Hyundai card 2016_2_q_consolidated_final

HYUNDAI CARD CO., LTD. AND ITS

SUBSIDIARIES

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2016, AND DECEMBER 31, 2015,

AND FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30,

2016 AND 2015

ATTACHMENT: INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

HYUNDAI CARD CO., LTD.

Deloitte Anjin LLC 9F., One IFC, 10, Gukjegeumyung-ro Youngdeungpo-gu, Seoul 07326, Korea

Tel: +82 (2) 6676 1000

Fax: +82 (2) 6674 2114

www.deloitteanjin.co.kr

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Independent Accountants’ Review Report

English Translation of a Report Originally Issued in Korean on August 12, 2016

To the Shareholders and Board of Directors of

Hyundai Card Co., Ltd.:

We have reviewed the accompanying condensed consolidated financial statements of Hyundai Card Co., Ltd. and its

subsidiaries (collectively, the “Consolidated Entity”). The condensed consolidated financial statements consist of the

condensed consolidated statements of financial position as of June 30, 2016, and the related condensed consolidated

statements of comprehensive income for the three months and six months ended June 30, 2016 and 2015, the related

condensed consolidated statements of changes in shareholders’ equity and the related condensed consolidated

statements of cash flows for the six months ended June 30, 2016 and 2015, all expressed in Korean won, and a

summary of significant accounting policies and other explanatory information.

Management’s responsibility for the condensed consolidated financial statements

The Consolidated Entity’s management is responsible for the preparation and fair presentation of the accompanying

condensed consolidated financial statements and for such internal control as management determines is necessary to

enable the preparation of condensed consolidated financial statements that are free from material misstatement,

whether due to fraud or error.

Independent accountants’ responsibility

Our responsibility is to express a conclusion on the accompanying condensed consolidated financial statements

based on our reviews.

We conducted our reviews in accordance with standards for review of interim financial statements in the Republic

of Korea. A review is limited primarily to inquiries of company personnel and analytical procedures applied to

financial data, and this provides less assurance than an audit. We have not performed an audit, and accordingly, we

do not express an audit opinion.

Review conclusion

Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying

condensed consolidated financial statements of the Consolidated Entity are not presented fairly, in all material

respects, in accordance with Korean International Financial Reporting Standards (“K-IFRS”) 1034, Interim

Financial Reporting.

Others

We audited the consolidated statement of financial position as of December 31, 2015, and the related consolidated

statement of comprehensive income, consolidated statement of changes in shareholders’ equity and consolidated

statement of cash flows for the year ended December 31, 2015 (not presented in the accompanying condensed

consolidated financial statements), all expressed in Korean won, in accordance with auditing standards generally

accepted in the Republic of Korea. We expressed an unqualified opinion on those consolidated financial statements

in our independent auditors’ report dated March 9, 2016. The consolidated statement of financial position as of

December 31, 2015, presented for comparative purpose in the accompanying condensed consolidated financial

statements, does not differ, in all material respects, from the audited consolidated statement of financial position as

of December 31, 2015.

August 12, 2016

Notice to Readers

This report is effective as of August 12, 2016, the accountants’ review report date. Certain subsequent events or

circumstances may have occurred between the accountants’ review report date and the time the accountants’ review

report is read. Such events or circumstances could significantly affect the condensed consolidated financial

statements and may result in modifications to the accountants’ review report.

HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES

(the “Consolidated Entity”)

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2016, AND DECEMBER 31, 2015,

AND FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30,

2016 AND 2015

The accompanying condensed consolidated financial statements, including all footnote disclosures, were

prepared by, and are the responsibility of, the management of the Consolidated Entity.

Chung, Tae Young

Chief Executive Officer

Hyundai Card Co., Ltd.


CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF JUNE 30, 2016, AND DECEMBER 31, 2015

(Unit: Korean won)

June 30, 2016 December 31, 2015

ASSETS:

CASH AND DEPOSITS (Notes 4 and 28):

Cash and cash equivalents (Note 23) ￦ 632,008,532,147 ￦ 505,742,520,609

Deposits 47,424,500,000 33,024,500,000

Total cash and deposits 679,433,032,147 538,767,020,609

SECURITIES (Notes 5 and 28):

Trading securities 804,337,938,006 459,928,214,247

Available-for-sale (“AFS”) securities 1,766,969,764 1,766,969,764

Total securities 806,104,907,770 461,695,184,011

CARD ASSETS (Notes 6, 7, 25 and 28):

Card receivables, net of present value of discounts and

deferred origination cost and fee 7,447,657,620,879

7,595,851,307,370

Allowance for doubtful accounts (79,844,412,173) (76,701,420,249)

Cash advances 851,402,427,538 827,002,888,065


Card loans, net of present value of discounts 3,222,347,418,026 3,239,218,653,922


Total card assets 11,254,358,855,134 11,406,586,971,982

PROPERTY, PLANT AND EQUIPMENT (Note 8):

Land 141,135,593,407 141,135,593,407

Buildings 120,401,235,857 120,401,235,857

Accumulated depreciation (13,199,460,626) (11,684,533,184)

Vehicles 2,514,088,391 2,514,088,391

Accumulated depreciation (346,729,982) (254,093,084)

Fixtures and equipment 213,453,956,011 210,311,409,618

Accumulated depreciation (138,593,285,181) (125,909,014,419)

Construction in progress 24,721,936,728 14,089,134,359

Total property, plant and equipment 350,087,334,605 350,603,820,945

OTHER ASSETS:

Other accounts receivable (Note 28) 93,814,027,905 94,824,687,899

Allowance for doubtful accounts (Notes 7 and 28) (838,079,692) (852,423,113)

Accrued revenue (Note 28) 48,401,502,073 49,401,668,393

Allowance for doubtful accounts (Notes 7 and 28) (1,384,858,374) (1,393,512,524)

Advance payments 30,332,656,707 34,200,440,607

Allowance for doubtful accounts (Note 7) (1,751,262,685) (967,357,411)

Prepaid expenses 64,567,622,719 54,889,008,962

Intangible assets (Note 9) 123,539,381,832 137,084,511,938

Derivative assets (Notes 13, 27 and 28) 30,840,987,130 39,584,012,967

Deferred income tax assets (Note 20) 151,395,796,395 150,197,163,343

Guarantee deposits (Notes 4 and 28) 33,030,396,698 32,466,788,202

Others 9,220,186,257 4,350,236,590

Total other assets 581,168,356,965 593,785,225,853

Total Assets ￦ 13,671,152,486,621 ￦13,351,438,223,400

(Continued)


CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED)

AS OF JUNE 30, 2016, AND DECEMBER 31, 2015

(Unit: Korean won)

June 30, 2016 December 31, 2015

LIABILITIES:

BORROWINGS (Notes 10 and 28):

Borrowings ￦ 1,015,000,000,000 ￦ 590,000,000,000

Debenture, net of discounts 8,329,926,977,211 8,527,883,918,633

Total borrowings 9,344,926,977,211 9,117,883,918,633

OTHER LIABILITIES:

Accounts payable (Notes 25 and 28) 902,257,864,445 889,947,477,880

Accrued expenses (Note 28) 214,724,902,436 229,197,257,098

Unearned revenue 335,558,894,810 340,303,443,944

Withholdings (Note 28) 101,767,293,397 109,477,500,291

Derivative liabilities (Notes 13, 27 and 28) 21,550,740,631 17,743,551,531

Current tax liability 30,584,856,318 24,105,439,403

Net defined benefit liability (Note 11) 32,734,773,467 23,606,248,668

Guarantee deposits received (Note 28) 10,040,023,829 9,081,139,097

Provisions (Notes 12 and 24) 94,715,920,519 96,060,138,730

Total other liabilities 1,743,935,269,852 1,739,522,196,642

Total liabilities 11,088,862,247,063 10,857,406,115,275

SHAREHOLDERS’ EQUITY:

Capital stock 802,326,430,000 802,326,430,000

Capital surplus 57,704,443,955 57,704,443,955

Accumulated other comprehensive loss (Note 22) (45,004,296,846) (38,384,103,955)

Retained earnings (Notes 14 and 15) 1,767,263,662,449 1,672,385,338,125

Total shareholders’ equity 2,582,290,239,558 2,494,032,108,125

Total Liabilities and Shareholders’ Equity ￦ 13,671,152,486,621 ￦13,351,438,223,400

(Concluded)

See accompanying notes to condensed consolidated financial statements.


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015

(Unit: Korean won) 2016 2015

Three months

ended June 30

Six months

ended June 30

Three months

ended June 30

Six months

ended June 30 OPERATING REVENUE:

Card income (Notes 17 and 25) ￦ 650,566,253,405 ￦ 1,304,185,808,391 ￦ 621,298,977,061 ￦ 1,242,127,875,223

Interest income (Note 16) 4,747,246,118 10,006,201,937 4,583,049,323 10,875,934,226 Gain on valuation and disposal of securities 978,617,283 2,044,321,853 362,255,755 581,393,022

Dividends income 30,000,000 166,053,244 - 146,989,275

Other operating revenue (Note 18) 7,039,154,558 32,317,270,249 19,492,740,008 33,405,419,759 Total operating revenue 663,361,271,364 1,348,719,655,674 645,737,022,147 1,287,137,611,505

OPERATING EXPENSES: Card expenses (Notes 17 and 25) 306,254,316,418 608,934,659,295 273,244,263,553 529,261,124,964

Interest expenses (Note 16) 64,217,919,175 131,011,459,474 68,601,626,541 140,825,077,623

General and administrative expenses (Notes 19 and 25) 172,420,819,228 334,074,088,809 169,717,352,969 332,686,668,022

Securitization expenses 116,272,852 235,283,760 99,287,436 180,349,207

Bad debt expenses and losses on disposal of loans

(Note 7) 62,278,852,201 120,894,714,282 50,509,314,482 105,949,055,202 Transfer to provision for unused credit limits (Note 12) 1,268,077,773 2,723,304,562 476,442,008 1,219,576,870

Other operating expenses (Note 18) 4,386,698,678 25,184,059,428 18,652,342,153 31,954,362,562

Total operating expenses 610,942,956,325 1,223,057,569,610 581,300,629,142 1,142,076,214,450

OPERATING INCOME 52,418,315,039 125,662,086,064 64,436,393,005 145,061,397,055

NON-OPERATING INCOME:

Gain from sale of property, plant and equipment and

intangible assets 61,351,754 163,937,614 9,012,873 28,818,303 Rental revenue (Note 25) 626,640,056 1,006,072,601 403,305,118 780,985,962

Miscellaneous gain 72,367,076 143,498,414 70,148,064 131,333,388 Total non-operating income 760,358,886 1,313,508,629 482,466,055 941,137,653

NON-OPERATING EXPENSES: Donations 414,504,118 1,076,160,113 537,176,650 704,978,650

Loss from sale of property, plant and equipment and

intangible assets 124,343,151 190,767,674 51,505,049 1,260,030,580

Total non-operation expenses 538,847,269 1,266,927,787 588,681,699 1,965,009,230

NET INCOME BEFORE INCOME TAX EXPENSE 52,639,826,656 125,708,666,906 64,330,177,361 144,037,525,478

INCOME TAX EXPENSE (Note 20) 11,345,201,794 30,830,342,582 15,670,628,458 33,210,655,865

NET INCOME ￦ 41,294,624,862 ￦ 94,878,324,324 ￦ 48,659,548,903 ￦ 110,826,869,613

(Continued)


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)


(Unit: Korean won)

2016

2015

Three months ended June 30

Six months ended June 30

Three months ended June 30


OTHER COMPREHENSIVE INCOME (LOSS),

NET OF TAX (Note 22)

Items not reclassified subsequently to profit or loss ￦ 1,681,667,497 ￦ (864,795,423) ￦ 265,991,145 ￦ (2,980,306,936)

Remeasurements of net defined benefit liability 1,681,667,497 (864,795,423) 265,991,145 (2,980,306,936)

Items reclassified subsequently to profit or loss (2,746,189,889) (5,755,397,468) 2,651,137,369 (1,526,057,880) Cash flow hedging income (loss) (2,746,189,889) (5,755,397,468) 2,651,137,369 (1,526,057,880)

Total other comprehensive income (loss) (1,064,522,392) (6,620,192,891) 2,917,128,514 (4,506,364,816)

TOTAL COMPREHENSIVE INCOME ￦ 40,230,102,470 ￦ 88,258,131,433 ￦ 51,576,677,417 ￦ 106,320,504,797

EARNINGS PER SHARE (Note 21)

Basic earnings per share ￦ 257 ￦ 591 ￦ 303 ￦ 691

Diluted earnings per share ￦ 257 ￦ 591 ￦ 303 ￦ 691

(Concluded)



CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

(Unit: Korean won)

Capital surplus

Capital stock

Paid-up capital

Other

capital

Accumulated other

comprehensive

loss

Retained

earnings

Total

Balance at January 1, 2015 ￦ 802,326,430,000 ￦ 45,399,364,539 ￦ 12,305,079,416 ￦ (40,118,183,826) ￦ 1,735,468,135,715 ￦2,555,380,825,844

Total comprehensive income

(loss):

Net income - - - - 110,826,869,613 110,826,869,613

Other comprehensive loss:

Remeasurements of netdefined benefit

liability

-

-

-

(2,980,306,936)

-

(2,980,306,936)

Cash flow hedging loss - - - (1,526,057,880) - (1,526,057,880)

Balance at June 30, 2015 ￦ 802,326,430,000 ￦ 45,399,364,539 ￦ 12,305,079,416 ￦ (44,624,548,642) ￦1,846,295,005,328 ￦2,661,701,330,641

Balance at January 1, 2016 ￦ 802,326,430,000 ￦ 45,399,364,539 ￦ 12,305,079,416 ￦ (38,384,103,955) ￦ 1,672,385,338,125 ￦ 2,494,032,108,125

Total comprehensive income (loss):

Net income - - - - 94,878,324,324 94,878,324,324

Other comprehensive loss: Remeasurements of net

defined benefit liability

-

-

-

(864,795,423)

-

(864,795,423) Cash flow hedging loss - - - (5,755,397,468) - (5,755,397,468)

Balance at June 30, 2016 ￦ 802,326,430,000 ￦ 45,399,364,539 ￦12,305,079,416 ￦ (45,004,296,846) ￦ 1,767,263,662,449 ￦ 2,582,290,239,558



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

(Unit: Korean won)

Six months ended

June 30, 2016

Six months ended

June 30, 2015

CASH FLOWS FROM OPERATING ACTIVITIES:

Cash generated from operating activities (Note 23) ￦ 83,292,345,316 ￦ 872,040,177,727

Interests received 9,639,392,450 10,643,721,137

Interests paid (142,949,542,751) (129,372,506,333)

Dividends received 166,053,244 146,989,275

Income taxes paid (23,576,217,080) (42,756,320,587)

Net cash (used in) provided by operating activities (73,427,968,821) 710,702,061,219

CASH FLOWS FROM INVESTING ACTIVITIES:

Disposal of AFS securities 16,215,800 114,829,850

Disposal of property, plant and equipment 208,157,254 45,361,000

Disposal of intangible assets 585,000,000 -

Acquisition of property, plant and equipment (18,592,607,253) (26,094,553,551)

Acquisition of intangible assets (7,770,059,214) (10,035,220,856)

Net cash used in investing activities (25,553,293,413) (35,969,583,557)

CASH FLOWS FROM FINANCING ACTIVITIES:

Increase in borrowings 695,000,000,000 70,000,000,000

Proceeds from issue of debentures 9,768,247,273,772 5,436,270,704,124

Repayment of borrowings (270,000,000,000) (70,000,000,000)

Repayment of debentures (9,968,000,000,000) (5,871,400,000,732)

Net cash provided by (used in) financing activities 225,247,273,772 (435,129,296,608)

NET INCREASE IN CASH AND CASH EQUIVALENTS 126,266,011,538 239,603,181,054

CASH AND CASH EQUIVALENTS AT THE

BEGINNING OF THE PERIOD (Note 23) 505,742,520,609

167,697,056,564

CASH AND CASH EQUIVALENTS AT THE

END OF THE PERIOD (Note 23) ￦ 632,008,532,147 ￦ 407,300,237,618



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2016, AND DECEMBER 31, 2015, AND


1. REPORTING ENTITY:

Hyundai Card Co., Ltd. (the “Company” or the “Consolidated Entity”), which is a controlling company in

accordance with Korean International Financial Reporting Standards (“K-IFRS”) 1110, Consolidated Financial

Statements, is engaged in the credit card business under the Specialized Credit Financial Business Law of

Korea, with its headquarters located at 3, Uisadang-daero, Yeongdeungpo-gu, Seoul. On June 15, 1995, the

Company acquired the credit card business of Korea Credit Circulation Co., Ltd., and on June 16, 1995, the

Korean government granted permission to the Company to engage in the credit card business. The Company

operates its business under the Specialized Credit Financial Business Act and other relevant applicable

regulations.

As of June 30, 2016, the Company has approximately 6.45 million card members; 2.33 million registered

merchants; and 122 marketing centers, branches and posts.

As of June 30, 2016, the total common stock of the Company is ￦802,326 million. The shareholders of the

Company and its ownerships as of June 30, 2016, and December 31, 2015, are as follows:

Shareholders

June 30, 2016 December 31, 2015

Number of shares

Percentage of

ownership

Number of shares

Percentage of

ownership

Hyundai Motor Co., Ltd. 59,301,937 36.96 59,301,937 36.96

Kia Motors Co., Ltd. 18,422,142 11.48 18,422,142 11.48

IGE USA Investments 69,000,073 43.00 69,000,073 43.00

Hyundai Commercial Inc. 8,889,622 5.54 8,889,622 5.54

Others 4,851,512 3.02 4,851,512 3.02

Total 160,465,286 100.00 160,465,286 100.00

(1) Details of the Company’s subsidiaries as of June 30, 2016, and December 31, 2015, are as follows:

Place of

incorporation

and operation

Voting share (%)

Entities

Major operation

June 30, 2016

December 31, 2015

End of

reporting

period

PRIVIA 4th SPC Asset securitization Korea 0.5 0.5 December

PRIVIA 5th SPC Asset securitization Korea 0.5 0.5 December

Super Series 1st SPC Asset securitization Korea 0.5 0.5 December

Super Series 2nd SPC Asset securitization Korea 0.5 - December

17 Money Market

Trusts

Trust business Korea 100 100 -

The subsidiaries above are structured companies as voting rights and other powers do not play a major role in

determining the controlling interest.

Except for Money Market Trust, the subsidiaries were established for the Consolidated Entity’s business

activity. The Parent, the Consolidated Entity, has the power over the subsidiaries due to the fact that it involves

in the objectives and design of the subsidiaries and is exposed to risks and rewards. Also, all the decision-

making processes of the subsidiaries are operated on autopilot by provisions and articles of association. The

Parent is considered to have the ability to use power because it has control over the changes in provisions and

articles of association. Therefore, the Parent includes the special-purpose entities under consolidation.

Meanwhile, in case default occurs by the subsidiaries related to derivative contracts hedging risks arising from

debentures issued for asset securitization, counterparties of the derivative contracts can claim for

reimbursement from the Parent.

- 2 -

2. BASIS OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS PREPARATION AND

SIGNIFICANT ACCOUNTING POLICIES:

(1) Basis of condensed consolidated financial statements preparation

The Consolidated Entity’s condensed consolidated financial statements for the six months ended June 30, 2016

and 2015, are prepared in accordance with K-IFRS 1034, Interim Financial Reporting. It is necessary to use the

annual consolidated financial statements as of and for the year ended December 31, 2015, for the understanding

of the accompanying interim consolidated financial statements.

The Consolidated Entity’s accounting policies applied for the accompanying condensed interim consolidated

financial statements are the same as the policies applied for the preparation of consolidated financial statements

as of and for the year ended December 31, 2015, except for the effects from the introduction of new and revised

accounting standards or interpretations as described below.

1) The Consolidated Entity has newly adopted the following new standards and interpretations that affected

the Consolidated Entity’s accounting policies

Amendments to K-IFRS 1001 – Presentation of Financial Statements

The amendments to K-IFRS 1001 clarify the concept of applying materiality in practice and restrict an entity

reducing the understandability of its financial statements by obscuring material information with immaterial

information or by aggregating material items that have different natures or functions. The adoption of the

amendment has no significant impact on the Consolidated Entity’s condensed consolidated financial statements.

Amendments to K-IFRS 1016 – Property, Plant and Equipment

The amendments to K-IFRS 1016 prohibit entities from using a revenue-based depreciation method for items

of property, plant and equipment. The adoption of the amendment has no significant impact on the

Consolidated Entity’s condensed consolidated financial statements.

Amendments to K-IFRS 1038 – Intangible Assets

The amendments to K-IFRS 1038 clarified that the use of revenue-based methods to calculate the amortization

of an asset is not appropriate, unless the consumption of the expected future economic benefits is embodied in

the asset. The adoption of the amendment has no significant impact on the Consolidated Entity’s condensed

consolidated financial statements.

Amendments to K-IFRS 1110 – Consolidated Financial Statements, K-IFRS 1112 – Disclosure of Interests in

Other Entities and K-IFRS 1028 – Investment in Associates

The amendments clarify that in applying the equity method of accounting to an associate or a joint venture that

is an investment entity, an investor may retain the fair value measurements that the associate or the joint

venture used for its subsidiaries. The adoption of the amendment has no significant impact on the Consolidated

Entity’s condensed consolidated financial statements.

Amendments to K-IFRS 1111 – Accounting for Acquisitions of Interests in Joint Operations

The amendments to K-IFRS 1111 provide guidance on how to account for the acquisition of an interest in a

joint operation in which the activities constitute a business, as defined in K-IFRS 1103, Business

Combinations. Specifically, the amendments state that the relevant principles on accounting for business

combinations in K-IFRS 1103 and other standards should be applied. The same requirements should be

applied to the formation of a joint operation if, and only if, an existing business is contributed to the joint

operation by one of the parties that participate in the joint operation. A joint operator is also required to

disclose the relevant information required by K-IFRS 1103 and other standards for business combinations.

The adoption of the amendment has no significant impact on the Consolidated Entity’s condensed

consolidated financial statements.

- 3 -

Annual Improvements to K-IFRS 2012-2014 Cycle

The annual improvements include amendments to a number of K-IFRSs. The amendments introduce a specific

guidance on K-IFRS 1105, Non-current Assets Held for Sale and Discontinued Operations, when an entity

reclassifies an asset (or disposal group) from held for sale to held for distribution to owners (or vice versa);

such a change is considered as a continuation of the original plan of disposal, and not as a change in a plan of

sale. Other amendments to the annual improvements include K-IFRS 1107, Financial Instruments: Disclosures;

K-IFRS 1019, Employee Benefits; and K-IFRS 1034, Interim Financial Reporting. The adoption of the

amendment has no significant impact on the Consolidated Entity’s condensed consolidated financial statements.

2) The Consolidated Entity has not applied the following K-IFRSs that have been issued, but are not yet

effective:

Amendments to K-IFRS 1109 – Financial Instruments

The amendments to K-IFRS 1109 contain the requirements for the classification and measurement of financial

assets and financial liabilities based on a business model whose objective is achieved both by collecting

contractual cash flows and selling financial assets and based on the contractual terms that give rise on specified

dates to cash flows, impairment methodology based on the expected credit losses, broadened types of

instruments that qualify as hedging instruments, the types of risk components of non-financial items that are

eligible for hedge accounting and the change in the hedge effectiveness test. The amendments are effective for

annual periods beginning on or after January 1, 2018.

Amendments to K-IFRS 1115 – Revenue from Contracts with Customers

The core principle under K-IFRS 1115 is that an entity should recognize revenue to depict the transfer of

promised goods or services to customers in an amount that reflects the consideration to which the entity expects

to be entitled in exchange for those goods or services. The amendments introduce a five-step approach to

revenue recognition and measurement: 1) Identify the contract with a customer, 2) Identify the performance

obligations in the contract, 3) Determine the transaction price, 4) Allocate the transaction price to the

performance obligations in the contract and 5) Recognize revenue when (or as) the entity satisfies a

performance obligation. This standard will supersede K-IFRS 1011, Construction Contracts, K-IFRS 1018,

Revenue, K-IFRS 2113, Customer Loyalty Programmes, K-IFRS 2115, Agreements for the Construction of

Real Estate, K-IFRS 2118, Transfers of Assets from Customers, and K-IFRS 2031, Revenue-Barter

Transactions Involving Advertising Services. The amendments are effective for annual periods beginning on or

after January 1, 2018.

3. SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS:

In the preparation of the Consolidated Entity’s condensed consolidated financial statements, management is

required to make judgments, estimates and assumptions that affect assets, liabilities, revenue and expenses.

Actual results may differ from those estimates.

The significant judgments that management has made about the application of the Consolidated Entity’s

accounting policies and key sources of estimation uncertainty do not differ from those used in preparing the

consolidated financial statements as of and for the year ended December 31, 2015.

- 4 -

4. RESTRICTED FINANCIAL ASSETS:

Details of restricted financial assets as of June 30, 2016, and December 31, 2015, are as follows (Unit: Korean

won in millions):

Type Entity June 30, 2016 December 31, 2015 Restriction

Cash and deposits KB Bank and others ￦ 18 ￦ 18 Guarantee deposits for

overdraft

Shinhan Bank and others 33,000 33,000 Secured deposits

Citibank 22,056 14,400 Deposits related to

securitization

Mirae Asset Securities 7 7 Social enterprise fund

Other assets Korea Asset Management

Corporation

6,995

6,995

Escrow account

￦ 62,076 ￦ 54,420

5. SECURITIES:

Securities as of June 30, 2016, and December, 31 2015, are as follows (Unit: Korean won in millions):

June 30, 2016 December 31, 2015

Trading:

Debt securities ￦ 622,307 ￦ 399,928

Equity securities 182,031 60,000

Subtotal 804,338 459,928

Financial assets AFS:

Unlisted shares investment 1,767 1,767

Total ￦ 806,105 ￦ 461,695

6. CARD ASSETS:

Details of card assets by customers as of June 30, 2016, and December 31, 2015, are as follows (Unit: Korean

won in millions):

June 30, 2016

Principal

Deferred origination

cost and fee

Present value of

discounts

Allowance for

doubtful accounts Book value

Card receivables:

Households

￦ 6,918,741

￦ (10,894)

￦ (6,597)

￦ (74,373)

￦ 6,826,877

Corporates 546,408 - - (5,472) 540,936

Cash advances:

Households 851,402 - - (35,119) 816,283

Card loans:

Households 3,223,099 - (751) (152,085) 3,070,263

Total ￦ 11,539,650 ￦ (10,894) ￦ (7,348) ￦ (267,049) ￦ 11,254,359

December 31, 2015

Principal

Deferred origination

cost and fee

Present value of

discounts

Allowance for

doubtful accounts Book value

Card receivables:

Households

￦ 7,069,322

￦ (8,643)

￦ (7,434)

￦ (72,107)

￦ 6,981,138

Corporates 542,606 - - (4,594) 538,012

Cash advances:

Households 827,003 - - (32,868) 794,135

Card loans:

Households 3,240,008 - (789) (145,917) 3,093,302

Total ￦ 11,678,939 ￦ (8,643) ￦ (8,223) ￦ (255,486) ￦ 11,406,587

- 5 -

7. ALLOWANCE FOR DOUBTFUL ACCOUNTS:

Changes in the allowance for doubtful accounts for the six months ended June 30, 2016 and 2015, are as

follows (Unit: Korean won in millions):

Six months ended June 30, 2016

Card receivables Card advances Card loans Other assets Total

Beginning balance ￦ 76,701 ￦ 32,868 ￦ 145,917 ￦ 3,213 ￦ 258,699

Bad debt expenses (441) (191) (344) - (976)

Bad debt recovered 243 350 140 - 733

Disposition and repurchase (11,603) (6,768) (12,298) - (30,669)

Transfer of allowance for

doubtful accounts

14,945

8,860

18,670

761

43,236

Ending balance ￦ 79,845 ￦ 35,119 ￦ 152,085 ￦ 3,974 ￦ 271,023


Card receivables Card advances Card loans Other assets Total


Bad debt expenses (876) (109) (287) - (1,272)

Bad debt recovered 314 417 149 - 880

Disposition and repurchase (11,681) (6,863) (13,888) - (32,432)

Transfer (reversal) of

allowance for doubtful

accounts

7,427

4,961

16,032

(777)

27,643

Ending balance ￦ 66,706 ￦ 28,484 ￦ 136,246 ￦ 1,833 ￦ 233,269

8. PROPERTY, PLANT AND EQUIPMENT:

Changes in book value of property, plant and equipment for the six months ended June 30, 2016 and 2015, are

as follows (Unit: Korean won in millions):


Beginning

balance Acquisition Reclassification Disposal

Depreciation

Ending

balance

Land ￦ 141,136 ￦ - ￦ - ￦ - ￦ - ￦ 141,136

Buildings 108,717 - - - (1,515) 107,202

Vehicles 2,260 - - - (93) 2,167

Fixtures and equipment 84,402 4,979 2,457 (1,042) (15,935) 74,861

Construction in progress 14,089 13,401 (2,769) - - 24,721

Total ￦ 350,604 ￦ 18,380 ￦ (312) ￦ (1,042) ￦ (17,543) ￦ 350,087


Beginning


Depreciation

Ending

balance

Land ￦ 138,257 ￦ 762 ￦ - ￦ - ￦ - ￦ 139,019

Buildings 104,473 24 - (842) (1,414) 102,241

Vehicles 2,464 - - (16) (96) 2,352

Fixtures and equipment 87,856 6,560 2,460 (419) (18,198) 78,259


Total ￦ 356,430 ￦ 21,602 ￦ 398 ￦ (1,277) ￦ (19,708) ￦ 357,445

- 6 -

9. INTANGIBLE ASSETS:

Changes in intangible assets for the six months ended June 30, 2016 and 2015, are as follows (Unit: Korean

won in millions):


Beginning


Amortization

Ending

balance

Development cost ￦ 86,046 ￦ 2,582 ￦ 1,888 ￦ (34) ￦ (13,773) ￦ 76,709

Software 24,079 761 75 - (4,101) 20,814

Others 1,490 - - - (472) 1,018


Membership 20,623 - - (600) - 20,023

Total ￦ 137,085 ￦ 5,438 ￦ (4) ￦ (634) ￦ (18,346) ￦ 123,539


Beginning

balance Acquisition Reclassification Amortization

Ending

balance

Development cost ￦ 98,710 ￦ 3,947 ￦ 2,050 ￦ (14,245) ￦ 90,462

Others 3,199 - - (972) 2,227

Construction in progress 11,144 4,699 (2,515) - 13,328

Membership 20,614 - - - 20,614

Total ￦ 133,667 ￦ 8,646 ￦ (465) ￦ (15,217) ￦ 126,631

10. BORROWINGS:

(1) Details of borrowings as of June 30, 2016, and December 31, 2015, are as follows (Unit: Korean won in

millions):

Lenders

Annual interest

rate (%)

June 30, 2016

December 31, 2015

Short-term borrowings:

Commercial paper IBK Securities and others 1.64–1.99 ￦ 290,000 ￦ 240,000

Borrowings KB and others 2.32–2.93 455,000 300,000

Subtotal 745,000 540,000

Current portion of long-

term borrowings:

Borrowings SC Bank - - 50,000

Long-term borrowings:

Commercial paper IBK Securities and other 1.88–1.89 250,000 -

Borrowings KB 2.68 20,000 -

Subtotal 270,000 -

Total ￦ 1,015,000 ￦ 590,000

(2) Details of debentures as of June 30, 2016, and December 31, 2015, are as follows (Unit: Korean won in

millions):

Annual

interest rates (%) Maturity June 30, 2016

December 31,

2015

Short-term debentures 1.80–2.04 2016.09.25–2016.12.02 ￦ 140,000 ￦ 210,000

Current portion of long-term

debentures

1.79–4.93

2016.07.01–2017.06.30

2,771,469 1,770,000

Long-term debentures 1.61–5.50 2017.07.03–2026.04.28

5,426,174 6,557,680

Subtotal 8,337,643 8,537,680

Discounts on debenture (7,716) (9,796)

Debenture, net ￦ 8,329,927 ￦ 8,527,884

- 7 -

The outstanding debentures are non-guaranteed corporate bonds, with their principals to be redeemed by

installment or at maturity. Bond issuance costs are recorded as discounts on debenture and amortized using the

effective interest rate method.

11. RETIREMENT BENEFIT PLAN:

(1) Defined Contribution Plan

The expenses recognized in the condensed consolidated statement of comprehensive income related to

postemployment benefit plan under the defined contribution plan for the six months ended June 30, 2016 and

2015, are as follows (Unit: Korean won in millions):


2016 2015

Defined contribution plan

￦ 75 ￦ 37

(2) Net Defined Benefit Liability

The details of net defined benefit liability as of June 30, 2016, and December 31, 2015, are as follows (Unit:

Korean won in millions):

June 30, 2016 December 31, 2015

Net defined benefit liability

￦ 28,046 ￦ 19,199

Long-term employee benefit 4,689 4,407

Total ￦ 32,735 ￦ 23,606

(3) Defined Benefit Plan

1) General

The Consolidated Entity operates a defined benefit plan that is linked to final payment. Plan assets mainly

consist of deposits and are exposed to risk of fall in interest rate.

2) Net defined benefit obligation

Changes in present value of net defined benefit obligation for the six months ended June 30, 2016 and 2015,

are as follows (Unit: Korean won in millions):


Present value of

defined benefit

obligation Plan assets

National Pension

Fund

Net defined benefit

obligation

Beginning balance ￦ 81,458 ￦ (62,238) ￦ (21) ￦ 19,199

Current service cost 7,201 - - 7,201

Interest expense (income) 971 (748) - 223

Return on plan assets, excluding

amounts included in interest

income above

- 255 - 255

Actuarial gains and losses from

changes in financial assumptions

3,022 - - 3,022


adjustment of experiences

(2,197) - - (2,197)

Transfer of employees between the

affiliated companies and its related

companies

529 (700) 5 (166)

Benefits paid (3,557) 4,066 - 509

Ending balance ￦ 87,427 ￦ (59,365) ￦ (16) ￦ 28,046

- 8 -


Present value of the

defined benefit

obligation Plan assets

National Pension

Fund

Net defined benefit

obligation

Beginning balance ￦ 69,739 ￦ (53,378) ￦ (29) ￦ 16,332

Current service cost 6,628 - - 6,628

Interest expense (income) 921 (708) (1) 212

Return on plan assets, excluding

amounts included in interest

income above

-

188

-

188


changes in demographic

assumptions

5

-

-

5


changes in financial assumptions

1,214

-

-

1,214


adjustment of experiences

2,300

-

-

2,300

Transfer of employees between the

Consolidated Entity and its related

companies

(73)

(57)

-

(130)

Benefits paid (2,927) 2,452 4 (471)

Ending balance ￦ 77,807 ￦ (51,503) ￦ (26) ￦ 26,278

(4) Long-Term Employee Benefits

Changes in present value of long-term employee benefits liability for the six months ended June 30, 2016 and



2016 2015

Beginning balance

￦ 4,407 ￦ 3,553

Current service cost

264 217

Interest cost

58 54

Actuarial gains and losses

119 117

Benefits paid

(159) (141)

Ending balance

￦ 4,689 ￦ 3,800

- 9 -

12. PROVISIONS:

Changes in provisions for the six months ended June 30, 2016 and 2015, are as follows (Unit: Korean won in

millions):


Unused

commitment Point

Asset retirement

obligation

Others Total


Increase (decrease) 2,724 (4,373) 305 - (1,344)

Ending balance ￦ 55,812 ￦ 24,116 ￦ 6,641 ￦ 8,147 ￦ 94,716


Unused

commitment Point

Asset retirement

obligation

Others Total


Increase (decrease) 1,220 6,270 267 (1,236) 6,521

Ending balance ￦ 47,109 ￦ 29,014 ￦ 5,804 ￦ 8,149 ￦ 90,076

Other provisions include provision for deposits in escrow account and for pending litigations amounting to

￦2,233 million (see Note 24(4)) and ￦5,914 million, respectively, as of June 30, 2016. Also, provision for

pending litigations includes the provision related to deposits in escrow account amounting to ￦4,467 million.

13. DERIVATIVES AND HEDGE ACCOUNTING:

(1) There are no derivative instruments held for trading as of June 30, 2016, and December 31, 2015.

(2) Cash flow hedge

The Company removes the volatility risk of future cash flow of a hedged item, such as borrowings, caused

by changes in market interest rates or in foreign currency rates by using derivative instruments, such as an

interest rate swap or currency swap. The Company’s policies and strategies of cash flow hedge are the same

as those as of December 31, 2015.

1) Fair values of cash flow hedge as of June 30, 2016, and December 31, 2015, are as follows (Unit: Korean

won in millions):

June 30, 2016

Unsettled

contract amount Assets Liabilities

Accumulated other

comprehensive

loss (*1)

Interest rate swap ￦ 1,335,000 ￦ - ￦ 18,598 ￦ (14,163)

Cross-currency swap 803,643 30,841 2,953 (8,734)

Total ￦ 2,138,643 ￦ 30,841 ￦ 21,551 ￦ (22,897)

December 31, 2015

Unsettled

contract amount Assets Liabilities

Accumulated other

comprehensive

loss (*1)

Interest rate swap ￦ 1,175,000 ￦ 21 ￦ 17,744 ￦ (13,469)

Cross-currency swap 808,680 39,563 - (3,673)

Total ￦ 1,983,680 ￦ 39,584 ￦ 17,744 ￦ (17,142)

(*1) After the effect of corporate income taxes

- 10 -

For transactions between local and foreign currencies, the unsettled contract amount of transaction is translated

by applying the basic foreign exchange rate at the end of reporting period to the contract amount in foreign

currencies. For transactions between foreign currencies and other foreign currencies, the unsettled contract

amount is the amount translated by applying the basic foreign exchange rate at the end of reporting period to

the contract amount in foreign currencies purchased.

2) The maximum period for the Company exposed to the variability in future cash flows arising from

derivatives designated as cash flow hedges is expected to be until June 21, 2021. Meanwhile, there is no

ineffective portion recognized related to cash flow hedge for the six months ended June 30, 2016 and 2015.

14. PLANNED RESERVES FOR BAD LOANS:

(1) Details of planned reserves for bad loans as of June 30, 2016, and December 31, 2015, are as follows (Unit:


June 30, 2016 December 31, 2015

Accumulated reserve for bad loans ￦ 640,026 ￦ 666,023

Reversal to planned reserve for bad loans (142) (25,997)

Reserve for bad loans ￦ 639,884 ￦ 640,026

(2) Reversal to planned reserve for bad loans and net income after the reserve is provided for the six months

ended June 30, 2016 and 2015, are as follows (Unit: Korean won in millions, except for earnings per share):


2016 2015

Net income ￦ 94,878 ￦ 110,827

Reversal to planned reserve for bad loans (142) (33,350)

Net income after the planned reserve is provided 95,020 144,177

Earnings per share after the planned reserve is

provided

592

898

15. RETAINED EARNINGS:

(1) Details of retained earnings as of June 30, 2016, and December 31, 2015, are as follows (Unit: Korean won

in millions):

June 30, 2016 December 31, 2015

Legal reserve (*1) ￦ 45,127 ￦ 20,143

Planned reserve for bad loans (Note 14) 640,026 666,023

Unappropriated retained earnings 1,082,111 986,219

Total ￦ 1,767,264 ￦ 1,672,385

(*1) Korean Commercial Code requires a company to appropriate at least 10% of dividends paid as legal

reserve for each fiscal period, until the reserve equals 50% of paid-up capital. This reserve is not

available for payment of cash dividends; however, it can be used to reduce deficit or be transferred to

capital.

(2) Changes in retained earnings for the six months ended June 30, 2016 and 2015, are as follows (Unit:



2016 2015

Beginning balance ￦ 1,672,386 ￦ 1,735,468

Net income 94,878 110,827

Ending balance ￦ 1,767,264 ￦ 1,846,295

- 11 -

16. NET INTEREST EXPENSES:

Net interest expenses from financial instruments for the three months and six months ended June 30, 2016 and


2016 2015

Three months

ended June 30

Six months

ended June 30

Three months

ended June 30

Six months

ended June 30

Interest income:

Cash and deposits ￦ 4,523 ￦ 9,557 ￦ 4,308 ￦ 10,047

Others 224 449 275 829

Total 4,747 10,006 4,583 10,876

Interest expenses:

Borrowings 5,753 9,943 2,057 4,083

Debentures 58,426 121,002 66,568 136,760

Others 39 66 (23) (18)

Total 64,218 131,011 68,602 140,825

Net interest expenses ￦ (59,471) ￦ (121,005) ￦ (64,019) ￦ (129,949)

17. NET COMMISSION INCOME:

Net commission income (expenses) from financial instruments for the three months and six months ended June

30, 2016 and 2015, are as follows (Unit: Korean won in millions):

2016 2015

Three months

ended June 30

Six months

ended June 30

Three months

ended June 30

Six months

ended June 30

Commission income:

Card income ￦ 406,980 ￦ 818,123 ￦ 387,004 ￦ 767,592

Total 406,980 818,123 387,004 767,592

Commission expenses:

Service fee 147,660 297,975 131,985 263,683

Financial payment fee 2,228 4,388 2,332 4,640

Handling fee relating to

credit purchase

39,740 76,134 37,278 75,171

Merchants copayment fee 12 24 14 27

Overseas payment fee 12,134 24,172 10,744 21,261

Other 9,120 20,393 11,431 22,113

Total 210,894 423,086 193,784 386,895

Net commission income ￦ 196,086 ￦ 395,037 ￦ 193,220 ￦ 380,697

- 12 -

18. OTHER OPERATING REVENUE AND EXPENSES:

Other operating revenues and expenses for the three months and six months ended June 30, 2016 and 2015, are

as follows (Unit: Korean won in millions):

2016 2015

Three months

ended June 30

Six months

ended June 30

Three months

ended June 30

Six months

ended June 30

Other operating revenue:

Foreign exchange gain ￦ 4,951 ￦ 9,084 ￦ 3,692 ￦ 7,159

Foreign currency translation gain (7,728) 5,037 - -

Gain on transaction of derivatives - - (546) 1,653

Gain on valuation of derivatives - - 5,652 8,881

Others 9,816 18,196 10,695 15,712

Total ￦ 7,039 ￦ 32,317 ￦ 19,493 ￦ 33,405

Other operating expenses:

Foreign exchange loss ￦ 2,162 ￦ 3,590 ￦ 757 ￦ 4,230

Foreign currency translation loss - - 5,652 8,881

Loss on valuation of derivatives (7,728) 5,037 - -

Others 9,953 16,557 12,243 18,843

Total ￦ 4,387 ￦ 25,184 ￦ 18,652 ￦ 31,954

19. GENERAL AND ADMINISTRATIVE EXPENSES:

Details of general and administrative expenses for the three months and six months ended June 30, 2016 and


2016 2015

Three months

ended June 30

Six months

ended June 30

Three months

ended June 30

Six months

ended June 30

Salaries and wages ￦ 40,425 ￦ 76,765 ￦ 43,348 ￦ 88,790

Pension expenses 4,926 8,673 5,273 8,711

Employee benefits 5,726 13,662 5,709 13,105

Travel expenses 748 1,369 657 1,202

Communication expenses 8,495 16,166 8,807 16,687

Posts expenses 3,471 7,395 4,786 9,558

Rental expenses 6,344 12,575 6,141 12,641

Taxes dues 4,001 9,895 4,079 9,013

Repair and maintenance expenses 500 828 263 424

Insurance premiums 54 118 61 111

Entertainment expenses 85 189 187 328

Advertising expenses 16,860 27,167 9,793 15,548

Supplies 682 1,247 1,017 1,725

Vehicle maintenance expenses 4 7 3 6

Periodicals expenses 85 178 87 123

Publication expenses 1,590 3,414 2,477 4,480

Training expenses 1,112 2,014 1,081 2,500

Electronic data processing expenses 10,602 22,340 9,884 20,024

Expense for temporary staff 1,216 2,779 1,878 4,128

Professional service expenses 36,201 68,783 34,746 66,183

Delivery commission 331 670 420 840

Commission expenses 8,165 15,494 7,853 14,634

Business activities expenses 791 1,354 782 1,458

Depreciation expenses 8,700 17,543 9,670 19,708

Amortization expenses 9,035 18,346 7,552 15,217

Event expenses 97 776 1,099 1,535

Conference expenses 106 177 125 185

Building administrative expenses 2,069 4,150 1,939 3,823

Total ￦ 172,421 ￦ 334,074 ￦ 169,717 ￦ 332,687

- 13 -

20. INCOME TAX EXPENSES:

(1) Income tax expenses for the six months ended June 30, 2016 and 2015, are as follows (Unit: Korean won in

millions):


2016 2015

Income tax currently payable ￦ 30,056 ￦ 32,562

Changes in deferred income tax assets (1,199) (347)

Changes in income tax expense reflected directly in

shareholders’ equity

1,973 996

Income tax expenses ￦ 30,830 ￦ 33,211

(2) Income tax expenses reflected directly in shareholders’ equity for the six months ended June 30, 2016 and


January 1, 2016 Increase June 30, 2016

Tax effect related to cash flow hedging reserve loss ￦ 5,413 ￦ 1,758 ￦ 7,171

Tax effect related to remeasurements of net defined

benefit liability

6,708 215 6,923

Total ￦ 12,121 ￦ 1,973 ￦ 14,094

January 1, 2015 Increase June 30, 2015

Tax effect related to cash flow hedging reserve loss ￦ 6,537 ￦ 269 ￦ 6,806

Tax effect related to remeasurements of net defined

benefit liability

6,166 727 6,893

Total ￦ 12,703 ￦ 996 ￦ 13,699

(3) A reconciliation between income before income tax and income tax expense for the six months ended

June 30, 2016 and 2015, is as follows (Unit: Korean won in millions):


2016 2015

Net income before income tax ￦ 125,709 ￦ 144,038

Net income tax payable by the statutory income tax rates (*) 29,959 34,395

Tax reconciliations:

Others 871 (1,184)

Subtotal 871 (1,184)

Income tax expense for continued operation 30,830 33,211

Effective tax rates (income tax/income before income tax) 24.52% 23.06%

(*) Applicable income tax rate: 1) 11% for below ￦200 million, 2) 22% for ￦200 million to ￦20 billion

and 3) 24.2% for above ￦20 billion.

21. EARNINGS PER SHARE:

(1) Basic earnings per share for the three months and six months ended June 30, 2016 and 2015, are as follows

(Unit: Korean won):

2016 2015

Three months

ended June 30

Six months

ended June 30

Three months

ended June 30

Six months

ended June 30

Net income (A) ￦ 41,294,624,862 ￦ 94,878,324,324 ￦ 48,659,548,903 ￦ 110,826,869,613

Weighted-average

number of shares (B)

160,465,286 shares 160,465,286 shares 160,465,286 shares 160,465,286 shares

Net income per share (A/B) ￦ 257 ￦ 591 ￦ 303 ￦ 691

- 14 -

(2) Diluted earnings per share

As there were no discontinued operations during the six months ended June 30, 2016 and 2015, basic earnings

per share are the same as basic earnings per share from continuing operations.

22. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):

Changes in accumulated other comprehensive income (loss) for the six months ended June 30, 2016 and 2015,

are as follows (Unit: Korean won in millions):

June 30, 2016

Changes

Beginning

balance

Reclassification

of profit or loss Other

Income tax

effects

Ending

balance

Gain (loss) on valuation

of derivatives

￦ (17,142) ￦ 224 ￦ (7,737) ￦ 1,758 ￦ (22,897)

Remeasurements of net


(21,242) - (1,080) 215 (22,107)

Total ￦ (38,384) ￦ 224 ￦ (8,817) ￦ 1,973 ￦ (45,004)

June 30, 2015

Changes

Beginning

balance

Reclassification

of profit or loss Other

Income tax

effects

Ending

balance

Gain (loss) on valuation

of derivatives

￦ (20,648) ￦ (213) ￦ (1,582) ￦ 269 ￦ (22,174)

Remeasurements of net


(19,470) - (3,707) 727 (22,450)

Total ￦ (40,118) ￦ (213) ￦ (5,289) ￦ 996 ￦ (44,624)

23. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS:

(1) Cash and cash equivalents

Cash and cash equivalents in the condensed consolidated statement of cash flows are as follows (Unit: Korean

won in millions):

June 30, 2016 June 30, 2015

Ordinary deposits

￦ 188,923 ￦ 154,230

Current deposits 295 92

Time deposits

- 13,200

Other cash and cash equivalents

442,791 239,778

Total ￦ 632,009 ￦ 407,300

- 15 -

(2) Cash generated from operating activities

Cash generated from operating activities is as follows (Unit: Korean won in millions):


2016 2015

Net income ￦ 94,878 ￦ 110,827

Adjustments:

Income tax expense 30,830 33,211

Interest income (10,006) (10,876)

Interest expense 131,011 140,825

Dividends received (166) (147)

Bad debt expenses and losses on disposal of receivables 120,895 105,949

Retirement benefits 7,499 6,841

Long-term employee benefits 442 388

Depreciation expenses 17,543 19,708

Amortization expenses 18,346 15,217

Losses on foreign currency translation - 8,881

Losses on valuation of derivatives 5,037 -

Increase in provision for unused credit limit 2,724 1,220

Losses from sale of property, plant and equipment 132 1,260

Losses from sale of intangible assets 59 -

Sales promotional expenses 15,514 16,280

Increase (decrease) in provision for others (5,100) 4,664

Other operating expenses 309 607

Gains on valuation of trading securities (1,883) (467)

Gains on disposal of AFS securities (16) (115)

Gains on foreign currency translation (5,037) -

Gains on valuation of derivatives - (8,881)

Amortization of present value of discounts of card assets (16,492) (17,656)

Amortization of deferred origination cost and fee of card assets (12,664) (11,903)

Gains from sale of property, plant and equipment (154) (29)

Gains from sale of intangible assets (10) -

Other operating revenues (13) (13)

Subtotal 298,800 304,964

Changes in operating assets and liabilities:

Decrease (increase) in trading securities (342,527) 207,102

Decrease in card assets 45,734 242,980

Increase in deposits (14,400) -

Decrease (increase) in other assets 3,069 (32,993)

Increase in guarantee deposits (564) (282)

Decrease in derivative assets 8,000 530

Decrease in net defined benefit liabilities (166) (601)

Decrease in long-term employee benefits (161) (141)

Decrease in derivative liabilities (8,000) (9,097)

Increase (decrease) in other liabilities (1,371) 48,751

Subtotal (310,386) 456,249

Total ￦ 83,292 ￦ 872,040

The cash and cash equivalents in the condensed consolidated statement of cash flows are the same as the

cash and cash equivalents in the condensed consolidated statement of financial position.

- 16 -

24. CONTINGENCIES AND COMMITMENTS:

(1) Credit line agreements

The credit line agreements as of June 30, 2016, and December 31, 2015, are as follows (Unit: Korean won in

millions):

Type

Financial instruments June 30, 2016 December 31, 2015

Intraday overdraft limit

Shinhan Bank

and 13 others

￦ 472,575

￦ 542,600

(2) Revolving credit facility

As the Consolidated Entity has a revolving credit facility agreement with many financial institutions for credit

line as of June 30, 2016, it made a revolving credit facility agreement for ￦510 billion with Kookmin Bank

and 10 others for credit line as of June 30, 2016.

(3) Pending litigations

As of June 30, 2016, the Consolidated Entity is involved in 25 cases (￦33,101 million) as a defendant, 13

cases (￦17,999 million) as a plaintiff and the cases for debt collection against multiple debtors in the

important pending litigations. The Consolidated Entity records ￦5,914 million for other provisions regarding

the cases as a defendant. The management of the Consolidated Entity does not anticipate that these pending

litigations referred above will have a significant effect on the Consolidated Entity’s consolidated financial

statements (see Note 12).

(4) Deposit for loss reimbursement

As of June 30, 2016, the Consolidated Entity has deposits of ￦2,233 million and ￦4,763 million of proceeds

and interests, respectively, from the sale of Daewoo Engineering & Construction Co., Ltd.’s shares in an

escrow account and records ￦2,233 million and ￦4,467 million for provision of proceeds and interests,

respectively, from the litigation relating to the sale of Daewoo Engineering & Construction Co., Ltd.’s shares

(see Note 12).

(5) Contract of sale of receivables

The Consolidated Entity entered into a contract with Hyundai Capital Services, Inc. relating to its sale of

receivables on January 24, 2006. In accordance with the contract, the Consolidated Entity sells the receivables

that are 60 days or more past due or written off (partially including receivables that are before 60 days) to

Hyundai Capital Services, Inc. Such sale occurs five times a month on designated cutoff dates at the amount

calculated using a predetermined price pursuant to the contract.

(6) Reserve for loss reimbursement

The Consolidated Entity has the obligation to reimburse customers for fraudulent credit card activities; the

Consolidated Entity records the expected losses as an accrued expense.

(7) Insurance for the implementation of the liability for damages

The Consolidated Entity has an insured value of ￦1 billion for the implementation of the liability for damages

in accordance with Article 43 of Credit Information Act.

(8) Security on the receivables sold relating to asset-backed securitization

The Consolidated Entity continuously transfers receivables to maintain a certain level of its equity in the

second series beneficiary certificates relating to the asset-backed securitization.

- 17 -

(9) Early redemption rule associated with asset-backed securitization

According to the agreement on the Consolidated Entity’s asset-backed securitization, in order to enhance the

credit level of the asset-backed securities, several provisions are in place as trigger clauses to be used for early

redemption calls, thereby limiting the risk that the investors are exposed to resulting from a change in quality

of the assets in the future. In the event the asset-backed securitization of the Consolidated Entity is in violation

of the applicable trigger clause, the Consolidated Entity is obliged to make early redemption for the asset-

backed securities.

25. TRANSACTION WITH RELATED PARTIES:

(1) Status of related parties

Related parties consist of entities related to the Consolidated Entity, postemployment benefits, a key

management personnel and a close member of that person’s family; an entity controlled or jointly controlled;

and an entity influenced significantly.

Details of the related parties as of June 30, 2016, are as follows:

Companies

Parent company Hyundai Motor Company

Other related parties IGE USA Investments, GE Capital Int’l Holdings, HMC Investment Securities, Green

Air, Kia Motors, Kia Tigers, Maintrans Co., Ltd., Busan Finance Center AMC, HL

Green Power, WIA-MAGNA Powertrain, Eukor Car Carriers, Innocean Worldwide,

Iljin Bearing, Chunbuk Hyundai Motors FC, Korea Credit Bureau, Hankook

Economy Daily, Haevichi Country Club, Haevichi Hotels & Resorts, Hyundai

Construction, Hyundai Glovis, Hyundai Dymos, Hyundai City Corporation, Hyundai

Life, Hyundai Rotem, Hyundai Materials, Hyundai Mobis, Hyundai BNG Steel,

Hyundai Farm Land & Development, Hyundai Engineering & Steel Industries,

Hyundai IHL, Hyundai Energy, Hyundai Engineering, Hyundai NGV, Hyundai

MSEAT, Hyundai MNSOFT, Hyundai Auto Ever Systems, Hyundai-autron, Hyundai

WIA, Hyundai Steel Company, HYUNDAI Architects & Engineers Assoc., Hyundai

Capital, Hyundai Commercial, Hyundai KEFICO, Hyundai Powertech, Hyundai

Partecs, Hyundai Hysco, etc.

(2) Outstanding transactions with the related parties for the six months ended June 30, 2016 and 2015, are as



Revenues Expenses Others

Card

income

Rental

revenue Others

Card

expense

General and

administrative

expenses Others

Purchase of

property,

plant and

equipment

Purchase of

intangible

assets

Disposal

of assets

Parent company:

Hyundai Motor

Company ￦ 61,084 ￦ - ￦ - ￦ 4,827 ￦ 202 ￦ 203 ￦ - ￦ - ￦ -

Other related parties:

Hyundai Capital 669 237 11,483 7,352 1,321 15,090 - - 180,900

Hyundai Life 3,936 86 299 - 2,226 - - - -

Kia Motor

Company

26,055

-

-

-

1

56

-

-

-

Hyundai Auto

Ever Systems

1,944

-

-

-

31,419

-

-

1,742

-

Innocean

Worldwide

901

-

-

-

4,275

-

-

-

-

Others 1,172 437 650 213 5,345 1,162 6,598 - -

Total ￦ 95,761 ￦ 760 ￦12,432 ￦ 12,392 ￦ 44,789 ￦16,511 ￦ 6,598 ￦ 1,742 ￦180,900

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Revenues Expenses Others

Card

income

Rental

revenue Others

Card

expense

General and

administrative

expenses Others

Purchase of

property,

plant and

equipment

Purchase of

intangible

assets

Disposal

of assets

Parent company:

Hyundai Motor

Company ￦53,478 ￦ - ￦ - ￦ - ￦ 284 ￦ 2 ￦ - ￦ - ￦ -


Hyundai Capital 41 260 11,572 11,435 1,237 13,763 - - 181,718

Hyundai Life 1,805 96 - - 2,041 - - - -

Kia Motor

Company

19,141

-

-

-

7

-

-

-

-

Hyundai Auto

Ever Systems

2,484

-

-

5

19,142

3,633

-

5,597

-

Innocean

Worldwide

740

-

-

-

2,628

-

-

-

-

Others 831 409 565 73 4,191 1,472 3,823 30 -

Total ￦78,520 ￦ 765 ￦12,137 ￦ 11,513 ￦ 29,530 ￦18,870 ￦ 3,823 ￦ 5,627 ￦ 181,718

(3) Receivables and payables (except for borrowings) from the transactions with the related parties as of June

30, 2016, and December 31, 2015, are as follows (Unit: Korean won in millions):

June 30, 2016

Receivables Payables

Card assets Others

Accounts

payable Others

Parent company:

Hyundai Motor Company ￦ 31,817 ￦ 2,133 ￦ 39,900 ￦ -


Hyundai Capital 114,961 550 912 662

Hyundai Life 476 58,449 102 84

Kia Motor Company 13,865 - 12,541 -

Hyundai Auto Ever Systems 4,929 - 3,649 -

Innocean Worldwide 254 - 3,492 -

Others 22,499 - 1,200 506

Total ￦ 188,801 ￦ 61,132 ￦ 61,796 ￦ 1,252

December 31, 2015

Receivables Payables

Card assets Others

Accounts

payable Others

Parent company:

Hyundai Motor Company ￦ 46,492 ￦ 2,153 ￦ 39,143 ￦ -


Hyundai Capital 111,407 423 1,038 248

Hyundai Life 1,564 59,597 139 101

Kia Motor Company 21,925 - 10,666 -

Hyundai Auto Ever Systems 5,223 - 4,017 -

Innocean Worldwide 360 - 5,639 -

Others 29,633 - 5,785 424

Total ￦ 216,604 ￦ 62,173 ￦ 66,427 ￦ 773

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(4) Compensation for key management for the six months ended June 30, 2016 and 2015, is as follows (Unit:



2016 2015

Short-term employee benefit

￦ 4,544 ￦ 6,374

Retirement benefit

959 982

Other long-term employee benefit - 7

Total ￦ 5,503 ￦ 7,363

(5) There were no borrowing transactions with the related parties for the six months ended June 30, 2016 and

2015.

(6) There were no lending transactions with the related parties for the six months ended June 30, 2016 and

2015.

(7) As of June 30, 2016, there are no payment guarantees and collaterals that the Consolidated Entity has

provided for the related parties to finance and no payment guarantees and collaterals that the Consolidated

Entity has been provided from the related parties.

26. TRANSFERS OF FINANCIAL ASSETS:

The Consolidated Entity transferred receivables to Privia 4th SPC, Privia 5th SPC, Super Series 1st and Super

Series 2nd SPC (hereafter, “SPC”) in order to securitize assets. SPC issued subordinate asset-backed securities

with transferred receivables as underlying asset, and as the Consolidated Entity is providing credit

reinforcement by acquiring such subordinate asset-backed securities, should any bad debt incur in receivables

being the underlying asset, the risk preferentially belongs to the Consolidated Entity. SPC has recourse to

drawer only with regard to the receivables transferred; even after transfer of receivables, the Consolidated

Entity owns majority of risks and indemnity for such asset.

Transferred financial assets that are not derecognized in their entirety and the associated liabilities as of June

30, 2016, and December 31, 2015, are as follows (Unit: Korean won in millions):

June 30,

2016

December 31,

2015

Securitized card assets

Book value of assets ￦ 3,345,342 ￦ 2,896,759

Book value of relevant liabilities 1,399,162 1,103,302

Liabilities that have recourse only to the transferred financial assets:

Fair value of assets 3,836,386 3,279,507

Fair value of relevant liabilities 1,408,036 1,110,368

Net position ￦ 2,428,350 ￦ 2,169,139

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27. NETTING ON FINANCIAL ASSETS AND LIABILITIES:

Derivative assets and derivative liabilities recognized by the Consolidated Entity can be set off in accordance

with the future events described in derivative master netting agreements.

The effects of netting agreements as of June 30, 2016, and December 31, 2015, are as follows (Unit: Korean

won in millions):

June 30, 2016

Non-offsetting amount

Recognized

financial

assets and

liabilities

Offsetting

amount from

recognized

financial assets

and liabilities

Net amount

in the condensed

consolidated

statement of

financial

position

Financial

instruments

Cash

collateral

received Net amount

Financial assets:

Derivative assets ￦ 30,841 ￦ - ￦ 30,841 ￦ 2,952 ￦ - ￦ 27,889

Financial liabilities:

Derivative liabilities 21,551 - 21,551 2,952 - 18,599

December 31, 2015

Non-offsetting amount

Recognized

financial

assets and

liabilities

Offsetting

amount from

recognized

financial assets

and liabilities

Net amount

in the condensed

consolidated

statement of

financial position

Financial

instruments

Cash

collateral

received Net amount

Financial assets:

Derivative assets ￦ 39,584 ￦ - ￦ 39,584 ￦ 21 ￦ - ￦ 39,563


Derivative liabilities 17,744 - 17,744 21 - 17,723

28. FINANCIAL ASSETS AND LIABILITIES:

(1) The fair values of financial assets and liabilities as of June 30, 2016, and December 31, 2015, are as


June 30, 2016 December 31, 2015

Book value Fair value Book value Fair value

Assets:

Financial assets:

Cash and deposits ￦ 679,433 ￦ 679,433 ￦ 538,767 ￦ 538,767

Investment financial assets 806,105 806,105 461,695 461,695

Card assets 11,254,359 12,731,530 11,406,587 12,693,621

Other financial assets 203,864 203,864 214,031 214,031

Total ￦ 12,943,761 ￦ 14,420,932 ￦ 12,621,080 ￦ 13,908,114

Liabilities:


Borrowings ￦ 1,015,000 ￦ 1,017,641 ￦ 590,000 ￦ 590,070

Debentures 8,329,927 8,506,423 8,527,884 8,702,292

Other financial liabilities 1,242,580 1,242,580 1,246,644 1,246,644

Total ￦ 10,587,507 ￦ 10,766,644 ￦ 10,364,528 ￦ 10,539,006

The Consolidated Entity’s valuation techniques and relevant policies with regard to the fair value are the same

as those used for the previous period.

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(2) Fair value hierarchy

All financial instruments at fair value are categorized into three fair value hierarchy levels. The method of

categorizing fair value hierarchy levels is the same as the one used for the previous period.

The table below provides the Consolidated Entity’s financial assets and liabilities recorded at fair value in the

condensed consolidated statement of financial position as of June 30, 2016, and December 31, 2015 (Unit:


June 30, 2016

Fair value hierarchy

Book value Fair value Level 1 Level 2 Level 3

Financial assets:

Trading securities ￦ 804,338 ￦ 804,338 ￦ - ￦ 804,338 ￦ -

Derivative assets 30,841 30,841 - 30,841 -


Derivative liabilities 21,551 21,551 - 21,551 -

December 31, 2015

Fair value hierarchy

Book value Fair value Level 1 Level 2 Level 3

Financial assets:

Trading securities ￦ 459,928 ￦ 459,928 ￦ - ￦ 459,928 ￦ -

Derivative assets 39,584 39,584 - 39,584 -


Derivative liabilities 17,744 17,744 - 17,744 -

The table below provides the Consolidated Entity’s financial assets and financial liabilities that are carried at

cost as the fair values of the financial instruments are not readily determinable in the condensed consolidated

statement of financial position as of June 30, 2016, and December 31, 2015 (Unit: Korean won in millions):

Description June 30, 2016 December 31, 2015

Investment financial assets:

AFS securities (*1) Unlisted equity securities ￦ 1,767 ￦ 1,767

(*1) AFS securities are recorded at cost as they do not have quoted prices in an active market and the fair

values are not reliably measured.

(3) The Consolidated Entity recognizes the transfers on the date of the event of change in circumstances that

caused the transfers.

(4) The following table explains valuation techniques and input variables used in Level 2 or Level 3 fair value

measurement. The valuation techniques and input variables of the financial assets and liabilities, which are

measured at amortized cost, are as follows:

Description Classification

Fair Value

(In millions of Korean won)

Current/Prior

Fair

Value

Hierarchy

Valuation Techniques

Notable

Unobservable

Inputs and

Extent

Card assets Assets ￦12,731,530 ￦12,693,621 Level 3 Discounted Cash Flow (“DCF”)

model is used to determine the

fair value of card assets. The fair

value is determined by

discounting the expected cash

flows with the market interest rate

considering the Consolidated

Entity’s credit grade.

Market rate of

profit, credit

spread,

liquidity

premium, other

spread and

discount rate

per creditors

- 22 -

Description Classification

Fair Value

(In millions of Korean won)

Current/Prior

Fair

Value

Hierarchy

Valuation Techniques

Notable

Unobservable

Inputs and

Extent

Leasehold

deposits

provided

Assets 33,030 32,467 Level 2 DCF model is used to determine

the fair value of lease deposits

provided. The fair value is

determined by discounting the

expected cash flows with the

market interest rate considering

the Consolidated Entity’s credit

grade.

N/A

Trading

securities

Assets 804,338 459,928 Level 2 DCF model is used to determine

the fair value of trading securities.

The fair value is determined by



considering the similar credit

grade with the debt security

issuer.

N/A

Borrowings Liabilities 9,524,064 9,292,362 Level 2 DCF model is used to determine

the fair value of borrowings. The

fair value is determined by



considering the Consolidated

Entity’s credit grade.

N/A

Leasehold

deposits

received

Liabilities 10,040 9,081 Level 2 DCF model is used to determine

the fair value of lease deposits

received. The fair value is

determined by discounting the

expected cash flows with the

market interest rate considering

the Consolidated Entity’s credit

grade.

N/A

Interest rate

swap

Assets - 21 Level 2 Discount rates and forward rates

used to measure fair values of

interest rate swap are determined

based on the applicable

constructed market-based yield

curve. The fair value is

determined by offsetting the

discounted expected cash flows of

interest rate swap with the

aforementioned forward rates.

N/A

Liabilities 18,598 17,744

Currency

swaps

Assets 30,841 39,563 Level 2 Discount rates and forward rates

used to measure fair values of

currency swaps are determined

based on the applicable

constructed market-based yield

curve. The trading base rate in the

morning of the report date is used

as currency swap’s exchange rate.

The fair value is determined by

offsetting the discounted expected

cash flows of currency swap with

the aforementioned forward rates

and closing price.

N/A

Liabilities 2,952 -

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(5) Changes in financial assets and liabilities classified as Level 3 that are measured at fair value for the six

months ended June 30, 2016, and December 31, 2015, are as follows:

June 30, 2016

Begin

ning Gains/

Losses

Other

Comprehensive

Income (Loss) Purchases/

Issues Sales/

Settlements To/From Level 3

Ending

Financial instruments:

Derivative assets ￦ -

￦ -

￦ -

￦ -

￦ -

￦ -

￦ -

December 31, 2015

Begin

ning Gains/

Losses

Other

Comprehensive

Income (Loss) Purchases/

Issues Sales/

Settlements To/From Level 3

Ending

Financial instruments:

Derivative assets ￦80

￦ -

￦ -

￦ -

￦ (80)

￦ -

￦ -

(6) There are no significant changes in business or economic environment, which affect fair values of financial

assets and liabilities held by the Consolidated Entity as of June 30, 2016.

29. FINANCIAL RISK MANAGEMENT:

The Consolidated Entity is exposed to credit, liquidity and market risks (exchange and rate risks). In order to

manage these factors, the Consolidated Entity operates risk management policies and programs that monitor

closely and respond to each of the risk factors. The Consolidated Entity uses derivatives to manage market

risks.

There was no significant change in the Consolidated Entity’s risk management division and policies after

December 31, 2015.

30. CAPITAL MANAGEMENT:

The Company (specialized credit finance company) must maintain adjusted capital adequacy ratio in

accordance with Specialized Credit Financial Business Law and subregulations, and the ratio for the credit card

company must be more than 8%.

This ratio is calculated dividing adjusted capital by adjusted total assets, and all factors are based on separate

financial statements.

The Company maintains an adjusted capital adequacy ratio of more than 8%.

Details of adjusted capital adequacy ratio as of June 30, 2016, and December 31, 2015, are as follows (Unit:


June 30, 2016 December 31, 2015

Adjusted total assets (A) ￦ 12,492,701 ￦ 12,107,908

Adjusted total capital (B) 2,186,903 2,060,972

Adjusted capital adequacy ratio (B/A) 17.51% 17.02%

Hyundai card 2016_2_q_consolidated_final

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