consolidation are summarized as below.

(a) Controlling Company Hyundai Commercial, Inc. (the “Controlling Company”) was established on March 27, 2007, by taking over all the assets, liabilities, rights, and obligations related with the loans of the industrial product division of Hyundai Capital Services, Inc. and its installment financing and lease financing division. It is engaged in installment financing and leasing of facilities. The Group’s operations are headquartered in Yeouido, Seoul. The common shareholders of the Group as of December 31, 2013 are as follows:

Number of shares Percentage of ownership

(%)

Hyundai Motor Company 10,000,000 50.00 Myung-yi Chung 6,667,000 33.33 Tae-young Chung 3,333,000 16.67 20,000,000 100.00

(b) The Group’s subsidiaries Subsidiaries as of December 31, 2013 and 2012 are as follows. The Group has control over the subsidiaries established as special purpose entities for asset securitization even though its ownership interests over the subsidiaries do not exceed 50%.

Subsidiaries Ratio of

ownership Location Reporting

Date

Special Purpose

Entities

Commercial Auto First SPC (trust)(*1) 0.90% Korea March 31(*2) Commercial Auto Second SPC

(trust)(*1) 0.90% Korea December 31 (*1) Special Purpose Entities (“SPE”) were established to securitize certain financial assets held by the

Group. The Group concluded that it has control over the SPE as it is significantly exposed to variable returns from its involvement with the SPE by acquiring subordinated debentures issued by SPE and has the ability to affect those returns through its power, even though it holds less than a majority of the voting rights of the investees. Accordingly, the Group concluded that it has control over SPE which are included in the consolidated financial statements of the Group.

(*2) The end of the reporting period of Commercial Auto First SPC (trust) is different from that of the

Controlling Company. Therefore, the Controlling Company consolidates the financial information of the subsidiary using the financial statements as of the same date.


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1. Reporting Entity, Continued (c) Condensed financial information of subsidiaries

Assets Liabilities Equity Operating revenue

Profit for the year

December 31, 2013 Commercial Auto First SPC (trust) W 150,305,348 150,211,822 93,526 9,796,267 (131,774)

Commercial Auto Second SPC (trust) 110,203,346 110,129,148 74,198 5,437,737 (83,405)

December 31, 2012 Commercial Auto First SPC (trust) W 200,375,234 200,149,934 225,300 10,317,412 (133,659)

Commercial Auto Second SPC (trust) 110,203,363 110,045,760 157,603 6,965,620 (141,723)


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2. Basis of Preparation (a) Statement of compliance The consolidated financial statements have been prepared in accordance with the Korean International Financial Reporting Standards (“K-IFRS”) as prescribed in the Act on External Audits of Corporations in the Republic of Korea. (b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following material items in the consolidated statement of financial position:

- Available-for-sale financial instruments measured at fair value - Derivative financial instruments measured at fair value - The liability (asset) for defined benefit obligations is recognized as the present value of the defined

benefit obligation less the fair value of the plan assets.

(c) Use of estimates and judgments The preparation of the consolidated financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are evaluated on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future years affected. Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes: - Note 4(i) – Allowance for financial receivables - Note 4(o) – Net defined benefit liabilities

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes: - Note 10 – Allowance for Doubtful Accounts - Note 19 – Net Defined Benefit Liabilities


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3. Changes in accounting policies Except as described below, the accounting policies applied by the Group in these consolidated financial statements are the same as those applied by the Group in the consolidated financial statements as of and for the year ended December 31, 2012. The following changes in accounting policies have been reflected in the Group’s consolidated financial statements as of and for the year ended December 31, 2013. However, the Group adopted early the amendments to K-IFRS No.1019, ‘Employee Benefits’ for annual periods beginning after January 1, 2012. - K-IFRS No. 1110 Consolidated Financial Statements - K-IFRS No. 1112 Disclosure of Interests in Other Entities - K-IFRS No. 1113 Fair Value Measurement - K-IFRS No. 1001 Presentation of Financial Statements

(a) New standards and interpretations adopted

i) Enactment of K-IFRS No. 1110 Consolidated Financial Statements The standard outlines the requirements for the preparation and presentation of consolidated financial statements, requiring the Group to consolidate entities it controls. An investor is considered to have control over an investee when it has exposure or rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The adoption of this standard had no impact on the Group’s consolidated financial statements on January 1, 2013, the date of initial application in accordance with the transition of the standard.

ii) Enactment of K-IFRS No. 1112 Disclosure of Interests in Other Entities The standard requires a wide range of disclosures about an entity's interests in subsidiaries, joint arrangements, associates and unconsolidated 'structured entities'. The standard requires the disclosure of information that enables users of financial statements to evaluate the nature, and risks associated with its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows.

iii) Enactment of K-IFRS No. 1113 Fair Value Measurement The standard provides a single framework for measuring fair value and requires disclosures about fair value measurements. The standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Group applies this standard prospectively and comparative information related to new disclosure is not provided in accordance with the transition of the standard. The adoption of this standard had no material impact on the Group’s consolidated financial statements.

iv) Amendments to K-IFRS No. 1001 Presentation of Financial Statements The Group applies the amendments from annual periods beginning at January 1, 2013. The amendments require presenting items in other comprehensive income on the basis of whether they are potentially reclassifiable to profit or loss in subsequent periods. Therefore, the consolidated statement of comprehensive income for the year ended, December 31, 2012, has been restated.


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3. Changes in accounting policies, Continued

(b) New standards and interpretations not yet adopted The following new standards, interpretations and amendments to existing standards have been published and are mandatory for the Group for annual periods beginning after January 1, 2013, and the Group has not early adopted them.

Management believes the impact of the amendments on the Group’s consolidated financial statements is not significant. K-IFRS No. 1032 Financial Instruments: Presentation The amendments address inconsistencies in current practice when applying the offsetting criteria in K-IFRS No. 1032 Financial Instruments: Presentation. The amendments clarify the meaning of a legally enforceable right of set-off and that some gross settlement systems may be considered equivalent to net settlement. The amendments are effective for annual periods beginning on or after January 1, 2014 and are required to be applied retrospectively.


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4. Significant Accounting Policies Significant accounting policies applied consolidated financial statements preparing according to K-IFRS are following, and consolidated financial statements as of current and prior that is for period presented for comparative was prepared by the same accounting policies. Some amount of statement of comprehensive income for prior period presented for comparative are changed some item’s presentation and classified to reflect the changes related other comprehensive income items presentation method standard. (a) Consolidation

i) Subsidiaries The Group controls subsidiaries when it is exposed, or has rights, to variable returns from its involvement with the subsidiaries and has the ability to affect those returns through its power over the subsidiaries. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. If a subsidiary of the Group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in preparing the consolidated financial statements.

ii) Intra-group transactions Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Intra-group losses are recognized as expense if intra-group losses indicate an impairment that requires recognition in the consolidated financial statements.

iii) Non-controlling interests Non-controlling interests in a subsidiary are accounted for separately from the parent’s ownership interests in a subsidiary. Each component of net profit or loss and other comprehensive income is attributed to the owners of the parent and non-controlling interest holders, even when the allocation reduces the non-controlling interest balance below zero.

iv) Changes in ownership interests in a subsidiary Changes in ownership interests in a subsidiary that do not result in a loss of control, such as the subsequent purchase or sale by a parent of a subsidiary’s equity instruments, are accounted for as equity transactions in capital adjustments. Adjustments to non-controlling interests are based on a proportionate amount of net asset of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognized in profit or loss. The difference between the consideration and the adjustments made to non-controlling interest is recognized directly in equity attributable to the owners of the Group.


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4. Significant Accounting Policies, Continued

(b) Associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but not have control or joint control over these policies. Significant influence is generally presumed to exist when the Group holds 20% or more, but less than 50%, of the voting rights. Under the equity method, an investment in an associate is initially recognized in the consolidated statements of financial position at cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate), the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. If an associate uses accounting policies different from those of the Group for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements in applying the equity method. When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has to make payments on behalf of the investee for further losses. (c) Cash and cash equivalents The Group considers cash on hand, call deposits, and highly liquid financial assets which are subject to insignificant risk of changes in their fair values to be cash and cash equivalents. (d) Non-derivative financial assets Non-derivative financial assets are classified into the following measurement categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets, all of which are initially recognized on the date at which the Group becomes a party to the contractual provisions of the instrument. A financial asset is measured initially at its fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition. i) Financial assets at fair value through profit or loss Financial assets are classified as at fair value through profit or loss when the financial asset is either held for trading or is designated at fair value through profit or loss. Financial assets at fair value through profit or loss are measured at fair value upon initial recognition and changes therein are recognized in profit or loss. Upon initial recognition, attributable transaction costs are recognized in profit or loss as incurred.

ii) Held-to-maturity investments If the non-derivative assets have a fixed maturity with fixed or determinable payments, and the Group has the positive intent and ability to hold them until maturity, then such financial assets are classified as held-to-maturity. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortized cost using the effective interest rate method.


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(d) Non-derivative financial assets, Continued

iii) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method.

iv) Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity investments or loans and receivables. Subsequent to initial recognition, they are measured at fair value, with changes in fair value, net of any tax effect, recorded in other comprehensive income in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives those are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost.

v) Derecognition of financial assets The Group de-recognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows of the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. If the Group retains substantially all the risks and rewards of ownership of the transferred financial assets, the Group continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

vi) Offsetting between financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Group currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.


17


(e) Derivative financial instruments Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below. 1) Hedge accounting The Group holds various derivative financial instruments, such as currency swaps and interest rate swaps, etc., to hedge its foreign currency and interest rate risk exposures. On initial designation of the hedge, the Group formally documents the relationship between the hedging instruments and hedged items, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship.

i) Fair value hedge Changes in the fair value of a derivative hedging instrument designated as a fair value hedge are recognized in profit or loss. The gain or loss from remeasuring the hedging instrument at fair value for a derivative hedging instrument and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss in the same line item of the consolidated statement of comprehensive income. The Group discontinues fair value hedge accounting if the hedging instrument expires or is sold, terminated or exercised, or if the hedge no longer meets the criteria for hedge accounting. Any adjustment arising from gain or loss on the hedged item attributable to the hedged risk is amortized to profit or loss from the date the hedge accounting is discontinued.

ii) Cash flow hedge When a derivative is designated to hedge the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income, net of tax, and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss on the hedging instrument that has been recognized in other comprehensive income is reclassified to profit or loss in the periods during which the forecasted transaction occurs. If the forecasted transaction is no longer expected to occur, then the balance in other comprehensive income is recognized immediately in profit or loss.

2) Embedded derivative instruments Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria has been met: (a) the economic characteristics and risks of the host contract and the embedded derivatives are not clearly and closely related to a separate instrument with the same terms as the embedded derivative that would meet the definition of a derivative, and (b) the hybrid (combined) instrument is not measured at fair value through profit or loss. Changes in the fair value of separable embedded derivatives are recognized immediately in profit or loss.

3) Other derivative instruments Changes in the fair value of other derivative financial instrument not designated as a hedging instrument are recognized immediately in profit or loss.


18


(f) Impairment of financial assets A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.

Objective evidence that a financial asset is impaired includes, but not limited to, the following events:

i) Assets carried at amortized cost An impairment loss in respect of assets carried at amortized cost measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate and is recognized in profit or loss. Interest on the impaired asset continues to be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

ii) Available-for-sale financial assets When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed, with the amount of the reversal recognized in profit or loss.

(g) Revenue recognition The Group recognizes capital lent to customers as loans receivables. Installment financial capital paid by the Group to manufacturers or sellers on behalf of customers is recognized as installment financial assets. Financial lease receivables classified as financial leases are recognized as lease receivables. The expected future cash flows from loans receivables, installment financial assets and lease receivables (“financial receivables”) described above are amortized under the effective interest method over the period of the financial receivables being used by customers.

(h) Deferral of loan origination fee and loan origination cost Loan origination fee, which is processing fee in relation to the loan origination process such as upfront fee, is deferred and deducted from the loan account, adjusted over the life of the loan based on the effective interest rate method. Loan origination cost, which relates to activities performed by the lender such as soliciting potential borrowers, is deferred and added to the loan account, adjusted over the life of the loan based on the effective interest rate method when the future economic benefit in connection with the cost incurred can be identified on a per loan basis.


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(i) Allowance for financial receivables

i) Calculation of allowance for doubtful accounts The Group recognizes the impairment of receivables as an allowance for doubtful accounts. It is based on the impairment estimates made through impairment assessment of receivables carried at amortized cost. Allowance for doubtful account consists of impairments related to individually material financial receivables and collective assessment for impairment incurred in homogeneous assets. Individually material receivables undertake the individual assessment of the difference between the assets’ carrying amount and the present value of estimated future cash flows. Unimpaired assets from individual assessments and individually immaterial assets undertake the collective assessment classified by asset groups that have analogous risk attributes. The Group uses statistical model in the collective assessment based on the expected probability of default, periodic collect amounts, loss-given default based on the past losses, loss emergence period, and management’s decision about the current economy and credit circumstance. The material factors used in statistical model for the collective assessment are evaluated to compare with actual data regularly. The amount of impairment loss is reflected in allowance for doubtful accounts as profit or loss.

ii) Write-off policy The Group writes off the doubtful receivables when the assets are deemed unrecoverable. This decision considers the information about significant changes of financial position such that a borrower or an obligor is in default, or the amount recoverable from security is not enough. Write-off decision of standard small loan is generally made based on the delinquent status of loan.


20


(j) Leases

i) Classification The Group classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the lessee assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases. The lease arrangement classified as a finance lease is where: ① the lease transfers ownership of the asset to the lessee by the end of the lease term, the lessee has the option to purchase the asset at ②a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised,

the lease term is for the major part of the economic life of the asset e③ ven if the title is not transferred, at the inception of the lease the present value of the minimum lease payments amounts ④to at least substantially all of the fair value of the leased asset, or the leased assets are of such a ⑤specialized nature that only the lessee can use them without major modifications. Minimum lease payments include that part of the residual value that is guaranteed by the lessee, by a party related to the lessee or by a third party unrelated to the Group that is financially capable of discharging the obligation under the guarantee.

ii) Finance leases Where the Group has substantially all the risks and rewards of ownership, lease of property, and equipment are classified as finance lease. An amount equal to the net investment in the lease is presented as a receivable. Expenses that are incurred with regard to the lease contract made but not executed at the date of the statement of financial position are accounted for as prepaid leased assets and are classified as finance lease receivables at the inception of the lease. Lease receivables include amounts such as commissions, legal fees, and internal costs that are incremental and directly attributable to negotiation and arranging a lease. Each lease payment is allocated between principal and finance income. Financial income on an uncollected part of net investment shall be allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.


21


(k) Property and equipment Property and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and accumulated impairment losses. The cost of property and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

The cost of replacing a part of an item of property or equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced cost is derecognized. The cost of the day to day servicing of property and equipment are recognized in profit or loss as incurred. Property and equipment are depreciated on a straight-line basis over the estimated useful lives, which most closely reflect the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative years are as follows:

Descriptions Depreciation method Useful lives

Vehicles Straight-line 4 years Fixtures and furniture Straight-line 4 years

Works of art classified under other tangible assets are not amortized due to their indefinite useful life in nature. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the carry amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount, and recognized within other operating income (expenses) in the consolidated statement of comprehensive income.


22


(l) Intangible assets Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses. Amortization of intangible assets is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero.

Descriptions Amortization method Useful lives

Development Straight-line 5 years Software Straight-line 4 years

Other intangible assets Straight-line 5 years

i) Research and development Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditures are recognized in profit or loss as incurred.

ii) Subsequent expenditures Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which it relates. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred. (m) Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). Non-financial assets that are subject to amortization suffered impairment are viewed for possible reversal of the impairment at each reporting date.


23


(n) Non-derivative financial liabilities The Group classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Group recognizes financial liabilities in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the financial liability.

i) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred.

ii) Other financial liabilities Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method. The Group derecognizes a financial liability from the consolidated statement of financial position when it is extinguished (i.e., when the obligation specified in the contract is discharged, cancelled or expires).

(o) Net defined benefit liabilities The Group operates a defined benefit plan. A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The liability recognized in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of reporting period less the fair value of plan assets, together with adjustments for unrecognized past-service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in other comprehensive income or loss in the period in which they arise.


24


(p) Provisions and contingent liabilities When there is a probability that an outflow of economic benefits will occur due to a present obligation resulting from a present legal or as a result of past events, and whose amount is reasonably estimable, a corresponding amount of provision is recognized in the consolidated financial statements. Provisions are the best estimate of the expenditure required to settle the present obligation that consider the risks and uncertainties inevitably surround many events and circumstances at the reporting date. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditure expected to be required to settle the obligation. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed. A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future events, or a present obligation that arises from past events but is not certain to occur, or cannot be reliably estimated, a disclosure regarding the contingent liability is made in the notes to the consolidated financial statements.

(q) Foreign currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Korean won, which is the Group’s functional currency. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of comprehensive income, except when deferred in other comprehensive income as qualifying cash flow hedges.

(r) Equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects. Preference share capital is classified as equity if it is non-redeemable, or redeemable only at the Group’s option, and any dividends are discretionary. Dividends thereon are recognized as distributions within equity upon approval by the Group’s shareholders.


25


(s) Income tax Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

i) Current income tax Current income tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.

ii) Deferred income tax Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax assets and liabilities are not recognized if they arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.


26


(t) Earnings per share The Group presents its basic and diluted earnings per ordinary share in consolidated comprehensive statement of income. Basic earnings per share amounts are calculated by dividing net profit for the period attributable to ordinary share holders of the Group by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share amounts are calculated by adjusting net profit attributable to ordinary shareholders of the Group for basic earnings considered potential ordinary shares with dilution effect and weighted average number of ordinary shares outstanding.

(u) Dividend distribution Dividend distribution to the Group’s shareholders is recognized as a liability in the financial statements in the period in which the dividends are approved by the Group’s shareholders.

(v) Approval of financial statements The Group’s consolidated financial statements were approved by the board of directors on February 27, 2014 and will be reported at the annual meeting of shareholders on March 21, 2014.


27

5. Segment Reporting The Group is engaged in limited financial business (Loans, Installment Finance, and Lease, etc.) under the Specialized Credit Financial Business Law in Korea. Therefore segment reporting is not disclosed as the Group’s own business is comprised of single operating segment.

6. Restricted Financial Instruments Restricted financial instruments as of December 31, 2013 and 2012 are as follows:

Type Depository 2013 2012 Restriction

Due from banks Kookmin Bank and 2 others W 9,000 9,000

Guarantee deposit for account opening

7. Available-for-sale Securities Balances as of available-for-sale securities as of December 31, 2013 and 2012 are as follows:

2013 2012 Equity securities Marketable equity securities W 7,200,000 10,650,000

Unlisted equity securities 2,700,821 5,607,645

Equity investments 1 -

Beneficiary certificates 27,416,294 -

37,317,116 16,257,645

Debt securities 15,596,231 10,726,682

W 52,913,347 26,984,327


28

7. Available-for-sale Securities, Continued Details of available-for-sale securities as of December 31, 2013 and 2012 are as follows:

Book value

Number of shares

Owner- ship (%)

Acquisition cost 2013 2012

Marketable equity securities JNK Heaters Co., Ltd. 1,000,000 12.50 W 10,126,881 7,200,000 10,650,000 Unlisted equity securities Leehan Corp. - - - - 3,304,936 Anyang KDC Project

Corp. (*1) 389,999 15.00 2,580,576 2,689,862 2,293,275 Anyang KDC Asset

Management Corp. (*1) 1,499 15.00 9,919 10,339 8,814 Isung Eng, Corp. 24 - 620 620 620 2,591,115 2,700,821 5,607,645 Equity investments HB Fourth ABS, Ltd. 13 0.19 1 1 - Beneficiary certificates Hanjoo New Credit

Private Special Asset Investment Trust - - 4,116,678 4,134,256 -

Yuniae Daebu Investment Trust (*2) - - 7,735,119 7,764,524 -

Nice Investment Second Trust (*2) - - 8,702,000 8,705,756 -

Daesong Finance Daebu (*2) - - 6,804,000 6,811,758 -

27,357,797 27,416,294 - Debt securities Leehan Corp. (*3) - - 2,727,000 3,512,054 6,726,682 Commercial Auto Third

SPC - - 4,000,000 4,007,450 4,000,000 Commercial Auto Fourth

SPC - - 8,000,000 8,076,727 - 14,727,000 15,596,231 10,726,682 W 54,802,794 52,913,347 26,984,327


29

7. Available-for-sale Securities, Continued

(*1) The fair value of the securities was estimated based on the prices provided by an external appraiser, Korea Investors Service Pricing Inc.

(*2) The fair value of beneficiary certificates which is related to NPL investment was estimated based

on the prices provided by an external appraiser, Korea Investors Service Pricing Inc. The fair value of the securities was determined by discounting the expected cash flows based on principal and interest arising from trusted asset at an appropriate rate.

(*3) The debt security is a convertible bond issued by Leehan Corp. The fair value of the convertible

bond is provided by an external appraiser, Korea Asset Pricing. The difference between the fair value and book value of the convertible bond is amortized using the effective interest rate method and is recognized as a gain or loss on valuation of debt securities. The fluctuation of in the fair value of the conversion right and the advanced redemption right is recognized in the gain or loss on embedded derivatives.


30

8. Investments in Associates (1) Details of investments in associates as of December 31, 2013 and 2012 are as follows:

Loca-tion

Number of shares

Owner- ship (%)

Acquisition cost

Book value

December 31, 2013 Hyundai Card Co., Ltd. (*) Korea

8,889,622 5.54 W 113,820,162 168,007,972

Hyundai Life Insurance Co., Ltd. Korea

10,785,620 39.44 139,853,060 90,109,793

W 253,673,222 258,117,765

December 31, 2012 Hyundai Card Co., Ltd. (*) Korea

8,889,622 5.54 W 113,820,162 158,386,190

Hyundai Life Insurance Co., Ltd. Korea

10,685,620 39.07 138,913,060 127,015,755

W 252,733,222 285,401,945 (*) The Group’s shareholdings are less than 20%. However, the Group is able to significantly exert

influence through its involvement in the financial and operating processes, and thus the equity method is applied.


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8. Investments in Associates, Continued

(2) Details of valuation of equity method investment and other changes as of December 31, 2013 and 2012 are as follows:

Beginning

balance Acquisition Share of

profit(loss)

Changes in accumulated

other comprehen-sive income (loss) (*1)

Changes in

retained earnings

Ending balance

December 31, 2013 Hyundai Card Co., Ltd. W 158,386,190 - 9,041,656 80,467 499,659 168,007,972

Hyundai Life Insurance Co., Ltd. 127,015,755 940,000 (25,292,131) (13,206,434) 652,603 90,109,793

W 285,401,945 940,000 (16,250,475) (13,125,967) 1,152,262 258,117,765

December 31, 2012

Hyundai Card Co., Ltd. W 147,539,965 - 10,609,150 237,075 - 158,386,190

Hyundai Life Insurance Co., Ltd. (*2) - 138,913,060 (18,716,249) 5,334,179 1,484,765 127,015,755

W 147,539,965 138,913,060 (8,107,099) 5,571,254 1,484,765 285,401,945

(*1) Tax effects are not deducted. (*2) The Group recognized W8,582,824 of imposition amount related to acquisition of Hyundai Life

Insurance Co., Ltd. as other non-operating expenses for the year ended December 31, 2012.

(3) Summary of financial information of associates as of and for the years ended December 31, 2013 and 2012 are as follows:

Reporting date

Summary of financial information of associates (*1)

Total assets Total liabilities Net assets

December 31, 2013

Hyundai Card Co., Ltd. December 31 W 11,520,877,692 9,154,729,617 2,366,148,075Hyundai Life Insurance

Co., Ltd. December 31 (*2) 4,107,538,481 3,941,914,013 165,624,468

December 31, 2012

Hyundai Card Co., Ltd. December 31 W 11,252,488,244 9,060,021,557 2,192,466,687Hyundai Life Insurance

Co., Ltd. (*3) March 31 3,799,746,386 3,562,563,039 237,183,347


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8. Investments in Associates, Continued

Reporting date

Summary of financial information of associates (*1)

Operating revenue

Profit(loss) for the year

Total comprehen-

sive income(loss)

Dividends received

December 31, 2013 Hyundai Card Co., Ltd. December 31 W 2,527,479,161 163,209,633 173,857,648 - Hyundai Life Insurance

Co., Ltd. December 31

(*2) 981,376,579 (39,543,472) (73,229,042)

-

December 31, 2012

Hyundai Card Co., Ltd. December 31 W 2,524,941,896 191,504,230 195,783,656 - Hyundai Life Insurance

Co., Ltd. (*3) March 31 885,330,384 (6,045,704) 7,474,591

-

(*1) Summarized financial statements of Hyundai Life Insurance Co., Ltd. were adjusted to reflect fair value adjustments made at the time of acquisition.

(*2) The reporting date of Hyundai Life Insurance Co., Ltd. has been changed to December 31 according to Article 61 in Insurance Business Act Enforcement.

(*3) Hyundai Life Insurance Co. Ltd. is a corporation with fiscal year ending on March 31. However, its assets and liabilities presented above are as of December 31, 2012, and the results of its operations are for the nine-month period ended December 31, 2012.

(4) Reconciliations of the summarized financial information presented to the carrying amount of its

interest in associate as of December 31, 2013 and 2012 are as follows:

Net assets Ownership

(%) Shares of

assets Goodwill

Unamortized fair value

adjustments (*) Book value

December 31, 2013

Hyundai Card Co., Ltd. W

2,366,148,075 5.54

131,081,222 36,926,750 -

168,007,972 Hyundai Life Insurance

Co., Ltd.

165,624,468 39.44

65,322,218 17,265,061

7,522,514

90,109,793

W

2,531,772,543

196,403,440 54,191,811

7,522,514

258,117,765

December 31, 2012

Hyundai Card Co., Ltd. W

2,192,466,687 5.54

121,459,440 36,926,750 -

158,386,190 Hyundai Life Insurance Co., Ltd.

237,183,347 39.07

92,677,696 17,265,061

17,072,998

127,015,755

W

2,429,650,034

214,137,136 54,191,811

17,072,998

285,401,945

(*) Fair value adjustments are related to value of business acquired, sales channel and IT systems

made at the time of acquisition.


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9. Financial Receivables Details of financial receivables as of December 31, 2013 and 2012 are as follows:

Principal

Deferred loan origination

fees and costs

Present value discount

Allowance for doubtful accounts Book value

December 31, 2013

Loans receivables

Factoring receivables W 4,145,309 - - (28,760) 4,116,549

Loans 2,962,002,487 41,732,726 (320,405) (21,626,634) 2,981,788,174

2,966,147,796 41,732,726 (320,405) (21,655,394) 2,985,904,723 Installment financial assets

Auto 278,334,703 3,560,044 - (1,827,954) 280,066,793

Durable goods 20,315,358 (243,945) - (135,965) 19,935,448

298,650,061 3,316,099 - (1,963,919) 300,002,241

Lease receivables Financial lease

receivables 213,344,202 192,101

- (1,815,587) 211,720,716

W 3,478,142,059 45,240,926 (320,405) (25,434,900) 3,497,627,680

December 31, 2012

Loans receivables

Factoring receivables W 108,000 - - (270) 107,730

Loans 2,764,943,740 35,870,003 (200,613) (19,258,900) 2,781,354,230

2,765,051,740 35,870,003 (200,613) (19,259,170) 2,781,461,960 Installment financial assets

Auto 331,018,925 2,702,341 - (2,351,090) 331,370,176

Durable goods 25,765,456 (140,848) - (176,228) 25,448,380

356,784,381 2,561,493 - (2,527,318) 356,818,556

Lease receivables Financial lease

receivables 132,355,777 687 - (1,026,911) 131,329,553

W 3,254,191,898 38,432,183 (200,613) (22,813,399) 3,269,610,069


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10. Allowance for Doubtful Accounts Changes in allowance for doubtful accounts for the years ended December 31, 2013 and 2012 are as follows:

Loans

receivables

Installment financial assets

Lease receivables Other assets Total

December 31, 2013 Beginning balance W 19,259,170 2,527,318 1,026,911 227,475 23,040,874

Amounts written off (6,452,388) (280,185) (128,917) - (6,861,490) Recoveries of amounts previously written off 1,278,189 59,806 23,660 - 1,361,655

Disposal of receivables (15,011,571) (1,698,041) (955) - (16,710,567)

Unwinding of discount (262,070) (24,816) - - (286,886) Additional (reversed) allowance 22,844,064 1,379,837 894,888 (63,871) 25,054,918

Ending balance W 21,655,394 1,963,919 1,815,587 163,604 25,598,504

December 31, 2012 Beginning balance W 18,169,160 3,175,354 620,397 330,388 22,295,299

Amounts written off (4,168,839) (396,392) - - (4,565,231) Recoveries of amounts previously written off 772,833 86,527 - - 859,360

Disposal of receivables (14,903,755) (1,921,390) (34,163) - (16,859,308)

Unwinding of discount (226,349) (28,019) - - (254,368) Additional (reversed) allowance 19,616,120 1,611,238 440,677 (102,913) 21,565,122

Ending balance W 19,259,170 2,527,318 1,026,911 227,475 23,040,874


35

11. Fair Value of Financial Instruments

Fair value is the amount at which the asset could be exchanged or the liabilities could be settled in a transaction between knowledgeable and willing independent parties. The best estimated fair value is the published price quotation in an active market. The Group believes that valuation technique applied to the financial instruments is adequate and fair value of financial instruments is reasonable, but if the Group use another valuation technique or assumptions, such fair value might be changed. Also, as fair value measurement of financial instruments uses variable valuation techniques and assumptions, comparing fair value with those recognized by other financial institutions might be difficult.

The method of measuring fair value of financial instruments is as follows:

Type Fair Value Measurement Method Cash and due from

banks The book value and the fair value of cash are identical. As cash, deposits, and other cash equivalent instruments can be easily converted into cash, the book value approximates the fair value.

Available-for-sale securities

When available, the Group measures the fair value of a security using quoted prices in an active market. If a market for a security is not active, the Group establishes fair value by using a highly accredited independent valuation agency. The independent valuation agency utilizes various valuation technique, which include discounted cash flow model, imputed market value model, free cash flow to equity model, dividend discount model, risk adjusted discount rate method, and net asset valuation approach. Depending on the characteristic and nature of the instrument, the fair value is measured by using at least one valuation technique.

Loans receivables / Installment financial assets / lease receivables

The fair value is determined using discounted cash flow model that incorporate parameter inputs for expected maturity rate/prepayment rate, as appropriate. As the discount rate used for determining the fair value incorporates the time value of money and credit risk, the Group’s discount rate system is formed to consider the market risk and the credit risk.

Derivative instruments

The fair value of interest rate swaps and currency swaps are determined by using a discounted cash flow model based on a current interest rate yield curve appropriate for market interest rate. The fair value of each derivative is measured by offsetting and discounting the expected cash flows of the swap at appropriate discount rate which is based on forward interest rate and exchange rate that is generated by using above method.

Borrowings / Dentures / Securitized debts

The fair value is determined by using discounted cash flow method. In other words, the fair value of a financial instrument is determined by discounting the expected cash flows at an appropriate rate.

Other financial assets and other financial liabilities

The fair value is determined by using discounted cash flow method. However, when the cash flow cannot be objectively measured, the book value approximates the fair value.


36

11. Fair Value of Financial Instruments, Continued (1) Fair values of financial instruments as of December 31, 2013 and 2012 are as as follows:

2013 2012 Book value Fair value Book value Fair value

Financial assets Cash and due from banks W 280,498,429 280,498,429 282,834,795 282,834,795 Available-for-sale securities 52,913,347 52,913,347 26,984,327 26,984,327 Loans receivables 2,985,904,723 2,968,560,192 2,781,461,960 2,775,937,581

Installment financial assets 300,002,241 298,739,837 356,818,556 357,631,944

Lease receivables 211,720,716 211,044,247 131,329,553 132,353,718

Derivative assets 162,823 162,823 137,775 137,775

Account receivables 18,075,353 18,075,353 15,813,310 15,813,310

Accrued revenues 18,155,916 18,155,916 16,858,350 16,858,350 Leasehold deposits 2,126,868 2,086,563 11,083,914 11,201,215

W 3,869,560,416 3,850,236,707 3,623,322,540 3,619,753,015

Financial liabilities Borrowings W 596,955,177 598,777,407 723,883,961 730,188,793 Debentures 2,803,450,657 2,850,826,093 2,428,295,638 2,494,275,095 Securitized debts 259,852,347 265,161,361 309,637,148 319,737,569

Derivative liabilities 1,937,593 1,937,593 7,505,990 7,505,990

Account payables 14,442,798 14,442,798 15,199,625 15,199,625

Accrued expenses 24,018,798 24,018,798 27,995,752 27,995,752

Withholdings (*) 4,170,622 4,170,622 3,045,893 3,045,893

Leasehold deposits 53,848,412 54,366,279 33,014,098 33,618,900 W 3,758,676,404 3,813,700,951 3,548,578,105 3,631,567,617

(*) Excluding taxes and dues


37

11. Fair Value of Financial Instruments, Continued (2) Fair Value Hierarchy The levels of fair value hierarchy have been defined as follows: - Level 1: Quoted prices in active markets for identical assets or liabilities. For example, listed

stocks and derivatives. - Level 2: Inputs for the asset or liability included within valuation techniques that are observable

market data. For example, most bonds issued in Korean won and foreign currency, general unlisted derivatives like swap, forward, option.

- Level 3: Inputs for the asset or liability that is not based on observable market data. For example, unlisted stocks, complicated structured bonds, complicated unlisted derivatives and others.

A. Financial assets and liabilities carried at fair value in the consolidated statements of financial position

1) The fair value hierarchy of financial instruments as of December 31, 2013 and 2012 are as follows:

Fair value hierarchy Book value Fair value Level 1 Level 2 Level 3

December 31, 2013 Financial assets Available-for-sale

securities W 52,913,347 52,913,347 7,200,000 - 45,713,347 Derivative assets 162,823 162,823 - 162,823 - W 53,076,170 53,076,170 7,200,000 162,823 45,713,347

Financial liabilities Derivative liabilities W 1,937,593 1,937,593 - 1,937,593 - December 31, 2012 Financial assets Available-for-sale

securities W 26,984,327 26,984,327 10,650,000 - 16,334,327 Derivative assets 137,775 137,775 - 137,775 - W 27,122,102 27,122,102 10,650,000 137,775 16,334,327

Financial liabilities Derivative liabilities W 7,505,990 7,505,990 - 7,505,990 -


38

11. Fair Value of Financial Instruments, Continued

2) The valuation techniques and the fair value measurement input variables of financial assets and liabilities classified as level 2 are as follows:

Fair value Valuation

techniques Inputs

Financial assets Derivative financial assets W 162,823 DCF Model

Discount rate, short -term interest rate, volatility, foreign exchange rate, and others

Financial liabilities Derivative financial liabilities 1,937,593 DCF Model

Discount rate, volatility, foreign exchange rate, stock price, and others

Valuation techniques and quantitative information unobserved inputs of financial instruments classified as level 3 as of December 31, 2013 are as follows:

Fair value Valuation

techniques Inputs Unobservable

inputs

Estimated range of

unobservable inputs (%)

Financial assets

Available-for-sale securities

W 45,713,347 DCF Model Discount rate Recovery rate 94.74~100

Spot rate 3.86~7.74

Issue rate, Residual maturity, Credit Rating

-

Discount curve 4.03~10.77

Financial assets classified as level 3 are available-for-sale financial assets as of December 31, 2013. Changes in other comprehensive income due to changes in inputs to valuation are considered to have insignificant impacts considering the amount of total equity.

3) The changes in financial instruments of level 3 for the years ended December 31, 2013 and 2012 are

as follows:

Available-for-sale securities 2013 2012

Beginning balance W 16,334,327 8,648,233 Acquisition 44,267,937 6,302,089 Interest income 2,000,762 871,838 Gain(loss) on valuation (other comprehensive

income or loss) (11,396,848) 512,167 Disposal (5,492,831) - Ending balance W 45,713,347 16,334,327


39

11. Fair Value of Financial Instruments, Continued B. Financial instruments not measured at fair value but disclosed 1) The fair value hierarchy of financial instruments not measured at fair value but disclosed as of

December 31, 2013 and 2012 are as follows:

2013

Book value Fair value Fair value hierarchy

Level 1 Level 2 Level 3 Financial assets

Cash and due from banks (*) W

280,498,429

280,498,429 -

280,498,429 -

Loans receivables 2,985,904,723 2,968,560,192 - - 2,968,560,192 Installment financial assets 300,002,241 298,739,837 - - 298,739,837

Lease receivables 211,720,716 211,044,247 - - 211,044,247 Account receivables

18,075,353

18,075,353 - -

18,075,353

Accrued revenues 18,155,916 18,155,916 - - 18,155,916

Leasehold deposits 2,126,868 2,086,563 - 2,086,563 -

W

3,816,484,246

3,797,160,537 -

282,584,992

3,514,575,545

Financial liabilities

Borrowings W 596,955,177 598,777,407 - 598,777,407 -

Debentures 2,803,450,657 2,850,826,093 - 2,850,826,093 -

Securitized debts 259,852,347 265,161,361 - - 265,161,361

Account payables 14,442,798 14,442,798 - - 14,442,798

Accrued expenses 24,018,798 24,018,798 - - 24,018,798

Withholdings 4,170,622 4,170,622 - - 4,170,622


W 3,756,738,811 3,811,763,358 - 3,503,969,779 307,793,579 (*) In the items classified as level 2, the book value is disclosed as fair value since the book value is a

reasonable estimate of the fair value.


40


2012

Book value Fair value Fair value hierarchy

Level 1 Level 2 Level 3 Financial assets

Cash and due from banks (*) W

282,834,795

282,834,795 -

282,834,795 -

Loans receivables 2,781,461,960 2,775,937,581 - - 2,775,937,581 Installment financial assets

356,818,556

357,631,944 - -

357,631,944

Lease receivables 131,329,553 132,353,718 - - 132,353,718 Account receivables 15,813,310 15,813,310 - - 15,813,310

Accrued revenues 16,858,350 16,858,350 - - 16,858,350

Leasehold deposits

11,083,914

11,201,215 -

11,201,215 -

W 3,596,200,438 3,592,630,913 - 294,036,010 3,298,594,903

Financial liabilities

Borrowings W 723,883,961 730,188,793 - 730,188,793 -

Debentures 2,428,295,638 2,494,275,095 - 2,494,275,095 -

Securitized debts 309,637,148 319,737,569 - - 319,737,569

Account payables 15,199,625 15,199,625 - - 15,199,625

Accrued expenses 27,995,752 27,995,752 - - 27,995,752 Withholdings 3,045,893 3,045,893 - - 3,045,893


W 3,541,072,115 3,624,061,627 - 3,258,082,788 365,978,839 (*) In the items classified as level 2, book value is disclosed as fair value since the book value is a

reasonable estimate of the fair value.


41


2) Valuation techniques and inputs used to measure fair value

Since the book value is a reasonable estimate of the fair value, the valuation techniques and inputs related to items that recognize the book value as the fair value are not disclosed. The valuation techniques and the fair value measurement input variables of financial instruments classified as level 2 or level 3 which the fair value are disclosed as of December 31, 2013 are as follows:

Fair value Valuation technique Inputs

Financial assets Loans receivables W 2,968,560,192 DCF model Procurement interest rate,

credit spread, other spread Installment financial assets 298,739,837 DCF model Procurement interest rate,

credit spread, other spread Financial lease receivables 211,044,247 DCF model Procurement interest rate,

credit spread, other spread Leasehold deposits 2,086,563 DCF model Base interest rate

W 3,480,430,839 Financial liabilities Borrowings W 598,777,407 DCF model Procurement interest rate,

credit spread, other spread Debentures

2,850,826,093 DCF model

Procurement interest rate, credit spread, other spread

Securitized debts

265,161,361 DCF model

Procurement interest rate, credit spread, other spread

Leasehold deposits 54,366,279 DCF model

Base interest rate

W 3,769,131,140


42

11. Fair Value of Financial Instruments, Continued The book values of financial instruments by categories as of December 31, 2013 and 2012 were as follows:

Financial assets at fair

value through

profit or loss

Available-for-sale financial assets

Loans and receivables

Hedging derivative

instruments Total

December 31, 2013

Financial assets

Cash and due from banks W - - 280,498,429 - 280,498,429

Available-for-sale securities - 52,913,347 - - 52,913,347

Loans receivable - - 2,985,904,723 - 2,985,904,723

Installment financial assets - - 300,002,241 - 300,002,241

Financial lease receivables - - 211,720,716 - 211,720,716

Derivative assets 153 - - 162,670 162,823

Account receivables - - 18,075,353 - 18,075,353

Accrued revenues - - 18,155,916 - 18,155,916

Leasehold deposits - - 2,126,868 - 2,126,868

W 153 52,913,347 3,816,484,246 162,670 3,869,560,416

December 31, 2012

Financial assets

Cash and due from banks W - - 282,834,795 - 282,834,795

Available-for-sale securities - 26,984,327 - - 26,984,327

Loans receivable - - 2,781,461,960 - 2,781,461,960

Installment financial assets - - 356,818,556 - 356,818,556

Financial lease receivables - - 131,329,553 - 131,329,553

Derivative assets 74,422 - - 63,353 137,775

Account receivables - - 15,813,310 - 15,813,310

Accrued revenues - - 16,858,350 - 16,858,350

Leasehold deposits - - 11,083,914 - 11,083,914 W 74,422 26,984,327 3,596,200,438 63,353 3,623,322,540


43


Financial liabilities at

amortized cost

Hedging derivative

instruments Total

December 31, 2013 Financial liabilities

Borrowings W 596,955,177 - 596,955,177 Debentures 2,803,450,657 - 2,803,450,657 Securitized debts 259,852,347 - 259,852,347 Derivative liabilities - 1,937,593 1,937,593 Account payables 14,442,798 - 14,442,798 Accrued expenses 24,018,798 - 24,018,798 Withholdings (*) 4,170,622 - 4,170,622 Leasehold deposits received 53,848,412 - 53,848,412 W 3,756,738,811 1,937,593 3,758,676,404

December 31, 2012 Financial liabilities

Borrowings W 723,883,961 - 723,883,961 Debentures 2,428,295,638 - 2,428,295,638 Securitized debts 309,637,148 - 309,637,148 Derivative liabilities - 7,505,990 7,505,990 Account payables 15,199,625 - 15,199,625 Accrued expenses 27,995,752 - 27,995,752 Withholdings (*) 3,045,893 - 3,045,893 Leasehold deposits received 33,014,098 - 33,014,098

W 3,541,072,115 7,505,990 3,548,578,105

(*) Excluding taxes and dues


44

12. Transfer of Financial Assets (a) Financial assets that are not entirely derecognized The Group issued senior and subordinated securitized debts based on loans and instalment receivables which were securitized. The securitized debts have recourse only to the transferred assets. Details of financial assets transferred but not entirely derecognized as of December 31, 2013 and 2012 are as follows:

2013 2012

Book value of assets:

Loans receivables W 605,061,704 539,978,100

Installment financial assets 8,609,642 35,652,795

Sub total 613,671,346 575,630,895

Book value of related liabilities W 259,852,347 309,637,148

Liabilities having right of resource on transferred assets:

Fair value of assets W 610,120,433 574,639,694

Fair value of related liabilities (265,161,361) (319,737,569)

Net position W 344,959,072 254,902,125


45

12. Transfer of Financial Assets, Continued

(b) Financial assets that are entirely derecognized The Group derecognized loans receivables from the consolidated financial statements by transferring them for W101,598,233 to Commercial Auto Third SPC (Trustee Bank: Citibank Korea, Inc.) on December 18, 2012. Gains related to the transaction amounted to W2,450,829. Also the Group derecognized loans receivables from the consolidated financial statements by transferring them for W202,700,000 to Commercial Auto Fourth SPC (Trustee Bank: Woori Bank) on November 15, 2013. Gains related to the transaction amounted to W2,674,381. The Group has continuing involvement in the transferred assets after taking over debt securities issued by Commercial Auto Third SPC. Details of continuing involvement were as follows:

December 31, 2013

Book value of

continuing involvement Maximum exposure

to loss Type of continuing

involvement Available-for-sale

securities

Commercial Auto Third SPC Acquisition on debt securities

W 4,007,450 4,007,450

Commercial Auto Fourth SPC 8,076,727 8,076,727

W 12,084,177 12,084,177

December 31, 2012

Book value of

continuing involvement Maximum exposure

to loss Type of continuing

involvement Available-for-sale

securities

Commercial Auto Third SPC Acquisition on debt

securities W 4,000,000

4,000,000


46

13. Financial Lease Receivables

Details of total lease investments and present value of minimum lease payment as of December 31, 2013 and 2012 are as follows:

2013 2012

Total lease investments

Present value of minimum

lease payment

Total lease investments

Present value of minimum

lease payment

Less than 1 year W 88,198,065 78,351,361 55,614,516 48,968,100

1 to 5 years 144,063,735 135,184,942 88,188,405 83,388,364 W 232,261,800 213,536,303 143,802,921 132,356,464

Details of unearned interest income as of December 31, 2013 and 2012 are as follows: 2013 2012

Total lease investments W 232,261,800 143,802,921 Net lease investments Minimum lease payment (present value) 213,536,303 132,356,464 Unguaranteed residual value (present value) - -

213,536,303 132,356,464 Unearned interest income W 18,725,497 11,446,457

14. Property and Equipment Details of property and equipment as of December 31, 2013 and 2012 are as follows:

Acquisition cost Accumulated depreciation Book value

December 31, 2013

Vehicles W 113,472 (75,385) 38,087 Fixtures and furniture 9,574,766 (6,315,628) 3,259,138 Others 411,000 - 411,000 W 10,099,238 (6,391,013) 3,708,225

December 31, 2012 Vehicles W 235,097 (165,298) 69,799 Fixtures and furniture 7,965,357 (5,263,430) 2,701,927 Others 411,000 - 411,000 W 8,611,454 (5,428,728) 3,182,726


47

14. Property and Equipment, Continued Changes in property and equipment for the years ended December 31, 2013 and 2012 are as follows:

Beginning balance Acquisition Disposal

Deprecia-tion

Ending balance

December 31, 2013 Vehicles W 69,799 - (2,534) (29,178) 38,087 Fixtures and furniture 2,701,927 1,815,171 (281) (1,257,679) 3,259,138

Others 411,000 - - - 411,000 W 3,182,726 1,815,171 (2,815) (1,286,857) 3,708,225

December 31, 2012 Vehicles W 114,731 76,172 (61,447) (59,657) 69,799 Fixtures and furniture 2,382,936 1,418,127

(114,015) (985,121)

2,701,927

Others 411,000 - - - 411,000 W 2,908,667 1,494,299 (175,462) (1,044,778) 3,182,726

As of December 31, 2013, the Group maintained comprehensive property insurance with Hyundai Marine and Fire Insurance for its fixtures and furniture, and other tangible assets for up to W2,746,052 (W4,008,254 as of December 31, 2012), vehicle insurance for its vehicles, and group accident insurance, travel insurance and business damage insurance for its employees. Also, the Group maintained comprehensive property insurance with Hyundai Marine and Fire Insurance for its machine tool installment financial assets and lease assets for up to W104,410,832 (W92,452,845 as of December 31, 2012).


48

15. Intangible Assets Details of intangible assets as of December 31, 2013 and 2012 are as follows:

Acquisition cost Accumulated amortization Book value

December 31, 2013

Development costs W 4,818,913 (1,573,439) 3,245,474 Software 6,794,896 (5,565,983) 1,228,913 Others 25,851 (25,848) 3 W 11,639,660 (7,165,270) 4,474,390

December 31, 2012 Development costs W 2,847,793 (869,745) 1,978,048 Software 6,422,131 (4,947,389) 1,474,742 Others 25,851 (25,631) 220 W 9,295,775 (5,842,765) 3,453,010 Changes in intangible assets for the years ended December 31, 2013 and 2012 are as follows:

Beginning balance Increase (*) Amortization

Ending balance

December 31, 2013 Development costs W 1,978,048 1,971,120 (703,694) 3,245,474 Software 1,474,742 376,059 (621,888) 1,228,913 Others 220 - (217) 3 W 3,453,010 2,347,179 (1,325,799) 4,474,390

December 31, 2012 Development costs W 1,763,019 694,513 (479,484) 1,978,048 Software 1,306,607 784,411 (616,276) 1,474,742 Others 2,678 - (2,458) 220 W 3,072,304 1,478,924 (1,098,218) 3,453,010

(*) Includes transfer from advanced payments


49

16. Borrowings Details of borrowings as of December 31, 2013 and 2012 are as follows:

Lender Annual interest

rate (%) 2013 2012

Borrowings in won Commercial paper SK Securities and 3

others 2.73 ~ 4.17 W 90,000,000 210,000,000 General loan Woori Bank and 8

others 2.98 ~ 5.80 506,955,177 513,883,961 W 596,955,177 723,883,961

17. Debentures Details of debentures issued by the Group as of December 31, 2013 and 2012 are as follows:

Annual interest

rate (%) Par value Issue price

December 31, 2013

Current portion of debenture Debenture 2.74 ~ 8.00 W 712,388,000 712,388,000 Discount on debentures - (314,325) 712,388,000 712,073,675 Non-current portion of debenture Debenture 2.82 ~ 6.48 2,093,000,000 2,093,000,000 Discount on debentures - (1,623,018) 2,093,000,000 2,091,376,982 W 2,805,388,000 2,803,450,657

December 31, 2012 Current portion of debenture Debenture 3.05 ~ 6.00 W 847,488,500 847,488,500 Discount on debentures - (313,409) 847,488,500 847,175,091 Non-current portion of debenture Debenture 3.10 ~ 8.00 1,582,704,000 1,582,704,000 Discount on debentures - (1,583,453) 1,582,704,000 1,581,120,547 W 2,430,192,500 2,428,295,638


50

18. Securitized Debts The amounts of securitized debts, which are secured by loans and installment financial assets in accordance with Asset Backed Securitization Act as of December 31, 2013 and 2012 are as follows:

Annual interest

rate (%) Par value Issue price

December 31, 2013

Current portion of securitized debts Securitized debts 4.76 ~ 5.27 W 170,000,000 170,000,000 Discount on securitized debts - (68,602) 170,000,000 169,931,398 Non-current portion of securitized debts

Securitized debts 4.97 ~ 5.43 90,000,000 90,000,000 Discount on securitized debts - (79,051) 90,000,000 89,920,949 W 260,000,000 259,852,347

December 31, 2012 Current portion of securitized debts Securitized debts 4.78 ~ 4.92 W 50,000,000 50,000,000 Discount on securitized debts - (33,017) 50,000,000 49,966,983 Non-current portion of securitized debts

Securitized debts 4.76 ~ 5.43 260,000,000 260,000,000 Discount on securitized debts - (329,835) 260,000,000 259,670,165 W 310,000,000 309,637,148


51

19. Net Defined Benefit Liabilities

(1) Details of net defined benefit liabilities as of December 31, 2013 and 2012 are as follows: 2013 2012

Present value of defined benefit obligations W 14,127,941 10,602,378 Fair value of plan assets (11,616,102) (8,546,162) Net defined benefit liabilities W 2,511,839 2,056,216

(2) Changes in present value of net defined benefit liabilities for the years ended December 31, 2013

and 2012 are as follows: Present value of

defined benefit obligations

Fair value of plan assets

Defined benefit liabilities

December 31, 2013

Beginning balance W 10,602,378 (8,546,162) 2,056,216 Current service cost 2,524,839 - 2,524,839 Interest cost 368,928 (287,437) 81,491 Remeasurement

Experience adjustments 1,186,219 - 1,186,219 Changes in demographic assumption 50,258 - 50,258 Changes in economic assumption (473,997) - (473,997) Remeasurement of plan assets - 8,342 8,342

Transfer of severance benefits from related parties 1,238,158 (1,022,394) 215,764

Transfer of severance benefits to related parties (836,505) 299,212 (537,293)

Contributions by plan participants - (2,600,000) (2,600,000)

Benefits paid (532,337) 532,337 -

Ending balance W 14,127,941 (11,616,102) 2,511,839


52

19. Net Defined Benefit Liabilities, Continued Present value of

defined benefit obligations

Fair value of plan assets

Defined benefit liabilities

December 31, 2012

Beginning balance W 7,596,812 (5,364,346) 2,232,466 Current service cost 2,065,107 - 2,065,107 Interest cost 312,346 (220,433) 91,913 Remeasurement

Experience adjustments 483,119 - 483,119 Changes in demographic assumption (71,748) - (71,748) Changes in economic assumption 555,302 - 555,302 Remeasurement of plan assets - (4,187) (4,187)

Transfer of severance benefits from related parties 1,301,233 (600,148) 701,085

Transfer of severance benefits to related parties (1,230,543) 294,075 (936,468)

Contributions by plan participants - (3,000,000) (3,000,000)) Benefits paid (409,250) 348,877 (60,373) Ending balance W 10,602,378 (8,546,162) 2,056,216

(3) Gains and losses related to defined benefit plans for the years ended December 31, 2013 and 2012

are as follows: 2013 2012

Current service cost W 2,524,839 2,065,107 Interest cost 368,928 312,346 Expected return on plan assets (287,437) (220,433) W 2,606,330 2,157,020


53

19. Net Defined Benefit Liabilities, Continued

(4) Details of plan assets as of December 31, 2013 and 2012 are as follows:

2013 2012 Amount Ratio (%) Amount Ratio (%)

Cash and cash equivalents W 18 0.00 26,399 0.31 Deposits 7,903,833 68.04 5,061,344 59.22 Interest rate guaranteed asset for 1-year 3,712,251 31.96 3,458,419 40.47

W 11,616,102 100.00 8,546,162 100.00 (*) National Pension Fund of W5,889 and W5,321 as of December 31, 2013 and 2012, respectively, are

included.

(5) Actuarial assumptions required to recognize defined benefit liability are as follows:

2013 2012 Discount rate 3.84% 3.43% Future salary increases 5.64% 5.60% Assumptions regarding future mortality experience are set based on actuarial advice published by the Korea Insurance Development Institute.

(6) Sensitivity analysis of the present value of defined benefit obligation as of December 31, 2013 is as

follows:

The present value of defined benefit obligation Book value 1% point increase 1% point decrease

Discount rate W 14,127,941 13,207,520 15,174,478 Future salary increases 14,127,941 15,175,006 13,190,703

(7) The expected weighted-average years to maturity of the defined benefit pension plan as of

December 31, 2013 are 6.84 years. During the next reporting period, there is no plan to make additional contributions.


54

20. Derivative Financial Instruments and Hedge Accounting The Group acquired the convertible bonds issued by Leehan Corp. in 2011, and recorded the difference between the acquisition cost of convertible bond and the fair value of bond without convertible right as derivative assets. The Group recognized derivative assets of W153 and W74,422 as of December 31, 2013 and 2012, respectively. Net income on the derivative assets was W232,586 and Net losses on the derivative assets were W427,371 for the years ended December 31, 2013 and 2012, respectively. Cash flow hedge is used by the Group to reduce the exposure from changes in interest rate and exchange rate of the cash flows of foreign currency debentures. Interest rate swaps and currency swaps are used. Derivatives designated as cash flow hedges as of December 31, 2013 and 2012 are as follows:

Assets Liabilities

Accumulated other

comprehensive income (loss)

December 31, 2013

Interest rate swaps W 162,670 1,302,153 (1,549,239) Currency swaps - 635,441 599,135

W 162,670 1,937,594 (950,104)

December 31, 2012 Interest rate swaps W 63,353 2,084,383 (1,531,844) Currency swaps - 5,421,607 (382,978)

W 63,353 7,505,990 (1,914,822) For the year ended December 31, 2013, the amount recognized as other comprehensive income, representing the effective portion related to cash flow hedge, is W964,718 and the amount reclassified from other comprehensive income to profit or loss is W316,000 (before tax). There is no amount recognized as profit or loss related to cash flow hedge, representing the ineffective portion, for the year ended December 31, 2013.


55

21. Equity The Controlling Company is authorized to issue 80,000,000 shares (par value at W5,000 won). Details of capital stock as of December 31, 2013 are as follows:

Common stock Preferred stock

(*) Total

Number of issued shares outstanding 20,000,000 5,000,000 25,000,000

Capital stock W 100,000,000 25,000,000 125,000,000 Paid-in-capital in excess of par value - 74,608,060 74,608,060

(*) The convertible preferred stocks are non-cumulative, non-participating, nominative, non-permanent

preferred stocks without voting right. The stocks will be converted to common stock after 7 years from issue date.

22. Retained Earnings Details of retained earnings as of December 31, 2013 and 2012 are as follows: 2013 2012

Legal reserve

Revenue reserve (*1) W 7,100,000 4,000,000 Voluntary reserve Reserve for loan losses (*2) 15,289,638 3,357,192 Reserve for electronic financial transactions (*3) 100,000 100,000 15,389,638 3,457,192

Unappropriated retained earnings 146,698,613 130,082,243 (Expected regulatory reserve for credit losses

December 31, 2013: W761,453; December 31, 2012: W11,932,446)

W 169,188,251 137,539,435

(*1) The Korean Commercial Law requires the Controlling Company to appropriate, as a legal reserve, an amount equal to a minimum of 10% of annual cash dividends declared, until the reserve equals 50% of its issued capital stock. This reserve is not available for the payment of cash dividends, but may be transferred to capital stock or used to reduce accumulated deficit, if any.

(*2) If allowances for doubtful accounts do not meet the minimum amount calculated in accordance

with allowance reserve standards of Regulation on Supervision under Article 11 of the Specialized Credit Financial Business Law, the Group appropriates a regulatory reserve for loan losses in an amount more than the difference between the allowance and the requirement.

(*3) The Group appropriates a reserve in accordance with Electronic Financial Transactions Act.


56

22. Retained Earnings, Continued Appropriated and expected regulatory reserve for credit losses as of December 31, 2013 and 2012 are as follows: 2013 2012

Appropriated regulatory reserve for credit losses W 15,289,638 3,357,192

Expected regulatory reserve for credit losses 761,453 11,932,446

W 16,051,091 15,289,638 Profit adjusted for estimated regulatory reserve for credit losses for the years ended December 31, 2013 and 2012 are as follows: 2013 2012

Profit for the period W 36,617,471 43,647,453 Estimated provision of regulatory reserve for credit losses(*1) 761,453 11,932,446

Profit adjusted by regulatory reserve for credit losses(*2) 35,856,018 31,715,007

Earnings per share adjusted by estimated regulatory reserve for credit losses (won) (*3) 1,493 1,286

(*1) Expected provision for regulatory reserve for loan losses for the year ended December 31, 2013, is

the difference between the balance of regulatory reserve for loan losses as of December 31, 2013, and the balance as of December 31, 2012.

(*2) Profit for the period and earnings per share in consideration of changes in regulatory reserve for

loan losses is not accordance with K-IFRS, and is the amount after reflecting the expected provision for regulatory reserve for loan losses before income tax for Profit for the period.

(*3) Adjusted earnings per share is calculated based on amount deducting estimated provision of

regulatory reserve for credit losses from net profit for the period attributable to ordinary share holders of the Group.


57

22. Retained Earnings, Continued The annual dividends for the year ended December 31, 2013 are to be proposed at the annual meeting of shareholders on March 21, 2014. These dividends payable are not recorded on the consolidated financial statements of the Group as of December 31, 2013. Details of dividends for the years ended December 31, 2013 and 2012 are as follows:

Type 2013 2012 Interim dividends

Common Stock

Number of shares eligible for dividends - 20,000,000

Par value for share (won) W - 5,000 Dividends rate - 25.00% Dividends - 25,000,000 Annual dividends

Common Stock

Number of shares eligible for dividends 20,000,000 -

Par value for share (won) 5,000 - Dividends rate 11.3% - Dividends 11,300,000 - Preferred

Stock Number of shares eligible for dividends 5,000,000

5,000,000

Par value for share (won) 5,000 5,000 Dividends rate 24.00% 24.00% Dividends 6,000,000 6,000,000 Total dividends (A) 17,300,000 31,000,000 Profit for the period (B) W 36,617,471 43,647,453 Dividend payout ratio (A/B) 47.25% 71.02%


58

23. Net Interest Income

Net interest income for the years ended December 31, 2013 and 2012 are as follows:

2013 2012

Interest income: Cash and due from banks W 7,092,838 9,672,871 Loans receivables 264,222,726 256,376,955 Installment financial assets 27,829,738 40,624,910 Lease receivables 11,181,405 7,858,325 Available-for-sale securities 2,000,762 871,839 Other (*) 340,633 649,858

312,668,102 316,054,758 Interest expense: Borrowings 29,393,298 35,084,314 Debentures 111,074,842 109,711,708 Securitized debts 15,367,663 17,464,262 Other(*) 1,955,378

1,216,424

157,791,181

163,476,708

Net interest income W 154,876,921 152,578,050

(*) Amortization of present value discount using the effective interest method. 24. Net Commission Income

Net commission income for the years ended December 31, 2013 and 2012 are as follows:

2013 2012

Commission income Loans receivable W 17,169,094 16,286,937 Installment financial assets 1,186,987 1,637,531 Lease receivables 285,339 99,550

18,641,420 18,024,018 Commission expenses - -

W 18,641,420 18,024,018


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25. General and Administrative Expenses Details of general and administrative expenses for the years ended December 31, 2013 and 2012 are as follows: 2013 2012

Wages and salaries W 26,526,982 22,858,689 Retirement benefits 2,606,330 2,157,020 Employee welfare 6,368,174 5,503,659 Outsourcing service charges 4,453,877 4,070,340 Sales commission 8,661,777 12,897,058 Commission 3,585,234 3,310,244 Outsourcing service commission 3,985,962 2,179,596 Depreciation 1,286,857 1,044,778 Amortization 1,325,799 1,098,218 Taxes and dues 2,094,363 1,852,051 Electronic data processing expenses 2,856,455 2,678,454 Rent 2,129,270 1,368,111 Administrative expenses for building 1,246,866 1,111,377 Travel expenses 832,751 671,526 Training expenses 538,681 649,914 Communication 662,984 600,760 Others 2,323,818 1,972,243 W 71,486,180 66,024,038


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26. Income Tax Expenses

(1) Income tax expense for the years ended December 31, 2013 and 2012 are as follows:

(2) Deferred income tax recognized directly to equity as of December 31, 2013 and 2012 are as

follows:

2013 2012

Unrealized loss (gain) on valuation of derivatives W (307,997) 265,585

Unrealized loss on valuation of available-for-sale securities 837,073 1,703,156

Comprehensive income of equity method investee (19,473) (57,372)

Changes in retained earnings of equity method investee (120,917) -

Remeasurement of defined benefit plans 186,539 232,922

W 575,225 2,144,291

(3) Reconciliation between income before income taxes and income tax expense for the years ended December 31, 2013 and 2012 are as follows:

2013 2012

Profit before income taxes (A) W 59,755,749 66,083,123 Income taxes at statutory tax rates 13,998,891 15,530,117 Adjustments: Non-deductible expense for tax purposes 112,052 83,818 Tax credit (42,602) (19,333) Deferred income taxes unrecognized 6,181,557 6,415,522 Supplementary payment of income taxes 2,970,911 194,774 Others (82,531) 230,772 Income tax expense (B) W 23,138,278 22,435,670

Effective tax rate (B/A) 38.72% 33.95%

2013 2012

Income tax for the year W 16,587,398 16,380,716 Change in deferred income tax due to

temporary differences 3,004,744 3,715,889 Deferred income tax recognized directly to

equity 575,225 2,144,291 Supplementary payment of income taxes 2,970,911 194,774 Income tax expense W 23,138,278 22,435,670


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26. Income Tax Expenses, Continued

(4) Changes in temporary differences and deferred tax assets (liabilities) for the years ended December 31, 2013 and 2012, are as follows:

2013

Temporary differences Deferred tax assets

(liabilities) Beginning balance(*) Changes

Ending balance

Beginning balance

Ending balance

Deferred loan origination fees and costs W (46,197,317) (2,254,566) (48,451,883) (11,179,751) (11,725,356)

Investments in associates (24,085,900) 29,318,680 5,232,780 (10,784,979) (13,113,450)

Derivatives 3,012,056 (1,505,301) 1,506,755 728,917 364,635 Accrued expenses 4,155,522 (2,763,098) 1,392,424 1,005,636 336,967 Available-for-sale

securities (1,885,175) 3,521,278 1,636,103 (456,212) 395,937 Others 2,743,459 84,753 2,828,212 634,293 684,427

W (62,257,355) 26,401,746 (35,855,609) (20,052,096) (23,056,840) (*) Adjustments due to temporary differences as of January 1, 2013 which have been revised based on

additional tax adjustment.

2012

Temporary differences Deferred tax assets

(liabilities) Beginning

balance Changes Ending balance

Beginning balance

Ending balance

Deferred loan origination fees and costs W (35,993,974) (10,203,343) (46,197,317) (8,710,542) (11,179,751)

Allowance for doubtful accounts (1,451,636) 1,451,636 - (351,296) -

Investments in associates (33,719,804) 9,633,904 (24,085,900) (8,160,192) (10,784,979)

Derivatives 1,428,819 1,583,237 3,012,056 345,774 728,917 Goodwill 1,273,333 (1,273,333) - 308,147 - Accrued expenses 4,707,815 (552,293) 4,155,522 1,139,291 1,005,636 Available-for-sale

Securities (7,992,763) 6,107,588 (1,885,175) (1,934,249) (456,212) Others 4,243,223 (1,622,180) 2,621,043 1,026,860 634,293

W (67,504,987) 5,125,216 (62,379,771) (16,336,207) (20,052,096)


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26. Income Tax Expenses, Continued

(5) Deferred Tax Assets Feasibility Realization of the future tax benefits related to the deferred tax assets is dependent on many factors, including the Group’s ability to generate taxable income within the period during which the temporary differences reverse, the outlook of the Korean economic environment, and the overall future industry outlook. Management periodically considers these factors in reaching its conclusion and recognized the deferred income tax asset based on future realization. The Group did not recognize deferred income tax assets of W61,557,960 and W27,299,073 as of December 31, 2013 and 2012, respectively, related to temporary differences in investments in associates because it is not probable that the temporary differences will be realized.

27. Basic Earnings per Share

(1) Basic earnings per share attributable to common stock of equity holders for the years ended December 31, 2013 and 2012, are as follows:

(In won)

2013 2012

Profit attributable to owners of the Controlling Company W 36,617,470,778 43,647,452,618 (-) Dividends on preferred stock (6,000,000,000) (6,000,000,000) Profit attributable to common stock (A) W 30,617,470,778 37,647,452,618

Weighted average number of common stock outstanding (B) 20,000,000 20,000,000 Earnings Per Share (A/B) W 1,531 1,882

(2) Diluted net earnings per share As there was no discontinued operation during the years ended December 31, 2013 and 2012, basic earnings per share are the same as basic earnings per share from continuing operations. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has one category of dilutive potential ordinary share: convertible preferred stock.

Diluted earnings per share for the years ended December 31, 2013 and 2012 are as follows:

(In won) 2013 2012

Profit attributable to owners of the Controlling Company W 30,617,470,778 37,647,452,618 Dividend on convertible preferred stock 6,000,000,000 6,000,000,000 Profit used to determine diluted earnings per share (A) 36,617,470,778 43,647,452,618

Weighted average number of common stock outstanding (B) 20,000,000 20,000,000 Assumed conversion of convertible preferred stock 5,000,000 5,000,000 Weighted average number of common stock for diluted

earnings per share 25,000,000 25,000,000

Diluted earnings per share (A/B) W 1,465 1,746


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28. Accumulated Other Comprehensive Income (Loss) Details of accumulated other comprehensive income (loss) for the years ended December 31, 2013 and 2012 are as follows:

Changes

Beginning

balance

Reclassifica-tion of profit

or loss Other

changes Income

tax effects Ending balance

December 31, 2013 Items that are or may be reclassified subsequently to profit or loss: Unrealized gain (loss) on

valuation of derivatives W (1,914,822) 316,000

956,715 (307,997)

(950,104) Unrealized gain (loss) on

valuation of available-for-sale securities 713,160 -

(3,458,979) 837,073

(1,908,746)

Accumulated comprehensive income (loss) of equity method investees 3,811,298 -

(13,125,968) (19,473)

(9,334,143)

2,609,636 316,000 (15,628,232) 509,603 (12,192,993)

Items that will not be reclassified to profit or loss: Remeasurement of defined

benefit plans (1,670,151) -

(770,822) 186,539

(2,254,434)

W 939,485 316,000 (16,399,054) 696,142 (14,447,427)

Changes

Beginning

balance

Reclassifica-tion of profit

or loss Other

changes Income

tax effects Ending balance

December 31, 2012 Items that are or may be reclassified subsequently to profit or loss: Unrealized gain (loss) on

valuation of derivatives W (1,082,948) 751,792

(1,849,251) 265,585

(1,914,822) Unrealized gain (loss) on

valuation of available-for-sale securities 6,047,838 -

(7,037,834) 1,703,156

713,160

Accumulated comprehensive income (loss) of equity method investees (1,702,584) -

5,571,254 (57,372)

3,811,298

3,262,306 751,792 (3,315,831) 1,911,369 2,609,636

Items that will not be reclassified to profit or loss: Remeasurement of defined

benefit plans (940,586) -

(962,487) 232,922

(1,670,151)

W 2,321,720 751,792 (4,278,318) 2,144,291 939,485


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29. Supplemental Cash Flow Information

(1) Cash and cash equivalents in the statement of cash flows consist of cash on hand, deposits, and short-term money market instruments. Details of cash and cash equivalents as of December 31, 2013 and 2012 are as follows:

2013 2012

Cash W - 2,000 Ordinary deposits 15,239,429 5,374,125 Short-term financial instruments 265,250,000 277,449,670 W 280,489,429 282,825,795 (2) Cash generated from operations for the years ended December 31, 2013 and 2012 are as follows: 2013 2012

Profit for the period W 36,617,471 43,647,453 Adjustments:

Net interest expense 148,356,948 152,282,140 Dividend received (200,000) (250,000) Income tax expenses 23,138,278 22,435,670 Income on loans 15,479,882 45,145,458 Income on installment financial receivables 809,412 4,560,032 Income on leases 641,624 (19,151) Gain on foreign transactions (316,000) (4,521,000) Gain on disposal of property and equipment (42,750) (2,856) Gain on disposal of available-for-sale securities (3,267,028) - Gains on equity method valuation (9,041,656) (10,609,150) Bad debt expense 25,054,918 21,565,122 Retirement benefits 2,606,330 2,157,020 Depreciation 1,286,857 1,044,778 Amortization 1,325,799 1,098,218 Loss on disposal of property and equipment - 113,850 Loss on valuation of derivatives 83,414 4,948,370 Loss on equity method valuation 25,292,131 18,716,249

231,208,159 258,664,750


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29. Supplemental Cash Flow Information, Continued

2013 2012 Changes in operating assets and liabilities:

Increase in loans receivables W (242,766,709) (465,257,565) Decrease in installment financing receivables 54,627,067 113,474,729 Increase in finance lease receivables (81,927,674) (47,691,709) Decrease in account receivables 8,351,716 13,992,548 Increase (decrease) in accrued revenues (912,531) 1,087,848 Increase in advanced payments (610,894) (971,306) Decrease in prepaid expenses 75,674 125,101 Decrease (increase) in account payables (756,827) 7,291,826 Decrease in accrued expenses (5,644,347) (1,250,569) Decrease in unearned revenues (2,213,247) (209,828) Increase in advances 315,848 14,043 Increase in deposits 1,167,853 396,766 Decrease in net defined benefit liabilities (2,921,529) (3,295,757) Increase in leasehold deposits received 22,315,983 17,681,745

(250,899,617) (364,612,128) Cash generated from (used in) operations W 16,926,013 (62,299,925)

(3) Interest income cash flows occurred in loans receivables, installment financial assets and lease

receivables amount to W335,068,431 and W305,948,037 for the years ended December 31, 2013 and 2012, respectively.

(4) Significant transactions not involving cash flows for the years ended December 31, 2013 and 2012

are as follows:

2013 2012

Transferred from advance payments to development costs W 1,971,120 448,816


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30. Commitments and Contingencies

(1) Details of unused credit line agreements as of December 31, 2013 and 2012 are as follows:

Financial

institution Limit Unused limit

December 31, 2013 Limit of overdraft

Woori Bank and 11 others

W 405 billion 405 billion

Limit of letter of credit Korea Exchange Bank

USD 2,000,000 USD 2,000,000

Limit of credit facility Hyundai Capital 100 billion 100 billion

December 31, 2012 Limit of overdraft

Woori Bank and 10 others

W 435 billion 385 billion

As of December 31, 2013, the Group has a credit facility agreement for unsold property with Daewoo Engineering & Construction Co., Ltd. and others amounted to W60 billion. (2) Details of guarantees involving third parties as of December 31, 2013 and 2012 are as follows:

Guarantor Details 2013 2012

Hyundai Wia Guarantees on machinery installment financing receivables

W 20,051,379 23,779,938

Hyundai Motor Company Guarantees on finance lease receivables

2,037,940 2,824,246

Seoul Guarantee Insurance Company

Deposit guarantee

13,517,216 13,449,276

(3) Details of pending significant litigations as of December 31, 2013 and 2012 are as follows: Number of litigations Amount of litigations

As a plaintiff 16 W 953,231 As a defendant 5 268,946 The results of litigation cannot be predicted, no provisions were recorded on the consolidated financial statements of the Group as of December 31, 2013.

(4) For the year ended December 31, 2013, the Supreme Court’s decision included a proposed criteria

for ordinary wages, which may obligate the Group to pay additional wages if involved in litigations. Although the effects on the financial statements are difficult to estimate, the Group’s management determines that the possibility of the outflow of economically beneficial resources to be low.


67

31. Related Party Transactions (1) The parent company of the Group is Hyundai Motor Company. Related parties include

associates, joint venture, post-employment employment benefit plans, member of key management personnel and entities which the Group controls directly or indirectly or has significant influence over them.

(2) Significant transactions, which occurred in the normal course of business with related parties, for

the years ended December 31, 2013 and 2012 are as follows:

2013 2012 Purchase of

assets Disposal of

assets Purchase of

assets Disposal of

assets

Parent company Hyundai Motor Company W - - 70,236 -

Related parties Hyundai Wia Corp. 76,288,104 - 45,585,089 - Hyundai Capital Services,

Inc. - 59,719,820 - 56,994,629 Hyundai Autoever Corp. 8,256,278 - 1,411,726 -

84,544,382 59,719,820 46,996,815 56,994,629 W 84,544,382 59,719,820 47,067,051 56,994,629

(3) Receivables and payables associated with related parties as of December 31, 2013 and 2012 are

as follows:

2013 2012 Receivables Payables Receivables Payables

Parent company Hyundai Motor Company W 41,317 7,621 116,435 851,685

Associates Hyundai Card Co., Ltd. 498,496 9,776,918 4,088,408 11,061,021 Hyundai Life Insurance

Co., Ltd. 224,289 - 835,422 - 722,785 9,776,918 4,923,830 11,061,021

Related parties Kia Motors Corporation - 985 1,839 - Hyundai capital

Services, Inc. 494,775 108,018 5,673,930 68,206 Hyundai Autoever Corp. - 852,893 - - Samwoo Co., Ltd. 308,885 118,675 849,526 118,675 Employees 3,265,857 - 2,052,314 -

4,069,517 1,080,571 8,577,609 186,881

W 4,833,619 10,865,110 13,617,874 12,099,587


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31. Related Party Transactions, Continued

(4) Revenue and expense associated with related parties for the years ended December 31, 2013 and 2012 are as follows:

2013 2012

Revenue Expense Revenue Expense

Parent company Hyundai Motor Company W 752,108 304 1,966,639 305

Associates Hyundai Card Co., Ltd. 1,395,566 1,279,343 1,111,411 1,598,892 Hyundai Life Insurance

Co., Ltd. 467,692 238,494 34,192 - 1,863,258 1,517,837 1,145,603 1,598,892

Others Kia Motors Corporation - 6,793 25,674 - Hyundai Capital Services,

Inc. 5,992,461 9,730,281 5,527,262 5,363,297 Hyundai Autoever Corp. - 4,347,942 - 3,932,175 HMC Investment

Securities Co., Ltd. - 12,200 - 40,000 Innocean Worldwide Inc - 28,600 - 13,200 Hyundai Amco Co., Ltd. - 121,503 - 3,409 Samwoo Co, Ltd. 36,471 - 1,543,963 - Haevichi Country Club,

Ltd. - 7,470 - 8,505 Haevichi Hotels & Resorts

Co., Ltd. - 3,371 - 660 Hyundai Mseat - - 752,808 - Employees 54,027 140 32,076 560

6,082,959 14,258,300 7,881,783 9,361,806

W 8,698,325 15,776,441 10,994,025 10,961,003 The Controlling Company has been provided with guarantee by related parties and payment guarantees (see note 30). (5) Compensation for key management for the years ended December 31, 2013 and 2012 are as

follows: 2013 2012

Short-term employment benefits W 2,538,449 2,355,873 Retirement benefits 958,918 976,693 The key management above consists of directors (including non-permanent directors), who have significant authority and responsibilities for planning, operating, and controlling of the Group.


69

32. Arrangements with Consolidated Structured Entities The Company is providing contractual arrangements that could require the Controlling Company to maintain certain mortgage ratios associated with securitized debts to consolidated structured entities.

33. Interest in Unconsolidated Structured Entities

(1) Nature, purpose, activity of unconsolidated structured entities which the Controlling Company had interest in as of December 31, 2013, and how these Structured entities are financed were summarized as follows:

Nature Purpose Activity Financing method ABS SPC Funding for ABS and

securitization (1) Implementation of ABS plan (2) Taking over securitized asset and

collecting of underlying assets (3) Issuing and repayment of AB

(1) Issuing ABS base on underlying assets

Project Financing

PF loans for SOC and development real estate

(1) Construction of infrastructure and real estate

(1) Loan commitment based on credit line, credit facility and investment agreement

Investment

Funds Investment for

beneficiary certificates

(1) Management and operation of fund assets

(2) Payments of fund fee or allocation of income

(1) Selling Beneficiary certificates

(2) Investment of General partners or Limited Partners

(2) Size of the unconsolidated structured entities, carrying value and maximum exposure to loss related to the Controlling Company’s interests in unconsolidated structured entities as of December 31, 2013 were as follows:

ABS SPC PF Investment

Fund Total

Size of the unconsolidated

Structured entities W 554,178,769 1,564,417,596 76,700,332 2,195,296,697 Carrying value Available-for-sale securities 12,084,177 - 27,416,294 39,500,471 Loans receivable 62,400,581 110,335,671 - 172,736,252

74,484,758 110,335,671 27,416,294 212,236,723 The maximum exposure to loss Available-for-sale securities 12,084,177 - 27,416,294 39,500,471 Loans receivable 62,400,581 110,335,671 - 172,736,252

- 60,000,000 - 60,000,000 W 74,484,758 170,335,671 27,416,294 272,236,723


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34. Financial Risk Management

The Group is exposed to credit risk, liquidity risk, and market risk (exchange and interest rate risk). In order to manage these risk factors, the Group operates risk management policies and programs which closely monitor these risk factors. The Group uses derivatives to manage specific risks. (1) Credit risk A. Maximum exposure to credit risk

The maximum exposures to credit risk related to financial instruments except equity securities not considering the value of the collateral as of December 31, 2013 and 2012 are as follows:

2013 2012

Cash and deposits W 280,498,429 282,832,795 Loans receivable 2,985,904,723 2,781,461,960 Installment financial assets 300,002,241 356,818,556 Lease receivables 211,720,716 131,329,553 Non-trade receivables 18,075,353 15,813,310 Accrued revenue 18,155,916 16,858,350 Leasehold deposits 2,126,868 11,083,914 Derivative assets 162,823 137,775 Payment guarantee agreement - 1,905,528

W 3,816,647,069 3,598,241,741


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34. Financial Risk Management, Continued

B. Credit quality of financial assets

1) Credit quality classification Credit quality of maximum exposure to credit risk as of December 31, 2013 and 2012 are as follows:

2013

Normal Past due Impaired

Cash and deposits W 280,498,429 - - Financial receivables

Loans receivable 2,890,754,461 91,638,019 3,512,243 Installment financial

assets 289,699,746 10,149,460 153,035 Lease receivables 204,270,862 7,449,854 -

3,384,725,069 109,237,333 3,665,278 Non-trade receivables 18,075,353 - - Accrued revenue 18,155,916 - - Leasehold deposits 2,126,868 - - Derivative assets 162,823 - - Payment guarantee

agreement - - - W 3,703,744,458 109,237,333 3,665,278

2012

Normal Past due Impaired

Cash and deposits W 282,832,795 - - Financial receivables

Loans receivable 2,654,370,184 111,212,235 15,879,541 Installment financial

assets 339,122,981 16,741,779 953,796 Lease receivables 126,071,530 5,258,023 -

3,119,564,695 133,212,037 16,833,337 Non-trade receivables 15,813,310 - - Accrued revenue 16,858,350 - - Leasehold deposits 11,083,914 - - Derivative assets 137,775 - - Payment guarantee

agreement 1,905,528 - - W 3,448,196,367 133,212,037 16,833,337


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2) Financial receivables neither past due nor impaired Credit quality according to internal credit rating of financial receivables which are neither past due nor impaired as of December 31, 2013 and 2012 are as follows:

2013

Gross amount Allowance Book value

First-rate W 2,227,344,653 (4,767,901) 2,222,576,752 Second-rate 463,694,181 (1,573,024) 462,121,157 Third-rate 263,089,487 (2,374,026) 260,715,461 Fourth-rate 69,764,340 (1,125,970) 68,638,370 Fifth-rate 63,625,721 (2,045,908) 61,579,813 Sixth-rate 34,870,510 (2,860,072) 32,010,438 No rating 278,305,590 (1,222,512) 277,083,078 W 3,400,694,482 (15,969,413) 3,384,725,069

2012


First-rate W 1,527,243,577 (1,320,528) 1,525,923,049 Second-rate 545,226,460 (1,288,166) 543,938,294 Third-rate 624,178,668 (4,580,773) 619,597,895 Fourth-rate 108,597,624 (1,310,169) 107,287,455 Fifth-rate 85,891,673 (2,380,201) 83,511,472 Sixth-rate 40,528,603 (2,718,120) 37,810,483 No rating 202,855,717 (1,359,670) 201,496,047 W 3,134,522,322 (14,957,627) 3,119,564,695

The Group classifies financial receivables into six internal credit rating based on the rating criteria and the characteristic of receivables. The internal credit rating is assessed based on the expected probability of default in the previous month. Meanwhile, some financial receivables are not given a credit rating for reason of a lack of research data such as information on new loan accounts of the current month or requiring additional management.


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3) Financial receivables past due but not impaired

Financial receivables past due but not impaired as of as of December 31, 2013 and 2012 are as follows:

2013

Less than 1 month

Between 1 ~ 2

months

Between 2~3

months

Over 3 months

(*) Total

Loans receivables W 84,294,366 10,059,129 - - 94,353,495 Installment financial

assets 7,829,169 1,516,211 70,801 985,767 10,401,948

Lease receivables 4,788,547 212,203 351,681 2,140,388 7,492,819

96,912,082 11,787,543 422,482 3,126,155 112,248,262

Allowance (2,299,383) (699,006) (3,411) (9,129) (3,010,929)

Book value W 94,612,699 11,088,537 419,071 3,117,026 109,237,333

2012

Less than 1 month

Between 1 ~ 2

months

Between 2~3

months

Over 3 months

(*) Total

Loans receivables W 99,058,460 15,125,448 - - 114,183,908 Installment financial

assets 13,729,517 2,205,380 359,955 924,195 17,219,047

Lease receivables 2,979,899 - - 2,307,262 5,287,161

115,767,876 17,330,828 359,955 3,231,457 136,690,116

Allowance (2,549,692) (917,506) (2,431) (8,450) (3,478,079)

Book value W 113,218,184 16,413,322 357,524 3,223,007 133,212,037

(*) The Group does not classify the receivables provided with guarantees from the related parties in the

receivables which are past due for over three months as impaired financial receivables (See note 30).


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4) Impaired financial receivables as of as of December 31, 2013 and 2012 are as follows

2013


Loans receivable W 8,945,517 (5,433,274) 3,512,243 Installment financial assets 833,156 (680,121) 153,035 Lease receivables 118,845 (118,845) - W 9,897,518 (6,232,240) 3,665,278

2012


Loans receivable W 19,738,069 (3,858,528) 15,879,541 Installment financial assets 1,472,960 (519,164) 953,796 Lease receivables - - - W 21,211,029 (4,377,692) 16,833,337

5) Credit quality of other assets

Credit quality according to external credit rating of other assets, excluding financial receivables, which are neither past due nor impaired as of December 31, 2013 and 2012 are as follows:

Cash and deposits (*) 2013 2012

AAA W 155,498,429 147,832,795 AA+ 65,000,000 45,000,000 AA 10,000,000 20,000,000 AA- 30,000,000 20,000,000 A+ 20,000,000 50,000,000 W 280,498,429 282,832,795

(*) The average external credit rating of three domestic credit rating agencies is used.

Derivative assets (*) 2013 2012

AAA W 162,670 63,353 No rating 153 74,422

W 162,823 137,775 (*) Derivative assets are classified based on the average external credit rating of three domestic credit

rating agencies and S&P credit rating.


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C. Details of assets pledged The assets pledged as collateral for financial receivables as of December 31, 2013 and 2012 are as follows:

2013

Impaired Unimpaired

Total Delinquent Non-delinquent

Total financial receivables W 3,665,278 109,237,333 3,384,725,069 3,497,627,680

Collateralized assets Collateralized vehicles 8,400,946 85,623,689 2,081,117,665 2,175,142,300

Collateralized real estate - - 110,883,451 110,883,451

W 8,400,946 85,623,689 2,192,001,116 2,286,025,751

2012

Impaired Unimpaired

Total Delinquent Non-delinquent

Total financial receivables W 16,833,337 133,212,037 3,119,564,695 3,269,610,069

Collateralized assets Collateralized vehicles 9,774,223 113,563,749 2,038,596,606 2,161,934,578

Collateralized real estate 9,464,286 - 186,259,014 195,723,300

W 19,238,509 113,563,749 2,224,855,620 2,357,657,878


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34. Financial Risk Management, Continued D. Credit risk concentration

Credit risk concentration of financial receivables by debtors as of December 31, 2013 and 2012 are as follows:

2013 Including allowance Ratio Allowance Book value

Finance W 857,687 0.02% (105,596) 752,091 Manufacturing 108,817,634 3.09% (542,662) 108,274,972 Service 3,273,818,285 92.93% (23,198,100) 3,250,620,185 Others 139,568,974 3.96% (1,588,542) 137,980,432 W 3,523,062,580 100.00% (25,434,900) 3,497,627,680

2012 Including allowance Ratio Allowance Book value

Finance W 30,073,634 0.91% (53,931) 30,019,703 Manufacturing 99,521,470 3.02% (838,571) 98,682,899 Service 3,006,431,213 91.31% (19,719,010) 2,986,712,203 Others 156,397,151 4.76% (2,201,887) 154,195,264 W 3,292,423,468 100.00% (22,813,399) 3,269,610,069


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34. Financial Risk Management, Continued (2) Liquidity risk

Cash flows of financial liabilities based on remaining contractual maturities as of December 31, 2013 and 2012 are as follows: 2013

Immediate payment

Up to 3 months

3 months to 1 year 1 to 5 years Over 5 years Total (*1)

Borrowings W - 294,900,277 259,886,138 71,133,555 - 625,919,970 Debentures - 104,502,355 700,629,848 2,087,722,686 136,729,250 3,029,584,139 Securitized debts - 23,202,597 156,615,534 91,576,252 - 271,394,383 Other liabilities 1,814,442 24,826,942 9,232,203 46,737,129 64,000 82,674,716 Payment guarantee

agreements - - - - - - Derivative liabilities

(*2) Cash inflow - (2,449,545) (28,713,572) (11,666,077) - (42,829,194) Cash outflow - 2,813,693 30,418,823 11,511,134 - 44,743,650

W 1,814,442 447,796,319 1,128,068,974 2,297,014,679 136,793,250 4,011,487,664 2012

Immediate payment

Up to 3 months

3 months to 1 year 1 to 5 years Over 5 years Total (*1)

Borrowings W - 285,505,411 152,001,509 309,406,417 - 746,913,337 Debentures - 162,092,468 765,499,842 1,600,216,128 109,290,500 2,637,098,938 Securitized debts - 3,891,514 61,347,320 271,394,383 - 336,633,217 Other liabilities 1,303,805 15,462,157 3,176,922 32,301,760 - 52,244,644 Payment guarantee

agreements 1,905,528 - - - - 1,905,528 Derivative liabilities (*2) Cash inflow - (2,471,523) (43,472,467) (26,822,836) - (72,766,826) Cash outflow - 2,981,955 49,596,533 27,733,383 - 80,311,871

W 3,209,333 467,461,982 988,149,659 2,214,229,235 109,290,500 3,782,340,709

(*1) The above amounts including the principal and future interest payments are contractual

undiscounted cash flows and are not equal to the amounts in the statement of financial position based on the discounted cash flows.

(*2) The above amounts are gross settlement derivatives and contractual undiscounted cash flows. In accordance with the contract on securitized assets, there is a trigger clause on various requirements for credit support. The Group has to comply with certain conditions of securitized debts. If these conditions are not met, the Group should redeem the securitized debts before maturity.


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34. Financial Risk Management, Continued (3) Market risk A. Interest rate risk

The Group manages the interest rate risk through Value at Risk (VaR), Earning at Risk (EaR) measurement and Interest Rate Gap Analysis that analyze the maturity between the interest revenue-generating assets and the interest-bearing liabilities. VaR is calculated using the standard framework of the Bank for International Settlements (BIS). The VaR model uses the proxy of modified duration per expiration interval proposed by the BIS and expected interest rate volatility of expiration interval by reason of interest rate fluctuation of 100bp.

The interest rate risk using VaR as of December 31, 2013 and 2012 are as follows:

2013 2012

Interest rate VaR W 4,631,277 4,157,195 VaR is a commonly used market risk measurement techniques but has some limitations. VaR estimates the expected loss under the specific reliability based on the historical changes in the market data. However, the past changes in market cannot reflect all conditions and environments that may occur in the future. Therefore, in the process of calculating, the timing and size of the actual loss may vary according to changes in assumptions. B. Foreign exchange risk

The Group holds financial instruments and borrowings that are denominated in foreign currencies and is exposed to foreign exchange risk arising from various currency exposures. The Group undertakes hedging strategies with hedge accounting being applied to manage these foreign exchange risks.

Foreign exchange position exposures of the Group as of December 31, 2013 and 2012 are as follows:

2013 2012

USD W 21,106,000 58,910,500 The Group’s exposure to foreign exchange risk is hedged by derivatives. Therefore, foreign exchange risk of the Group is not significant. C. Price Risk

Marketable equity securities which are classified into available-for-sale securities are exposed to price risk. The effects of 10% price variation for comprehensive income and equity as of December 31, 2013 and 2012 are as follows:

2013 2012

Comprehensive income W 561,600 830,700 Equity 561,600 830,700


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(4) Capital risk management The objective of the Group’s capital management is to maintain sound capital structure. The Group uses the adjusted capital adequacy ratio under the Supervision of Specialized Credit Financial Business Law as a capital management indicator. This ratio is calculated as adjusted total assets divided by adjusted equity.

Adjusted capital adequacy ratios of the Group as of December 31, 2013 and 2012 are as follows:

2013 2012

Adjusted total assets (A) W 3,858,126,037 3,625,546,783 Adjusted equity (B) 414,160,835 422,760,975 Adjusted capital adequacy ratio (B/A) (*) 10.73% 11.66%

(*) The above adjusted capital adequacy ratio is calculated according to Supervision of Specialized

Credit Financial Business Law.

Hci fy2013 ye_final

Economy & Finance

Transcript of Hci fy2013 ye_final