Hci con audit_report_2012_final

Hyundai Commercial, Inc. and
Subsidiaries
Consolidated Financial Statements
December 31, 2012 and 2011

Hyundai Commercial, Inc. and Subsidiaries
Index

Report of Independent Auditors .........................................................................................................1-2

Consolidated Financial Statements

Consolidated Statements of Financial Position......................................................................................3-5

Consolidated Statements of Comprehensive Income............................................................................6-7

Consolidated Statements of Changes in Equity ................................................................................... 8-9

Consolidated Statements of Cash Flows ................................................................................................10

Notes to the Consolidated Financial Statements ...............................................................................11-62

Report of Independent Auditors

To the Shareholders and Board of Directors of
Hyundai Commercial, Inc.

We have audited the accompanying consolidated statements of financial position of Hyundai
Commercial, Inc. (the ”Company”) and its subsidiaries as of December 31, 2012 and 2011,
and the related statements of comprehensive income, changes in equity and cash flows for
the years then ended, expressed in Korean won. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements, referred to above, present fairly, in all
material respects, the financial position of Hyundai Commercial, Inc. and its subsidiaries as of
December 31, 2012 and 2011, and their financial performance and cash flows for the years
then ended, in conformity with International Financial Reporting Standards as adopted by the
Republic of Korea (“Korean IFRS”).

1

Auditing standards and their application in practice vary among countries. The procedures and
practices used in the Republic of Korea to audit such financial statements may differ from
those generally accepted and applied in other countries. Accordingly, this report is for use by
those who are informed about Korean auditing standards and their application in practice.

Seoul, Korea
March 19, 2013

This report is effective as of March 19, 2013, the audit report date. Certain subsequent
events or circumstances, which may occur between the audit report date and the time of
reading this report, could have a material impact on the accompanying consolidated
financial statements and notes thereto. Accordingly, the readers of the audit report should
understand that there is a possibility that the above audit report may have to be revised to
reflect the impact of such subsequent events or circumstances, if any.

2

Consolidated Statements of Financial Position

(In Korean won)
Notes 2012 2011
Assets
Cash and deposits
Cash and cash equivalents 24 282,825,795,422 276,009,118,714
Deposits 3 9,000,000 9,000,000
282,834,795,422 276,018,118,714
Securities 4
Available-for-sale securities 26,984,327,193 26,848,232,720
Investments in associates 285,401,945,483 147,539,965,125
312,386,272,676 174,388,197,845

Loans receivable 5,6
Factoring 108,000,000 575,109,250
Allowance for doubtful accounts (270,108) (3,163,206)
Loans 2,800,613,129,940 2,408,864,450,819
Allowance for doubtful accounts (19,258,899,976) (18,165,997,032)
2,781,461,959,856 2,391,270,399,831

Installment financial assets 5,6
Auto installment financing receivables 333,721,265,726 402,435,731,643
Allowances for doubtful accounts (2,351,089,917) (2,700,210,858)
Durable goods installment financing
receivables 25,624,608,935 68,855,356,831
Allowances for doubtful accounts (176,228,378) (475,143,590)
356,818,556,366 468,115,734,026

Lease receivables 5,6
Finance lease receivables 9 131,329,553,468 84,053,398,124

Property and equipment 10
Vehicles 69,799,497 114,731,133
Fixtures and furniture 2,701,927,277 2,382,936,140
Others 410,999,664 410,999,664
3,182,726,438 2,908,666,937

3


Notes 2012 2011
Other assets
Intangible assets 11 3,453,010,248 3,072,304,012
Non-trade receivables 15,919,893,264 29,912,441,707
Allowance for doubtful accounts (106,582,840) (218,049,341)
Accrued revenues 16,979,241,639 18,075,550,289
Allowance for doubtful accounts (120,891,875) (112,338,978)
Advance payments 1,157,855,722 635,365,367
Prepaid expenses 3,258,141,295 3,383,242,667
Leasehold deposits 11,083,913,915 9,963,176,364
Derivative assets 17 137,774,538 1,369,008,885
Others 3,885,995,860 3,885,995,860
55,648,351,766 69,966,696,832
Total assets 3,923,662,215,992 3,466,721,212,309

Liabilities and Equity
Borrowings
Borrowings 12 723,883,961,368 725,523,723,026
Debentures 13 2,428,295,638,414 1,937,737,884,950
Securitized debts 14 309,637,147,861 359,361,741,945
3,461,816,747,643 3,022,623,349,921
Other liabilities
Non-trade payables 15,199,624,950 7,907,799,257
Accrued expenses 27,995,752,026 26,857,795,596
Unearned revenue 4,660,074,481 4,869,902,233
Advances 245,291,834 231,248,416
Withholdings 3,470,180,556 3,073,415,790
Accrued income taxes 9,539,343,812 14,047,411,098
Defined benefit liability 15 2,056,215,563 2,232,465,895
Leasehold deposits received 33,014,098,305 16,493,405,207
Deferred income tax liabilities 16 20,052,096,124 16,336,206,889
Derivative liabilities 17 7,505,990,273 2,691,394,681
123,738,667,924 94,741,045,062
Total liabilities 3,585,555,415,567 3,117,364,394,983

4


Notes 2012 2011
Equity
Capital stock 1,18
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 18
Paid-in capital in excess of par value 74,608,059,537 74,608,059,537

Accumulated other comprehensive
23
income and expenses
Gain(loss) on valuation of derivatives (1,914,821,981) (1,082,947,513)
Gain(loss) on valuation of available-
713,160,297 6,047,837,848
for-sale securities
Accumulated comprehensive
income(expense) of equity method 3,811,298,060 (1,702,584,378)
investee
2,609,636,376 3,262,305,957
Retained earnings 18 135,869,284,512 146,466,631,832
Non-controlling interests 19,820,000 19,820,000
Total equity 338,106,800,425 349,356,817,326
Total liabilities and equity 3,923,662,215,992 3,466,721,212,309

The accompanying notes are an integral part of these consolidated financial statements.
5

Consolidated Statements of Comprehensive Income
Years Ended December 31, 2012 and 2011

(In Korean won)

Notes 2012 2011
Operating revenue
Interest income ￦ 11,194,567,834 ￦ 6,385,667,020
Income on loans 272,663,892,191 241,502,294,832
Income on installment financial
42,262,441,366 59,443,408,359
receivables
Income on leases 7,957,875,306 5,075,932,880
Gain on disposal of loans 6,163,108,697 3,068,122,478
Gain on foreign transactions
Gain on foreign currency transactions - 3,348,000,000
Gain on foreign exchanges translation 4,521,000,000 -
4,521,000,000 3,348,000,000
Dividend income 250,000,000 300,000,000
Other operating income
Gain on valuation of derivatives - 1,950,000,000
Gain on disposal of securities - 1,638,531,160
Others 1,678,784,874 1,238,686,585
1,678,784,874 4,827,217,745
Total operating revenue 346,691,670,268 323,950,643,314

Operating expenses
Interest expenses 163,476,708,039 148,412,645,722
Bad debts expense 6 21,565,121,705 19,453,710,768
Loss on disposal of loans 3,302,529,161 1,530,676,971
Loss on foreign transactions
Loss on foreign currency transactions - 1,962
Loss on foreign exchange translation - 1,950,000,000
- 1,950,001,962

General and administrative expenses 21 66,024,037,995 59,362,164,162

Other operating expenses
Loss on valuation of derivatives 4,948,370,220 65,894,204
Loss on derivatives transactions - 3,348,000,000
Others 4,566,451,085 1,608,626,717
9,514,821,305 5,022,520,921
Total operating expenses 263,883,218,205 235,731,720,506

Operating income 82,808,452,063 88,218,922,808

6

Consolidated Statements of Comprehensive Income

(In Korean won)
Notes 2012 2011
Non-operating income 2
Gain on equity method valuation 4 ￦ 10,609,149,548 ￦ 13,220,845,753
Gain on disposal of property and
2,856,483 4,346,390
equipment
Miscellaneous income 659,947,262 409,288,746
11,271,953,293 13,634,480,889
Non-operating expenses 2
Loss on equity method valuation 4 18,716,248,681 -
Loss on disposal of property and
113,850,242 50,146,430
equipment
Impairment loss on other investment
- 1,433,570,560
assets
Contribution 50,000,000 250,186,484
Miscellaneous losses 534,359,600 -
Other non-operating expenses 8,582,824,000 -
27,997,282,523 1,733,903,474

Income before income taxes 66,083,122,833 100,119,500,223

Income tax expense 16 22,435,670,215 26,366,919,900

Net income ￦ 43,647,452,618 ￦ 73,752,580,323

Net income attributable to:
Owners of the parent 43,647,452,618 73,752,580,323
Non-controlling interests - -
43,647,452,618 73,752,580,323
Other comprehensive income,
23
net of income taxes
Gain(Loss) on valuation of derivatives (831,874,468) 579,611,987
Gain(Loss) on valuation of available-for-
(5,334,677,551) 3,867,781,032
sale financial securities
Other comprehensive income of equity
5,513,882,438 (322,805,606)
method investees
Actuarial losses (729,564,515) (392,526,703)
(1,382,234,096) 3,732,060,710

Total comprehensive income ￦ 42,265,218,522 ￦ 77,484,641,033

Total comprehensive income
attributable to:
Owners of the parent 42,265,218,522 77,484,641,033
Non-controlling interests - -
42,265,218,522 77,484,641,033

Earnings per share attributable to the 22
ordinary equity holders of the
company
Basic earnings per share ￦ 1,882 ￦ 3,388
Diluted earnings per share 1,746 3,388


7

Consolidated Statements of Changes in Equity

Accumulated
(In Korean won) other Total attributable Non-
comprehensive
income and to owners of the controlling
Capital stock Capital surplus expenses Retained earnings parent interests Total equity
Balances as of January 1,
2011 100,000,000,000 - (862,281,456) 81,470,127,594 180,607,846,138 9,910,000 180,617,756,138
Net income - - - 73,752,580,323 73,752,580,323 - 73,752,580,323
Other comprehensive income
Gain(loss) on valuation of
- - 579,611,987 - 579,611,987 - 579,611,987
derivatives
- - 3,867,781,032 - 3,867,781,032 - 3,867,781,032
available-for-sale securities
Other comprehensive
income(expense) of equity - - (322,805,606) 1,636,450,618 1,313,645,012 - 1,313,645,012
method investees
Actuarial losses - - - (392,526,703) (392,526,703) - (392,526,703)

Total comprehensive income - - 4,124,587,413 74,996,504,238 79,121,091,651 - 79,121,091,651

Transactions with owners
Capital increase(preferred stock) 25,000,000,000 74,608,059,537 - - 99, 608,059,537 - 99, 608,059,537
Establishment of special
- - - - - 9,910,000 9,910,000
purpose entity
Year-end dividends - - - (10,000,000,000) (10,000,000,000) - (10,000,000,000)
Total transactions with owners 25,000,000,000 74,608,059,537 - (10,000,000,000) 89,608,059,537 9,910,000 89,617,969,537
Balances as of December 31,
125,000,000,000 74,608,059,537 3,262,305,957 146,466,631,832 349,336,997,326 19,820,000 349,356,817,326
2011

8

Consolidated Statements of Changes in Equity

Accumulated
(In Korean won) other Total attributable Non-
comprehensive
income and to owners of the controlling
Capital stock Capital surplus expenses Retained earnings parent interests Total equity
Balances as of January 1,
2012 125,000,000,000 74,608,059,537 3,262,305,957 146,466,631,832 349,336,997,326 19,820,000 349,356,817,326
Net income - - - 43,647,452,618 43,647,452,618 - 43,647,452,618
Other comprehensive income
- - (831,874,468) - (831,874,468) - (831,874,468)
derivatives
- - (5,334,677,551) - (5,334,677,551) - (5,334,677,551)
available-for-sale securities
Other comprehensive
income(expense) of equity - - 5,513,882,438 1,484,764,577 6,998,647,015 - 6,998,647,015
method investees
Actuarial losses - - - (729,564,515) (729,564,515) (729,564,515)

Total comprehensive income - - (652,669,581) 44,402,652,680 43,749,983,099 - 43,749,983,099

Transactions with owners
Year-end dividends - - - (30,000,000,000) (30,000,000,000) - (30,000,000,000)
Interim dividends - - - (25,000,000,000) (25,000,000,000) - (25,000,000,000)
Total transactions with owners - - - (55,000,000,000) (55,000,000,000) - (55,000,000,000)
Balances as of December 31,
2012 125,000,000,000 74,608,059,537 2,609,636,376 135,869,284,512 338,086,980,425 19,820,000 338,106,800,425


9

Consolidated Statements of Cash Flows

(In Korean won)
2012 2011
Cash flows from operating activities
Cash generated from operations (Note 24) (62,299,924,616) (298,750,493,285)
Interest received 9,681,332,266 5,225,913,229
Interest paid (158,384,342,272) (143,239,155,283)
Dividends received 250,000,000 300,000,000
Income taxes paid (21,083,558,210) (15,721,051,020)
Net cash used in operating activities (231,836,492,832) (452,184,786,359)

Cash flows from investing activities
Disposal of available-for-sale securities - 6,293,531,160
Acquisition of available-for-sale securities (6,302,089,113) (9,229,761,600)
Acquisition of investments in associates (138,913,060,000) -
Disposal of vehicles 63,107,858 27,020,000
Acquisition of vehicles (76,172,300) (79,715,188)
Disposal of fixtures and furniture 1,360,000 -
Acquisition of fixtures and furniture (1,418,127,063) (1,591,801,249)
Acquisition of intangible assets (1,030,108,684) (926,643,626)
Decrease in leasehold deposits 1,106,291,200 -
Increase in leasehold deposits (2,005,013,700) (2,993,535,000)
Decrease in deposits - 2,500,000
Net cash used in investing activities (148,573,811,802) (8,498,405,503)

Cash flows from financing activities
Proceeds from borrowings 757,578,850,000 989,336,265,307
Repayments of borrowings (759,218,611,658) (1,031,967,542,281)
Issuance of debentures 1,128,866,743,000 740,644,889,400
Repayments of debentures (635,000,000,000) (310,334,000,000)
Issuance of securitized debts - 199,456,325,600
Repayments of securitized debts (50,000,000,000) (40,000,000,000)
Cash inflows of transactions with subsidiaries - 9,910,000
Payments of dividends (55,000,000,000) (10,000,000,000)
Capital increase through preferred stock issuance - 99,608,059,537
Net cash generated from financing activities 387,226,981,342 636,753,907,563

Net increase in cash and cash equivalents 6,816,676,708 176,070,715,701

Cash and cash equivalents(Note 24)
Beginning of year 276,009,118,714 99,938,403,013
End of year 282,825,795,422 276,009,118,714


10

Notes to the Consolidated Financial Statements

1. General Information

Hyundai Commercial, Inc. (the “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 Company’s operations are
headquartered in Yeouido, Seoul. Its shareholders of common stock are as follows:

2012 2011
Shareholders
Ownership Ownership
Hyundai Motor Company 50.00% 50.00%
Myung-yi Chung 33.33% 33.33%
Tae-young Chung 16.67% 16.67%
Total 100.00% 100.00%

2. Summary of Significant Accounting Policies

The consolidated financial statements have been prepared and presented which included the
accounts of Hyundai Commercial, Inc., as the parent company according to the Korean IFRS
1027, and Commercial Auto First SPC(trust) and another subsidiary(collectively the “Group”), while
Hyundai Card Co., Ltd. and Hyundai Life Insurance Co., Ltd. are accounted for under the equity
method.

Subsidiaries as of December 31, 2012 and 2011 are as follows. The Company has the substantial
power over the subsidiaries established as special purpose entities for asset securitization even
though its ownership interests over the subsidiaries do not exceed 50%.

2012 2011
Commercial Auto First SPC(trust) Commercial Auto First SPC(trust)
Special Purpose
Commercial Auto Second Commercial Auto Second
Entities
SPC(trust) SPC(trust)

The Group’s financial statements for the annual period beginning on January 1, 2011, have been
prepared in accordance with Korean IFRS. These are the standards and related interpretations
issued by the International Accounting Standards Board ("IASB") that have been adopted by the
Republic of Korea.

The preparation of financial statements requires the use of certain critical accounting estimates. It
also requires management to exercise judgment in the process of applying the Group’s accounting
policies. The areas involving a higher degree of judgment or complexity, or areas where
assumptions and estimates are significant to the consolidated financial statements are disclosed in
Note 2.3.

The Group has adopted the method of calculating operating income retroactively in accordance

11


with amendment of Korean IFRS 1001, Presentation of financial statements, and the related
consolidated statements of comprehensive income was rewritten with reflecting changed facts as
Korean IFRS 1001 has been adopted.

Effects on change of the Group’s accounting policies for the years ended December 31, 2012 and
2011, are as follows:

(In thousands of
Korean won, except
earnings per share) 2012 2011
1 1
Before Effect After Before Effect After

Operating income
2
81,810,559 35,407 81,845,966 86,380,810 1,320,268 87,701,078
2
Net income 42,917,888 - 42,917,888 73,360,054 - 73,360,054
2
Earnings per share 1,846 1,846 3,368 3,368

1
The amounts of effect previously classified as operating income(loss) before amendment of Korean IFRS
1001, and excluded from operating income(loss) after amendment of Korean IFRS 1001 are as follows:
Type 2012 2011
Non-operating income
Gain on disposal of property and
2,856 4,346
equipment
Miscellaneous income 659,947 409,289
662,803 413,635
Non-operating income
Loss on disposal of property and
113,850 50,146
equipment
Impairment loss on other investment
- 1,433,571
assets
Contribution 50,000 -
Miscellaneous loss 534,360 250,186
698,210 1,733,903
2
The amendments to Korean IFRS 1019 are not applied.

The amendments to K-IFRS 1019, Employee Benefits were early adopted in 2012. The approach
for the recognition of actuarial gains and losses has changed and the effects on financial
statements are as follows. The Group has recognized the effects incurred from the amendments
retroactively.
The consolidated statement of comprehensive income for year ended December 31, 2011, has
been restated to reflect all the changes comparatively.

(In thousands of
Korean won) 2012 2011
Before Effect After Before Effect After

Operating income
1
81,845,966 962,486 82,808,452 87,701,078 517,845 88,218,923
1
Income tax expense 22,202,749 232,921 22,435,670 26,241,601 125,319 26,366,920

12

1
Net income 42,917,888 729,565 43,647,453 73,360,054 392,526 73,752,580
Retained earnings 135,869,285 - 135,869,285 146,466,632 - 146,466,632
1
The amendments to Korean IFRS 1001, Presentation of financial statements, are applied.

New standards, amendments and interpretations issued but not effective for the financial year
beginning January 1, 2012, and not early adopted by the Group are as follows:

- Amendment of Korean IFRS 1001, Presentation of financial statements

Korean IFRS 1001, Presentation of financial statements, was amended to require the other
comprehensive income items to be presented into two groups on the basis of whether they are
potentially reclassificable to profit or loss subsequently. An entity shall apply those amendments
for annual periods beginning on or after July 1, 2012. Earlier application is permitted. The Group
expects the application of the above amended Korean IFRS requirement would not have a
material impact on its consolidated financial statements.

- Enactment of Korean IFRS 1113, Fair value measurement

Korean IFRS 1113, Fair value measurement, aims to improve consistency and reduce complexity
by providing a precise definition of fair value and a single source of fair value measurement and
disclosure requirements for use across Korean IFRS. Korean IFRS1113 does not extend the use
of fair value accounting but provides guidance on how it should be applied where its use is already
required or permitted by other standards within Korean IFRS. This amendment will be effective for
the Group as of January 1, 2013, and the Group is assessing the impact of application of the
amended Korean IFRS 1113 on its consolidated financial statements.

- Enactment of Korean IFRS 1110, Consolidated Financial Statements

Korean IFRS 1110, Consolidated Financial Statements, builds on existing principles by identifying
the concept of control as the determining factor in whether an entity should be included in the
consolidated financial statements of the Parent Company. An investor controls an investee when it
is exposed, or has 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 standard provides additional
guidance to assist in the determination of control where this is difficult to assess. This enactment
will be effective for annual periods beginning on or after January 1, 2013, and the Group is
reviewing the impact of this standard.

- Enactment of Korean IFRS 1112, Disclosures of Interests in Other Entities

Korean IFRS 1112, Disclosures of Interests in Other Entities, provides the disclosure requirements
for all forms of interests in other entities, including a subsidiary, a joint arrangement, an associate,
a consolidated structured entity and an unconsolidated structured entity. This enactment will be
effective for annual periods beginning on or after January 1, 2013, and the Group is reviewing the
impact of this standard.

13


The following is a summary of significant accounting policies followed by the Group in the
preparation of its consolidated financial statements. These policies have been consistently applied
to all the periods presented, unless otherwise stated.

2.1 Consolidation

a. Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Company has the
power to govern the financial and operating policies generally accompanying a shareholding of
more than one-half of the voting rights. The existence and effect of potential voting rights that are
currently exercisable or convertible are considered when assessing whether the Company controls
another entity. The Group also assesses existence of control where it does not have more than 50%
of the voting power but is able to govern the financial and operating policies by virtue of de-facto
control. De-facto control may arise in circumstances where the size of the Group’s voting rights
relative to the size and dispersion of holdings of other shareholders give the Group the power to
govern the financial and operating policies and others. Subsidiaries are fully consolidated from the
date on which control is transferred to the Company. They are de-consolidated from the date that
control ceases.

The Group uses the acquisition method to account for business combinations. The consideration
transferred is measured as the fair values of the assets transferred, equity interests issued and
liabilities incurred or assumed at the acquisition date. Acquisition-related costs are expensed as
incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date. On an acquisition-by-
acquisition basis, the Group recognizes any non-controlling interest in the acquiree at the non-
controlling interest’s proportionate share of the acquiree’s net assets.
The excess of the consideration transferred and the amount of any non-controlling interest in the
acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the
fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this
is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain
purchase, the difference is recognized directly in the statement of comprehensive income.

Intercompany transactions, balances and unrealized gains on transactions between Group
companies are eliminated.

b. Special purpose entities

The Group established several SPEs for the purpose of asset-backed securitization, but owns none
of the shares directly or indirectly. The Group consolidates the SPEs when the risks, rewards and
substance of the relationship indicated that the Group consolidates the SPEs. SPEs controlled by
the Group are created with conditions that impose strict limits on the decision-making power over
the operations therefore the Group obtains all benefits from the SPEs’ operation and net assets,
and that the Group may be exposed to risks incident to the activities of the SPEs or the Group
retains the majority of the residual or ownership risks related to the SPEs’ assets.

14


c. Transactions with non-controlling interests

The Group treats transactions with non-controlling interests as transactions with equity owners of
the Group. For purchases from non-controlling interests, the difference between any consideration
paid and the relevant share acquired of the carrying value of net assets of the subsidiary is
recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in
equity.

d. Associates

Associates are all entities over which the Group has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights. Investments in
associates are accounted for using the equity method of accounting and are initially recognized at
cost. The Group’s investment in associates includes goodwill identified on acquisition, net of any
accumulated impairment loss.

The Group’s share of its associates’ post-acquisition profits or losses is recognized in the income
statement, and its share of post-acquisition movements in other comprehensive income is
recognized in other comprehensive income. The cumulative post-acquisition movements are
adjusted against the carrying amount of the investment. When the Group’s share of losses in an
associate equals or exceeds its interest in the associate, including any other unsecured
receivables, the Group does not recognize further losses, unless it has incurred obligations or made
payments on behalf of the associate.

Unrealized gains on transactions between the Group and its associates are eliminated to the extent
of the Group’s interest in the associates. Unrealized losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred. Accounting policies of
associates have been changed where necessary to ensure consistency with the policies adopted by
the Group.

2.2 Foreign currency translation

a. Functional and presentation 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.

b. Transactions and balances

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

15


currencies are recognized in the income statement, except when deferred in other comprehensive
income as qualifying cash flow hedges.

2.3 Critical accounting estimates and assumptions

Estimates and judgments are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the
circumstances. The resulting accounting estimates will, by definition, seldom equal the related
actual results. The estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year are
addressed below.

a. Allowance for doubtful accounts

The Group presents the allowance for doubtful accounts calculated based on the best estimates
that are necessary to reflect the impairment incurred at each reporting date. Allowance for doubtful
accounts is recognized as individual and collective units considering the financial circumstances of
customers, net realizable value, credit quality, size of portfolio, concentrativeness, economic factors
and others. According to the change in these factors, the allowance for doubtful accounts will be
changed in a future period.

b. Fair value of financial instruments

Fair value of financial assets and liabilities is based on quoted market prices, exchange-broker
prices of financial instruments traded in an active market. If there is no quoted price for a financial
instrument, the Group establishes fair value by using valuation techniques and advanced self-
valuation techniques.

Valuation techniques include the Discount Cash Flow method using variables observable in market,
comparison method with similar instruments that have observable market transactions, and option
pricing model. For more complicated financial instruments, the Group uses advanced self-valuation
techniques. Parts of or all the variables used in this valuation technique may not be observable in
market, or may be derived from quoted prices and market ratio, or may be measured based on
specific assumption.

At initial recognition if the difference between the fair value of valuation technique and transaction
price occurs, then the transaction price as the best estimate of fair value is recognized as fair value.
This fair value difference presents in profit immediately on any available observable market data
according to individual factors and changes of environment.

c. Defined benefit liability

The present value of the defined benefit liability depends on a number of factors that are
determined on an actuarial basis using a number of assumptions. The assumptions used in
determining the net cost (income) for pensions include the discount rate. Any changes in these

16


assumptions will impact the carrying amount of the defined benefit liability. The Group determines
the appropriate discount rate at the end of each year. This is the interest rate that is used to
determine the present value of estimated future cash outflows expected to be required to settle the
defined benefit liability. In determining the appropriate discount rate, the Group considers the
interest rates of high-quality corporate bonds that are denominated in the currency in which the
pension benefits will be paid, and that have terms to maturity approximating to the terms of the
related pension liability. Other key assumptions for defined benefit liability are based in part on
current market conditions. Additional information is disclosed in Note 2.16.

2.4 Revenue recognition

The Group recognizes capital lent to customers as loans receivable. While 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 receivable, 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.

2.5 Statements of cash flows

The Group prepares statements of cash flows using indirect method.

2.6 Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-
term highly liquid investments with original maturities of three months or less.

2.7 Financial assets

a. Classification

The Group classifies its financial assets as financial assets at fair value through profit or loss, loans
and receivables and available-for-sale financial assets. Management determines the classification
of its financial assets at initial recognition.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial
asset is classified in this category if acquired principally for the purpose of selling in the short term.
Derivatives are also categorized as held for trading unless they are designated as hedges.
Meanwhile, the Group has no financial asset at fair value through profit or loss other than financial
assets held for trading.

17


Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or
not classified in any of the other categories.

b. Recognition and measurement

Regular purchases and sales of financial assets are recognized on the trade-date. Investments are
initially recognized at fair value plus transaction costs for all financial assets not carried at fair value
through profit or loss. Financial assets carried at fair value through profit or loss are initially
recognized at fair value, and transaction costs are expensed in the income statement. Available-for-
sale financial assets and financial assets at fair value through profit or loss are subsequently carried
at fair value. Loans and receivables are subsequently carried at amortized cost using the effective
interest method.

Changes in the fair value of financial assets at fair value through profit or loss are recognized in
income statement as gain or loss. When securities classified as available-for-sale are sold or
impaired, the accumulated fair value adjustments recognized in equity are transferred to the income
statement as gain or loss on disposal of securities. Interest on available-for-sale securities
calculated using the effective interest method is recognized in the income statement as part of
interest income. Dividends on available-for sale equity instruments are recognized in the income
statement as dividend income when the Group’s right to receive payments is established.

c. Derecognition of financial assets

A financial asset is derecognized only if the contractual rights on cash flow of the financial asset
terminate or all the risks and rewards of ownership of the financial asset are substantially
transferred.

If the Group transfers substantially all the risks and rewards of ownership of the financial asset, the
Group shall derecognize the financial asset and recognize separately as assets or liabilities any
rights and obligations created or retained in the transfer. If the Group retains substantially all the
risks and rewards of ownership of the financial asset, the Group shall continue to recognize the
financial asset.

d. Impairment of financial assets

(1) Assets carried at amortized cost

18


The Group assesses at the end of each reporting period whether there is objective evidence that a
financial asset is impaired. Impairment losses are incurred only if there is objective evidence of
impairment and that loss event has an impact on the estimated future cash flows of the financial
asset. The amount of the loss is measured as the difference between the asset’s carrying amount
and the present value of estimated future cash flows discounted at the financial asset’s original
effective interest rate.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, the reversal of the
previously recognized impairment loss is recognized in the income statement.

(2) Available-for-sale financial assets

The Group assesses at the end of each reporting period whether there is objective evidence that a
financial asset or a group of financial assets is impaired. For equity securities classified as
available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is
also evidence that the assets are impaired. If any such evidence exists for available-for-sale
financial assets, the difference between carrying amount and current fair value is recognized in
profit or loss. Impairment losses recognized in profit or loss for an investment in an equity
instrument classified as available for sale are not be 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.

2.8 Deferral of loan origination fee and loan origination cost

Loan origination fee, which is a 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.

2.9 Allowances for financial receivables

a. Calculation of allowances 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 accounts consists of impairments related to individually
material financial receivables and allowances of 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

19


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 emergency period, and management’s decision
about the current economy and credit circumstances. 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.

b. 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.

2.10 Leases

a. Classification

The Group classifies leases based on the extent to which risks and rewards incidental to ownership
of a leased asset lie with the lessor or the lessee.

The lease arrangement classified as a financial lease is where: ①the lease transfers ownership of
the asset to the lessee by the end of the lease term, ②the lessee has the option to purchase the
asset at a 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, ③the lease term is for the major part of the economic life of the asset even if the title
is not transferred, ④at the inception of the lease the present value of the minimum lease payments
amounts to at least substantially all of the fair value of the leased asset, or ⑤the leased assets are
of such a specialized 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 obligations under the guarantee.

b. Finance leases

Where the Group has substantially all the risks and rewards of ownership, leases 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 reclassified 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 negotiating and arranging a lease. Each lease payment is

20


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.

2.11 Property and equipment

Property and equipment are stated at historical cost less accumulated depreciation and
accumulated impairment losses. Historical cost includes expenditure that is directly attributable to
the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or
recognized as a separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably.

Depreciation method and estimated useful lives used by the Group are as follows:

Depreciation Method Useful life
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 asset’s carrying amount is greater than its estimated recoverable amount. Gains and
losses on disposals are determined by comparing the proceeds with the carrying amount and are
recognized within other operating income (expenses) in the consolidated statements of
comprehensive income.

2.12 Intangible assets

Intangible assets are stated at cost, which includes acquisition cost and directly related costs
required to prepare the asset for its intended use. Intangible assets are stated net of accumulated
amortization calculated based on using the following amortization method and estimated useful
lives:

Amortization Method Useful life
Development costs Straight-line 5 years
Software Straight-line 4 years
Other intangible assets Straight-line 5 years

2.13 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

21


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 an 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 reviewed for possible reversal of the
impairment at each reporting date.

2.14 Financial Liabilities

(a) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss are financial instruments held for trading.
Financial liabilities are classified as financial liabilities at fair value through profit or loss when
incurred principally for the purpose of repurchasing it in the near term. Derivatives or embedded
derivatives are also categorized as this category unless they are designated as hedges.

(b) Financial liabilities carried at amortized cost

The Group classifies non-derivative financial liabilities, except for financial liabilities at fair value
through profit or loss and financial liabilities that arise when a transfer of a financial asset does not
qualify for derecognition, as financial liabilities carried at amortized cost and as ‘trade payables’,
‘borrowings’, and ‘other financial liabilities’ in the statement of financial position. In case when a
transfer of a financial asset does not qualify for derecognition, the transferred asset is continuously
recognized as asset and the consideration received is recognized as financial liabilities.

2.15 Financial Guarantee Contract

Financial guarantee contracts are contracts that require the issuer to make specified payments to
reimburse the holder for a loss it incurs because a specified debtor fails to make payments when
due, in accordance with the terms of a debt instrument.

Financial guarantees are initially recognized in the financial statements at fair value on the date the
guarantee was given. Subsequent to initial recognition, the Group’s liabilities under such
guarantees are measured at the higher of the amounts below. Any increase in the liability relating
to guarantees is reported as other financial liabilities.

- The amount calculated in accordance with Korean IFRS 1037, Provisions, Contingent
Liabilities and Contingent Assets; or
- The initial amount, less accumulated amortization recognized in accordance with Korean
IFRS 1018, Revenue.

2.16 Pension obligations

The Group operates a defined benefit 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

22


obligation at the end of the 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.

2.17 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 financial
statements. Where there are a number of similar obligations, the likelihood that an outflow will be
required in settlement is determined by considering the class of obligations as a whole. A provision
is recognized even if the likelihood of an outflow with respect to any one item included in the same
class of obligations may be small.

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 expenditures expected to be required to settle the obligation.

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 financial statements.

2.18 Derivative financial instruments

The Group has applied hedging policies using derivatives to deal with the risk of changes in foreign
currency exchange rates and interest rates arising from liabilities. The Group has contracted
currency swap and interest swap derivative financial instruments to deal with the risk of changes in
foreign currency exchange rates arising from foreign currency liabilities and the risk of changes in
interest rates arising from floating-rate liabilities.

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and
are subsequently re-measured at their fair value. The method of recognizing the resulting gain or
loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature
of the item being hedged. The Group applies cash flow hedge, which are hedges of a particular risk
associated with a recognized asset or liability or a highly probable forecast transaction.

23


The Group documents at the inception of the transaction the relationship between hedging
instruments and hedged items, as well as its risk management objectives and strategy for
undertaking various hedging transactions to apply hedging accounting. The Group also documents
its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that
are used in hedging transactions are highly effective in offsetting changes in fair values or cash
flows of hedged items.

The effective portion of changes in the fair value of derivatives that are designated and qualify as
cash flow hedges is recognized in other comprehensive income and profits and losses reclassified
from equity. The gain or loss relating to the ineffective portion is recognized immediately in profits
or losses. The cumulative gain or loss that was reported in equity is recognized when the hedged
items affect profits and losses. When applying hedging accounting, the relative profits or losses are
reclassified to interest expenses and gain or loss on foreign exchange translation.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and
is recognized when the forecast transaction is ultimately recognized in the income statement. When
a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported
in equity is immediately transferred to profits or losses.

2.19 Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the income
statement, except to the extent that it relates to items recognized in other comprehensive income or
directly in equity. In this case, the tax is also recognized in other comprehensive income or directly
in equity.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the statement of financial position date in the countries where the Group operates and
generates taxable income. Management periodically evaluates positions taken in tax returns with
respect to situations in which applicable tax regulation is subject to interpretation. It establishes
provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

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.

24


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.

2.20 Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the
Group by the weighted average number of ordinary shares in issue during the period excluding
ordinary shares purchased by the Group and held as treasury shares.

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. Only dilutive
potential ordinary shares are dilutive, they are added to the number of ordinary shares outstanding
in the calculation of diluted earnings per share.

2.21 Dividend Distribution

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

2.22 Approval of Issuance of the Financial Statements

The issuance of the December 31, 2012 consolidated financial statements of the Group was
approved by the Board of Directors on February 28, 2013.

3. Restricted Financial Instruments

Restricted financial instruments are as follows:

(in thousands of Korean won)

Type Entities 2012 2011 Restriction
Kookmin Bank Maintaining deposits for
Deposits 9,000 9,000
and 2 others checking account

25


4. Securities

Securities are as follows:

Type 2012 2011
Available-for-sale securities
Marketable equity
10,650,000 18,200,000
Equity securities
securities Unlisted equity
5,607,645 3,083,604
securities
16,257,645 21,283,604
Debt securities 10,726,682 5,564,629
26,984,327 26,848,233
Investments in associates 285,401,945 147,539,965
312,386,272 174,388,198


Available-for-sale securities are as follows:


Book Value
Number of Ownership Acquisition
2012 2011
shares (%) cost
Marketable equity securities
JNK Heaters Co., Ltd. 1,000,000 12.5 10,126,881 10,650,000 18,200,000
Unlisted equity securities
1
Leehan Corp. 136,000 12.3 3,199,762 3,304,936 3,082,984
Anyang KDC Project Corp. 389,999 15.0 2,293,275 2,293,275 -
Anyang KDC Asset
1,499 15.0 8,814 8,814 -
Management Corp.
Isung Eng, Corp. 24 - 620 620 620
5,502,471 5,607,645 3,083,604
Debt securities
2
Leehan Corp. - - 5,469,801 6,726,682 5,564,629
Commercial Auto Third SPC - - 4,000,000 4,000,000 -
9,469,801 10,726,682 5,564,629
25,099,153 26,984,327 26,848,233

1
The fair value of the securities of Leehan Corp. is the valuation price provided by an external appraiser,
Korea Asset Pricing. The external appraisers valuated the fair value as the average of valuation prices
using the discounted cash flow model and the imputed market value model.
2
The debt security is a convertible bond issued by Leehan Corp. The fair value of the convertible bond for
Leehan Corp. is the valuation price provided by an external appraiser, Korea Asset Pricing. The difference

26


between the fair value of convertible bond and the book value of normal bond by effective interest rate is
recognized in the gain or loss on valuation of debt securities, and the fluctuation of conversion right and
advanced redemption right is recognized in the gain or loss on embedded derivatives.

Investments in associates

Investments in associates are as follows:

2012
Number of Ownership Acquisition Net asset
Book value
shares (%) cost value
Hyundai Card
1 8,889,622 5.54 113,820,162 121,460,539 158,386,190
Co., Ltd.
Hyundai Life
Insurance 10,685,620 39.07 138,913,060 102,391,658 127,015,755
Co., Ltd.
252,733,222 223,852,197 285,401,945


2011
Number of Ownership Acquisition Net asset
Book value
shares (%) cost value
Hyundai Card
1 8,889,622 5.54 113,820,162 110,613,215 147,539,965
Co., Ltd.

1
The Group’s shareholding in Hyundai Card Co., Ltd. is less than 20%. However, the Group is able to
participate in the management and significantly influence the financial and operating processes. Thus, the
equity method is applied.

Valuations of equity method investment are as follows:

2012
Changes in
accumulated Changes in
Beginning Gain (loss) Ending
Acquisition other retained
Balance on valuation Balance
comprehen- earnings
1
sive income
Hyundai Card
147,539,965 - 10,609,150 237,075 - 158,386,190
Co., Ltd.
Hyundai Life
Insurance - 138,913,060 (18,716,249) 5,334,179 1,484,765 127,015,755
Co., Ltd.
147,539,965 138,913,060 (8,107,099) 5,571,254 1,484,765 285,401,945

27


2011
Changes in
accumulated Changes in
Beginning Gain (loss) on
other retained Others Ending Balance
Balance valuation
comprehen- earnings
1
sive income
Hyundai Card
133,160,973 13,220,846 (477,206) 1,636,450 (1,098) 147,539,965
Co., Ltd.
1
Tax effects are not deducted.

Summary of financial information of investees follows:


2012
Closing Operating Net income
Assets Liabilities
month revenue (loss)
Hyundai Card
December 11,252,488,244 9,060,021,557 2,524,941,896 191,504,230
Co., Ltd.
Hyundai Life
Insurance March 3,824,606,629 3,562,563,039 885,330,384 (6,045,704)
1
Co., Ltd.
1
Hyundai Life Insurance Co., Ltd. is a corporation with fiscal year ending on March 31. But its assets and
liabilities above are as of December 31, 2012, and the results of its operations are for the nine-month period
ended December 31, 2012. The recognition of deemed cost was on February 29, 2012.

2011
Closing Operating
Assets Liabilities Net income
month revenue
Hyundai Card
December 10,851,933,716 8,855,250,685 2,407,597,301 238,647,582
Co., Ltd.

5. Financial Receivables

Financial receivables are as follows:

2012
Deferred loan
Allowance for
origination Present value
Principal doubtful Book value
fees and discounts
accounts
costs
Loans receivable
Factoring
108,000 - - (270) 107,730
Receivables
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

28


Lease receivables
Finance lease
132,355,777 687 - (1,026,911) 131,329,553
receivables
3,254,191,898 38,432,183 (200,613) (22,813,399) 3,269,610,069

2011
Deferred loan
Allowance for
origination Present value
Principal doubtful Book value
fees and discounts
accounts
costs
Loans receivable
Factoring
575,109 - - (3,163) 571,946
Receivables
Loans 2,390,384,894 18,629,791 (150,234) (18,165,997) 2,390,698,454

2,390,960,003 18,629,791 (150,234) (18,169,160) 2,391,270,400

Installment financial assets
Auto 402,751,465 (315,733) - (2,700,211) 399,735,521
Durable goods 69,532,615 (677,259) - (475,143) 68,380,213
472,284,080 (992,992) - (3,175,354) 468,115,734
Lease receivables
Finance lease
84,693,337 (19,542) - (620,397) 84,053,398
receivables
2,947,937,420 17,617,257 (150,234) (21,964,911) 2,943,439,532

6. Allowance for Doubtful Accounts

Changes in allowance for doubtful accounts for the years ended December 31, 2012 and 2011, are
as follows:

2012
Loans Installment Lease
Other assets Total
receivable financial assets receivables
Beginning balance 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
772,833 86,527 - - 859,360
previously written off
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)
19,616,120 1,611,238 440,677 (102,913) 21,565,122
allowance
Ending balance 19,259,170 2,527,318 1,026,911 227,475 23,040,874

29


2011
Loans Installment Lease
Other assets Total
receivable financial assets receivables
Beginning balance 12,795,689 3,609,027 214,613 372,974 16,992,303
Amounts written off (2,091,482) (213,575) - - (2,305,057)
Recoveries of amounts
374,021 12 119,541 - 493,574
previously written off
Disposal of receivables (10,613,501) (1,556,907) (977) - (12,171,385)
Unwinding of discount (151,126) (16,612) (108) - (167,846)
Additional(reversed)
17,855,559 1,353,409 287,328 (42,586) 19,453,710
allowance
Ending balance 18,169,160 3,175,354 620,397 330,388 22,295,299

7. Financial Instruments

The fair values of financial instruments are as follows:

2012 2011
Book value Fair value Book value Fair value
Assets
Financial assets
Cash and deposits 282,834,795 282,834,795 276,018,119 276,018,119
Available-for-sale securities 26,984,327 26,984,327 26,848,233 26,848,233
Loans receivable 2,781,461,960 2,775,937,581 2,391,270,400 2,398,975,565
Installment financial assets 356,818,556 357,631,944 468,115,734 473,294,235
Lease receivables 131,329,553 132,353,718 84,053,398 85,401,075
Derivative assets 137,775 137,775 1,369,009 1,369,009
Non-trade receivables 15,813,310 15,813,310 29,694,392 29,694,392
Accrued revenues 16,858,350 16,858,350 17,963,211 17,963,211
Leasehold deposits 11,083,914 11,201,215 9,963,176 9,861,028
3,623,322,540 3,619,753,015 3,305,295,672 3,319,424,867
Liabilities
Financial liabilities
Borrowings 723,883,961 730,188,793 725,523,723 730,010,502
Debentures 2,428,295,638 2,494,275,095 1,937,737,885 1,983,599,328
Securitized debts 309,637,148 319,737,569 359,361,742 367,266,231
Derivative liabilities 7,505,990 7,505,990 2,691,395 2,691,395
Non-trade payables 15,199,625 15,199,625 7,907,799 7,907,799
Accrued expenses 27,995,752 27,995,752 26,857,796 26,857,796
1
Withholdings 3,045,893 3,045,893 2,731,628 2,731,628
Leasehold deposits received 33,014,098 33,618,900 16,493,405 16,677,090
3,548,578,105 3,631,567,617 3,079,305,373 3,137,741,769
1
Excluding taxes.

30


The fair value hierarchy of financial assets and liabilities carried at fair value are as follows:


2012
1
Book Fair Fair value hierarchy
Type
value value level 1 level 2 level 3
Financial assets
Available-for-sale
26,984,327 26,984,327 10,650,000 - 16,334,327
securities
Derivative assets 137,775 137,775 - 137,775 -
27,122,102 27,122,102 10,650,000 137,775 16,334,327
Derivative liabilities 7,505,990 7,505,990 - 7,505,990 -

1
The levels of fair value hierarchy have been defined as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities. Listed stocks and derivatives
Level 2: Inputs for the asset or liability included within valuation techniques that are observable market
data. 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 are not based on observable market data. Unlisted stocks,
complicated structured bonds, complicated unlisted derivatives and others.


2011
1
Book Fair Fair value hierarchy
Type
value value level 1 level 2 level 3
Financial assets
Available-for-sale
26,848,233 26,848,233 18,200,000 - 8,648,233
securities
Derivative assets 1,369,009 1,369,009 - 1,369,009 -
28,217,242 28,217,242 18,200,000 1,369,009 8,648,233
Derivative liabilities 2,691,395 2,691,395 - 2,691,395 -

31


The changes in financial instruments of level 3 for the years ended December 31, 2012 and 2011,
are as follows:


2012 2011
Beginning balance 8,648,233 17,657,945
Acquisition 6,302,089 8,670,183
Interest revenues 871,838 72,492
Gain on valuation
512,167 (1,579,387)
(Other comprehensive income)
Disposal - (4,655,000)
1
Reclassification - (11,518,000)
Ending balance 16,334,327 8,648,233

1
The fair value hierarchy of the available-for-sale securities has been reclassified from level 3 to level 1 as
JNK Heaters Co., Ltd. was listed during the previous period.

The book values of financial instruments by categories are as follows:

2012
Financial
Hedging
assets at fair Loans and Available-for-sale
derivative Total
value through receivables financial assets
instruments
profit or loss
Financial assets
Cash and deposits - 282,834,795 - - 282,834,795
Available-for- sale
- - 26,984,327 - 26,984,327
securities
Loans receivable - 2,781,461,960 - - 2,781,461,960
Installment
- 356,818,556 - - 356,818,556
financial assets
Lease receivables - 131,329,553 - - 131,329,553
Derivative assets 74,423 - - 63,352 137,775
Non-trade
- 15,813,310 - - 15,813,310
receivables
Accrued revenues - 16,858,350 - - 16,858,350
Leasehold
- 11,083,914 - - 11,083,914
deposits
74,423 3,596,200,438 26,984,327 63,352 3,623,322,540

32


2011
Financial
Hedging
assets at fair Loans and Available-for-sale
derivative Total
value through receivables financial assets
instruments
profit or loss
Financial assets
Cash and deposits - 276,018,119 - - 276,018,119
Available-for- sale
- - 26,848,233 - 26,848,233
securities
Loans receivable - 2,391,270,400 - - 2,391,270,400
Installment
- 468,115,734 - - 468,115,734
financial assets
Lease receivables - 84,053,398 - - 84,053,398
Derivative assets 501,793 - - 867,216 1,369,009
Non-trade
- 29,694,392 - - 29,694,392
receivables
Accrued revenues - 17,963,211 - - 17,963,211
Leasehold
- 9,963,176 - - 9,963,176
deposits
501,793 3,277,078,430 26,848,233 867,216 3,305,295,672

2012
Financial liabilities Hedging derivative
Total
at amortized cost instruments
Borrowings 723,883,961 - 723,883,961
Debentures 2,428,295,638 - 2,428,295,638
Securitized debts 309,637,148 - 309,637,148
Derivative
- 7,505,990 7,505,990
liabilities
Non-trade 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

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

33


2011
Financial liabilities Hedging derivative
Total
at amortized cost instruments
Borrowings 725,523,723 - 725,523,723
Debentures 1,937,737,885 - 1,937,737,885
Securitized debts 359,361,742 - 359,361,742
Derivative
- 2,691,395 2,691,395
liabilities
Non-trade payables 7,907,799 - 7,907,799
Accrued expenses 26,857,796 - 26,857,796
Withholdings 2,731,628 - 2,731,628
Leasehold deposits received 16,493,405 - 16,493,405

3,076,613,978 2,691,395 3,079,305,373

8. Transfer of financial assets

The financial assets that are not entirely derecognized are as follows:

The Group issued senior and subordinated asset-backed securities based on loans and the
associated securitized debts and has recourse only to the transferred assets.

Details of financial assets transferred and not derecognized as of December 31, 2012 and 2011,
are as follows:

Type 2012 2011
Book value of assets
Loans receivable 539,978,100 463,531,752
Installment assets 35,652,795 96,910,381
575,630,895 560,442,133
Book value of related liabilities 309,637,148 359,361,742

Liabilities having right of resource on transferred assets :
Fair value of assets 574,639,694 563,007,792
Fair value of related liabilities (319,737,569) (367,266,231)
Net position 254,902,125 195,741,561

The financial assets that are entirely derecognized are as follows:

The Group derecognized loans receivable from the consolidated financial statements by transferring
them for 101,598,233 thousand to Commercial Auto Third SPC(Trustee Bank : Citibank Korea, Inc.)
on December 18, 2012. The gains related to the transaction amounted to 2,450,829 thousand.

34


Meanwhile, the Group has continuing involvement in the transferred asset after taking over debt
securities issued by Commercial Auto Third SPC.

Details of continuing involvement are as follows:

Book value of
Maximum
Continuing involvement
exposure to loss
Acquisition on debt
4,000,000 4,000,000
securities

9. Finance Lease Receivables

Details of total lease investments and present value of minimum lease receipts are as follows:

2012 2011
Present value Present value
Type Total lease of minimum Total lease of minimum
investments lease investments lease
receipts receipts
Less than 1 year 55,614,516 48,968,100 38,319,151 33,136,156
1 to 5 years 88,188,405 83,388,364 55,204,893 51,537,639
143,802,921 132,356,464 93,524,044 84,673,795

Details of unearned interest income are as follows:

Type 2012 2011
Total lease investments 143,802,921 93,524,044
Net lease investments
Minimum lease receipts (present value) 132,356,464 84,673,795
Unguaranteed residual value(present value) - -
132,356,464 84,673,795
Unearned interest income 11,446,457 8,850,249

35


10. Property and Equipment

Property and equipment consist of:

2012
Type Acquisition Accumulated
Book value
cost depreciation
Vehicles 235,096 (165,297) 69,799
Fixtures and furniture 7,965,357 (5,263,430) 2,701,927
Others 411,000 - 411,000
8,611,453 (5,428,727) 3,182,726

2011
Type Acquisition Accumulated
Book value
cost depreciation
Vehicles 238,639 (123,908) 114,731
Fixtures and furniture 7,065,590 (4,682,654) 2,382,936
Others 411,000 - 411,000
7,715,229 (4,806,562) 2,908,667

Changes in property and equipment for the years ended December 31, 2012 and 2011, are as
follows:

2012
Beginning Ending
Acquisition Disposal Depreciation
balance balance
Vehicles 114,731 76,172 (61,447) (59,657) 69,799
Fixtures and
2,382,936 1,418,127 (114,015) (985,121) 2,701,927
furniture
Others 411,000 - - - 411,000
2,908,667 1,494,299 (175,462) (1,044,778) 3,182,726

2011
Beginning Ending
Acquisition Disposal Depreciation
balance balance
Vehicles 119,066 79,715 (22,673) (61,377) 114,731
Fixtures and
1,986,277 1,591,801 (50,146) (1,144,996) 2,382,936
furniture
Others 411,000 - - - 411,000
2,516,343 1,671,516 (72,819) (1,206,373) 2,908,667

36


As of December 31, 2012, the Group carries comprehensive property insurance with Hyundai
Marine and Fire Insurance for its fixtures and furniture, and other tangible assets for up to
￦ 4,008,254 thousand (2011: 2,196,426 thousand), vehicle insurance for its vehicles, and
group accident insurance, travel insurance and business damage insurance for its employees. And
the Group carries comprehensive property insurance with Hyundai Marine and Fire Insurance for
its machine tool installment financial assets and lease assets for up to ￦ 92,452,845 thousand
(2011: 74,430,948 thousand) thousand.

11. Intangible Assets

Intangible assets consist of:

2012
Acquisition Accumulated Book
cost depreciation value
Development costs 2,847,793 (869,745) 1,978,048
Software 6,422,131 (4,947,389) 1,474,742
Other intangible assets 25,851 (25,631) 220
9,295,775 (5,842,765) 3,453,010

2011
Acquisition Accumulated Book
cost depreciation value
Development costs 2,153,280 (390,261) 1,763,019
Software 5,637,719 (4,331,112) 1,306,607
Other intangible assets 25,851 (23,173) 2,678
7,816,850 (4,744,546) 3,072,304

Changes in intangible assets for the years ended December 31, 2012 and 2011, are as follows:

2012
1
Beginning balance Increase Amortization Ending balance
Development costs 1,763,019 694,513 (479,484) 1,978,048
Software 1,306,607 784,411 (616,276) 1,474,742
Other intangible assets 2,678 - (2,458) 220
3,072,304 1,478,924 (1,098,218) 3,453,010
1
Inclusive of transfer from advance payments.

37


2011
1
Beginning balance Increase Amortization Ending balance
Development costs 841,359 1,263,403 (341,743) 1,763,019
Software 1,632,196 677,297 (1,002,886) 1,306,607
Other intangible assets 7,848 - (5,170) 2,678
2,481,403 1,940,700 (1,349,799) 3,072,304

12. Borrowings

Borrowings consist of:

Annual
Lender 2012 2011
interest rate (%)
Borrowings in won
SK Securities
Commercial paper 2.91 ~ 4.17 210,000,000 140,000,000
and 7 others
Woori Bank and
General loans 3.22 ~ 5.80 513,883,961 585,523,723
8 others
723,883,961 725,523,723

13. Debentures

Debentures issued by the Group and outstanding are as follows:

Annual 2012 2011
interest
rates (%) Par value Issue price Par value Issue price
Current portion of debenture
Debenture 3.05 ~ 6.00 847,488,500 847,488,500 635,000,000 635,000,000
Less: Discount on
- (313,409) - (253,677)
debentures
847,488,500 847,175,091 635,000,000 634,746,323
Non-current portion of debenture
Debenture 3.10 ~ 8.00 1,582,704,000 1,582,704,000 1,304,713,500 1,304,713,500
Less: Discount on
- (1,583,453) - (1,721,938)
debentures
1,582,704,000 1,581,120,547 1,304,713,500 1,302,991,562
2,430,192,500 2,428,295,638 1,939,713,500 1,937,737,885

38


14. Securitized debts

The amounts of securitized debts which are secured by loans and installment financial assets in
accordance with Asset Backed Securitization Act are as follows:

Annual 2012 2011
interest
rates (%) Par value Issue price Par value Issue price
Current portion of securitized debts
Securitized debts 4.78 ~ 4.92 50,000,000 50,000,000 50,000,000 50,000,000
Less: Discount on
- (33,752) - (62,214)
securitized debts
50,000,000 49,966,248 50,000,000 49,937,786
Non-current portion of securitized debts
Securitized debts 4.76 ~ 5.43 260,000,000 260,000,000 310,000,000 310,000,000
Less: Discount on
- (329,100) - (576,044)
securitized debts
260,000,000 259,670,900 310,000,000 309,423,956
310,000,000 309,637,148 360,000,000 359,361,742

15. Defined Benefit Liability

The amounts of defined benefit plans recognized in the statements of financial position are as follows:

2012 2011
Present value of funded obligations 10,602,378 7,596,812
Fair value of plan assets (8,546,162) (5,364,346)
Defined benefit liability 2,056,216 2,232,466

Changes in present value of defined benefit obligations for the years ended December 31, 2012 and
2011:

2012 2011
Current service cost 2,065,107 1,785,154
Interest cost 312,346 277,272
Actuarial losses 966,673 513,811
Transfer of severance benefits from
1,301,233 452,920
related parties
Transfer of severance benefits to related
(1,230,543) (522,962)
parties
Benefits paid (409,250) (403,041)

39


Ending balance 10,602,378 7,596,812

Changes in the fair value of plan assets for the years ended December 31, 2012 and 2011:

2012 2011
Expected return on plan assets 220,433 148,352
Actuarial gains/(losses) 4,187 (4,034)
Transfer of severance benefits from
600,148 386,412
related parties
Transfer of severance benefits to
(294,075) (487,862)
related parties
Contributions by plan participants 3,000,000 1,800,000
Benefits paid (348,877) (291,005)
Ending balance 8,546,162 5,364,346

Details of the amounts recognized in the income statement for the years ended December 31,
2012 and 2011:

2012 2011
Current service cost 2,065,107 1,785,154
Interest cost 312,346 277,272
Expected return on plan assets (220,433) (148,352)
2,157,020 1,914,074

Actual return on plan assets for the years ended December 31, 2012 and 2011:

2012 2011
Actual return on plan assets 224,620 144,318

Details of plan assets consist of :

2012 2011
Amount Ratio(%) Amount Ratio(%)
Cash 26,399 0.31 821,162 15.30
Deposits¹ 5,061,344 59.22 2,165,895 40.38
Interest rate guaranteed asset
3,458,419 40.47 2,377,289 44.32
for 1-year
8,546,162 100.00 5,364,346 100.00
¹ As of December 31, 2012, contribution to the National Pension Fund of 5,321 thousand is included

40


( December 31, 2011 : 5,321 thousand).

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

2012 2011
Discount rate 3.43% 4.28%
Expected return on plan assets 2.79% 3.97%
Future salary increases 5.60% 5.65%

Assumptions regarding future mortality experience are set based on actuarial advice published by
Korea Insurance Development Institute.

Adjustments for the differences

Adjustments for the differences between initial assumptions and actual figures for the years ended
December 31, 2012 and 2011, are as follows :

2012 2011
Defined benefit obligations 483,119 207,271
Plan assets (4,187) 4,034

41


16. Income Tax

Income tax expense for the years ended December 31, 2012 and 2011, consists of:

2012 2011
Current tax 16,380,716 19,643,160
Changes in deferred tax assets(liabilities) 3,715,889 7,863,920
Deferred tax credited directly to equity 2,144,291 (1,140,160)
Supplementary pay of corporation tax 194,774 -
Income tax 22,435,670 26,366,920

Deferred tax credited directly to equity

2012 2011
Gain(loss) on valuation of derivatives 265,585 (185,048)
Gain(loss) on valuation of available-for-
1,703,156 (1,234,832)
sale financial securities
Accumulated comprehensive
income(expense) of equity method (57,372) 154,401
investees
Actuarial losses 232,922 125,319
2,144,291 (1,140,160)

Reconciliation between income before income tax and income tax expense :

2012 2011
Profit before tax 66,083,123 100,119,500
Current tax 15,530,117 23,766,919
Adjustments:
Income not subject to tax 83,818 -
Expenses not deductible for tax
- 1,382,045
purposes
Unrecognized deferred tax 6,415,522 -
Supplementary payment of corporate
194,774 -
tax
Others 211,439 1,217,956
Income tax 22,435,670 26,366,920
Effective tax rate
34.0% 26.3%
(Income tax over net income before tax)

42


Changes in temporary differences and deferred assets (liabilities)

2012
Temporary differences Deferred assets (liabilities)
Type
Beginning Changes Ending Beginning Ending
Deferred loan origination
(35,993,974) (10,203,343) (46,197,317) (8,710,542) (11,179,751)
fees and costs
Allowances for doubtful (1,451,636) 1,451,636 - (351,296) -
accounts
Investments in (33,719,804) 9,633,904 (24,085,900) (8,160,192) (10,784,979)
associates
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 (7,992,763) 6,107,588 (1,885,175) (1,934,249) (456,212)
securities
Others 4,243,223 (1,622,180) 2,621,043 1,026,860 634,293

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

2011
Temporary differences Deferred assets (liabilities)
Type
Beginning Changes Ending Beginning Ending
Deferred loan origination
(32,402,378) (3,591,596) (35,993,974) (6,963,514) (8,710,542)
fees and costs
Allowances for doubtful (9,058,852) 7,607,216 (1,451,636) (2,192,242) (351,296)
accounts
Investments in (19,472,745) (14,247,059) (33,719,804) (3,845,072) (8,160,192)
associates
Derivatives 2,193,350 (764,531) 1,428,819 530,790 345,774
Goodwill 8,913,333 (7,640,000) 1,273,333 2,157,027 308,147

Accrued expenses 5,284,115 (576,300) 4,707,815 1,278,756 1,139,291
Available-for-sale (2,876,064) (5,116,699) (7,992,763) (696,007) (1,934,249)
securities
Others 5,446,886 (1,203,663) 4,243,223 1,257,975 1,026,860

(41,972,355) (25,532,632) (67,504,987) (8,472,287) (16,336,207)

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.

As of December 31, 2012, the Group did not recognize deferred income tax assets of
27,299,073 thousand related to temporary differences in investments in associates which may
not be realized (2011: nil).

43


17. 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 derivatives assets of 74,423
thousand as of December 31, 2012 (2011: 501,793 thousand), and net losses on trading
derivatives of 427,370 thousand during the year ended December 31, 2012 (2011 : 58,406
thousand).

Derivatives designated as cash flow hedges as of December 31, 2012 and 2011, are as follows:
(in millions of Korean won)
2012 2011
Type Other Other
Assets Liabilities comprehen- Assets Liabilities comprehen-
sive income sive income
Interest rate
63,352 2,084,383 (1,531,844) - 241,837 (899,733)
swaps
Currency swaps - 5,421,607 (382,978) 867,216 2,449,558 (183,215)
63,352 7,505,990 (1,914,822) 867,216 2,691,395 (1,082,948)

The amount recognized as other comprehensive income, representing the effective portion related
to cash flow hedge, is (-)831,874 thousand for the year ended December 31, 2012, and the
reclassified amount from other comprehensive income to profit or loss is 751,792 thousand
(before tax). There is no amount recognized as other comprehensive income, representing the
ineffective portion related to cash flow hedge, for the year ended December 31, 2012.

18. Equity

Capital stock

The Company is authorized to issue 80,000,000 shares(5,000 per share). The capital stock of
the Company consists of 20,000,000 shares of common stock and 5,000,000 shares of preferred
stock.

Capital stock as of December 31, 2012, is as follows:

Type Common stock Preferred Stock Total
Capital Stock 100,000,000 25,000,000 125,000,000
Paid-in capital in excess of 74,608,060
- 74,608,060
par value

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 seven years from issue date.

44


Legal reserve

The Korean Commercial Law requires the 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.

Discretionary reserve

The Company appropriates a reserve in accordance with Electronic Financial Transactions Act.
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 reserve for bad loans in an amount more
than the difference between the allowance and the requirement. The reserve for bad loans is
discretionary that could be reversed when the appropriated reserve exceeds the amount liable for
the fiscal year. When the Company has unappropriated deficit, the reserve for bad loans is
appropriated only after the unappropriated deficit has been recovered.

Appropriated and expected reserves for bad loans as of December 31, 2012 and 2011, are as
follows:

2012 2011
Appropriated reserve for bad loans 3,357,192 -
Expected reserve for bad loans 11,932,446 3,357,192
15,289,638 3,357,192

Transfer to reserve for bad loans and net income in consideration of effect of changes in reserve
for bad loans for the year ended December 31, 2012, are as follows:


Amounts
Net income 43,647,453
1
Transfer to reserve for bad loans 11,932,446
Net income in consideration of changes in reserve for
2 31,715,007
bad loans
Net income per share in consideration of changes in
3 1,286
reserve for bad loans (In won)

1
Estimated additional accumulated amount.
2
Net income in consideration of changes in reserve for bad loans is not accordance with K-IFRS, and the
amount is the sum of the transfer to reserve for bad loans before income tax and net income.
3
Net income per share in consideration of changes is calculated by subtracting the transfer to reserves bad
loans from the net income for common stock (Note 22).

45


Legal reserve and discretionary reserve are as follows:

2012 2011
Legal reserve Revenue reserve 4,000,000 1,000,000
Reserve for bad loans 3,357,192 -
Discretionary
reserve Reserve for electronic financial
100,000 100,000
transactions
3,457,192 100,000
Unappropriated retained earnings
(Expected reserve for bad loans
128,412,093 145,366,632
December 31, 2012: 11,932,446 thousand
December 31, 2011: 3,357,192 thousand)
135,869,285 146,466,632

The dividend for year 2012 is to be proposed at the annual general meeting on March 20, 2013.
The December 31, 2012 consolidated financial statements do not reflect this dividend payable.
Dividends for fiscal year of 2012 and 2011 are as follows :

2012 2011
Number of shares eligible for 20,000,000 -
dividends
Interim Common
Par value for share (won) 5,000 -
Dividends stock
Dividends rate 25.0% -
Dividends 25,000,000 -
Number of shares eligible for - 20,000,000
dividends
Common
Par value for share (won) - 5,000
stock
Dividends rate - 24.0%
Year-end Dividends - 24,000,000
dividends Number of shares eligible for 5,000,000 5,000,000
dividends
Preferred
Par value for share (won) 5,000 5,000
stock
Dividends rate 24.0% 24.0%
Dividends 6,000,000 6,000,000
Total dividends 31,000,000 30,000,000
Net income 43,647,453 73,752,580
Dividends payout ratio (Dividends/ Net income) 71.0% 40.7%

46


19. Net Interest Income

Net interest income for the years ended December 31, 2012 and 2011, is as follows:


2012 2011
Interest income
Cash and deposits 9,672,871 6,030,227
Installment financial assets 40,624,910 57,700,311
Lease receivables 7,858,325 4,871,923
1
Other 1,521,697 368,205
316,054,758 297,867,359
Interest expenses
Borrowings 35,084,314 37,653,353
Debentures 109,711,708 92,624,733
Securitized debts 17,464,262 17,626,190
1
Other 1,216,424 508,370
163,476,708 148,412,646
Net interest income 152,578,050 149,454,713

1
Amortization of present value discount using the effective interest method.

20. Net Commission Income

Net commission income for the years ended December 31, 2012 and 2011, is as follows:


2012 2011
Commission income
Lease receivables 99,550 204,010
18,024,018 14,552,710
Commission expenses - -
Net Commission Income 18,024,018 14,552,710

47


21. General and Administrative Expenses

General and administrative expenses for the years ended December 31, 2012 and 2011, are as
follows:


2012 2011
Payroll 22,858,689 22,215,849
Severance benefits 2,156,981 1,914,074
Fringe benefits 5,503,659 4,731,682
Outsourcing service charges 4,070,340 3,144,764
Sales commission 12,897,058 11,564,790
Commission 3,310,244 2,402,530
Outsourcing service
2,179,596 1,837,194
commission
Depreciation 1,044,778 1,206,373
Amortization 1,098,218 1,349,799
Taxes and dues 1,852,051 1,724,416
Electronic data processing
2,678,454 1,774,341
expenses
Rent 1,368,111 866,538
Administrative expenses for
1,111,377 944,723
building
Travel and transportation 671,526 562,465
Training expenses 649,914 620,046
Communication 600,760 539,203
Other expenses 1,972,282 1,963,377
66,024,038 59,362,164

22. Earnings Per Share

Basic earnings per share attributable to common stock for the years ended December 31, 2012
and 2011, is as follows:

(In Korean won)

2012 2011
(1) Net income to owners
of the parent 43,647,452,618 73,752,580,323
(2) Dividend on preferred
(6,000,000,000) (6,000,000,000)
stocstock
(3) Net income attributable
to common stock (In 37,647,452,618 67,752,580,323
won)
(4) Weighted average of
number of outstanding 20,000,000 20,000,000
common shares

48


(5) Basic earnings per
share (In won) (3)÷(4) 1,882 3,388

As there was no discontinued operation during the years ended December 31, 2012 and 2011,
basic earnings per share is 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.

(In Korean won)
2012 2011
Profit attributable to ordinary shares 37,647,452,618 67,752,580,323
Dividend on convertible preferred stock 6,000,000,000 6,000,000,000
Profit used to determine diluted earnings per
43,647,452,618 73,752,580,323
share
Weighted average number of ordinary 20,000,000 20,000,000
shares in issue
Adjustments for:
Assumed conversion of convertible
5,000,000 753,425
preferred stock
Weighted average number of ordinary
25,000,000 20,753,425
shares for diluted earnings per share
Diluted earnings per share 1,746 3,554

As convertible preferred stocks do not have an effect of dilution, the diluted earnings per share is
the same as basic earnings per share for year ended December 31, 2011.

49


23. Other Comprehensive Income

Other comprehensive income for the years ended December 31, 2012 and 2011, consists of:


2012
Changes
Beginning Reclassifi- Income tax Ending
balance cation of Other effects balance
profit or changes
loss
Gain(loss) on valuation
(1,082,948) 751,792 (1,849,251) 265,585 (1,914,822)
of derivatives

of available-for-sale 6,047,838 - (7,037,834) 1,703,156 713,160
financial assets
Accumulated
comprehensive
income(expense) of (1,702,584) - 5,571,254 (57,372) 3,811,298
equity method
investees
3,262,306 751,792 (3,315,831) 1,911,369 2,609,636


2011
Changes
Beginning Reclassifi- Income tax Ending
balance cation of Other effects balance
profit or changes
loss
(1,662,560) 1,490,577 (725,917) (185,048) (1,082,948)
of derivatives

of available-for-sale 2,180,057 1,638,531 3,464,082 (1,234,832) 6,047,838
financial assets
Accumulated
comprehensive
income(expense) of (1,379,779) - (477,206) 154,401 (1,702,584)
equity method
investees
(862,282) 3,129,108 2,260,959 (1,265,479) 3,262,306

50


24. Supplemental Cash Flow Information

Cash and cash equivalents in cash flow statements consisting of cash on hand, deposits and
short-term money-market instruments are as follows:


2012 2011
Cash 2,000 2,000
Ordinary deposits 5,374,125 6,005,235
Short-term financial
277,449,670 270,001,884
instruments
282,825,795 276,009,119

Cash generated from operations for the years ended December 31, 2012 and 2011, is as follows:


2012 2011
Net income 43,647,453 73,752,580
Adjustments
Net interest expenses 152,282,140 142,026,979
Dividends (250,000) (300,000)
Income tax 22,435,670 26,366,920
Income on loans 45,145,458 36,273,733
Income on installment financial receivables 4,560,032 (1,970,014)
Income on leases (19,151) (27,153)
Gain on foreign exchange translations (4,521,000) -
Gain on valuation of derivatives - (1,950,000)
Gain on disposal of property and equipment (2,856) (4,347)
Gain on disposal of available-for-sale financial assets - (1,638,531)
Gain on equity method valuation (10,609,150) (13,220,846)
Bad debts expense 21,565,122 19,453,710
Severance benefits 2,157,020 1,914,074
Depreciation 1,044,778 1,206,373
Amortization of intangible assets 1,098,218 1,349,799
Loss on disposal of property and equipment 113,850 50,146
Impairment losses on investments - 1,433,571
Loss on foreign exchange translations - 1,950,000
Loss on valuation of derivatives 4,948,370 65,894
Loss on equity method valuation 18,716,249 -
Other expenses without cash outflow - 1,098
258,664,750 212,981,406
Changes in operating assets and liabilities

51


(Increase) in loans receivable (393,613,160) (619,248,834)
Decrease in installment financing receivables 113,474,729 101,619,447
(Increase) in finance lease receivables (47,691,709) (43,516,916)
(Increase) in deferred loan origination fees and costs (70,337,812) (51,878,621)
(Increase) in present value discounts (1,808,341) (1,447,571)
Increase (Decrease) in allowance for bad debts 501,748 (614,766)
Decrease in non-trade receivables 13,992,548 9,827,508
Decrease (Increase) in accrued revenues 1,087,848 (4,161,011)
(Increase) in advance payments (971,306) (879,050)
Decrease in prepaid expenses 125,101 4,967,617
Increase in non-trade payables 7,291,826 3,561,915
Increase (Decrease) in accrued expenses (1,250,569) 704,615
Increase (Decrease) in unearned revenue (209,828) 1,972,193
Increase in advance receipts 14,043 14,969
Increase in withholdings 396,766 263,555
Payment of severance benefits (409,250) (403,041)
(Increase) in plan assets (2,957,196) (1,407,545)
Transfer of severance benefits from related parties 1,301,232 452,920
Transfer of severance benefits to related parties (1,230,543) (522,962)
Increase in leasehold deposits received 17,681,745 15,211,099
(364,612,128) (585,484,479)
(62,299,925) (298,750,493)

For the year ended December 31, 2012, interest income cash flows from loans receivables,
installment financial assets and lease receivables amount to 305,948,037 thousand ( 2011:
287,307,915 thousand).

Significant investing and financing activities not affecting cash flows for the years ended December
31, 2012 and 2011, are as follows:
2012 2011
Transferred from advance payments to
448,816 1,014,056
development costs
Transferred to legal reserve 3,000,000 1,000,000
Transferred to discretionary reserve 3,357,192 100,000

25. Commitments and Contingencies

Details of unused credit line agreements of the Group are as follows:

Financial
institutions 2012 2011
Limit of Woori Bank and
435 billion 385 billion 225 billion 175 billion
overdraft 10 other banks
Limit of L/C Shinhan Bank - - USD 8 million USD 8 million

52


Details of pending significant litigations involving the Group as of December 31, 2012, are as
follows:

Number of litigations Amount of litigations
Plaintiff 10 345,684
Defendant 4 325,620

As of report date, the outcome of these cases cannot be reasonably determined and no
adjustments are reflected on the consolidated financial statements of the Group as of December
31, 2012.

The Company enters into a financial support agreement with Shinhan Bank for acquisitions of mold
equipment for Hyundai and Kia Motor Company’s component partner companies. The Company
guarantees the loans of the component partner companies. The amount of payment guarantees as of
December 31, 2012, is 1,905,528 thousand (2011: 12,542,306 thousand).

Details of guarantees involving third parties as of December 31, 2012 and 2011, are as follows:

Guarantor Details 2012 2011
Guarantees on machinery installment
Hyundai Wia 23,779,938 63,422,227
financing receivables
Hyundai Motor Guarantees on finance lease
2,824,246 8,877,631
Company receivables
Seoul Guarantee
Deposit guarantee 13,449,276 13,213,256
Insurance Company

26. Related Party Transactions

The parent company is Hyundai Motor Company. Related parties include associates, joint
ventures, post-employment benefit plans, members of key management personnel and entities
which the Group controls directly or indirectly, has joint control or significant influence over them.

Significant transactions, which occurred in the normal course of business with related companies
for the years ended December 31, 2012 and 2011, are as follows:

(in thousands of Korean won) 2012 2011
Purchases Disposal Purchases Disposal
Parent Company 70,236 - 232,568 -
Others 46,996,815 56,994,629 59,572,585 41,115,088
47,067,051 56,994,629 59,805,153 41,115,088

53


Revenues and expenses arising from transactions with related parties for the years ended
December 31, 2012 and 2011, and receivables and payables as of December 31, 2012 and
December 31, 2011, are as follows:

Receivables Payables Receivables Payables
Parent Company 116,435 851,685 209,920 173,830
Associates 4,923,830 11,061,020 3,504,434 2,870,760
Others 8,577,609 186,881 50,065,864 153,128
13,617,874 12,099,586 53,780,218 3,197,718

Revenues Expenses Revenues Expenses
Parent Company 1,966,639 305 3,050,516 8,517
Associates 1,145,603 1,598,892 727,680 699,920
Others 7,881,783 9,361,806 5,940,126 5,137,491
10,994,025 10,961,003 9,718,322 5,845,928

The Company has been provided with guarantees by related parties(Note 25).

Changes in loans to related parties for the years ended December 31, 2012 and 2011, are as
follows:

2012 2011
Other related parties
New loan - 45,000,000
Repayment (45,540,946) (5,492,124)
Interests charges 2,296,772 1,727,405
Interests collected (2,296,772) (1,727,405)
Ending balance 869,510 46,410,456

Compensation for key management for the years ended December 31, 2012 and 2011, consists
of:

2012 2011
Short-term employee benefits 2,355,873 1,430,632
Severance benefits 976,693 745,419

The key management above consists of directors (including nonpermanent directors), who have
significant authority and responsibilities for planning, operating and controlling of the Group.

54


27. Financial Risk Management

The Group is exposed to credit risk, liquidity risk and market risk (exchange and rate risk). In order
to manage these factors, the Group operates risk management policies and programs that monitor
closely and respond to each of the risk factors. The Group uses derivatives to manage specific
risks.

27.1 Credit risk

Exposures to credit risk are as follows:

2012 2011
Cash and deposits 282,832,795 276,016,119
Loans receivable 2,781,461,960 2,391,270,400
Lease receivables 131,329,553 84,053,398
Non-trade receivables 15,813,310 29,694,392
Accrued revenue 16,858,350 17,963,211
Leasehold deposits 11,083,914 9,963,176
Derivative assets 137,775 1,369,009
Payment guarantee agreement 1,905,528 12,542,306
3,598,241,741 3,290,987,745

Credit quality of financial assets exposed to credit risk is as follows:

55


2012 2011
Normal Past due Impaired Normal Past due Impaired
Cash and deposits 282,832,795 - - 276,016,119 - -
Financial receivables
Loans
2,654,370,184 111,212,235 15,879,541 2,307,457,660 79,791,576 4,021,164
receivable
Installment
financial 339,122,981 16,741,779 953,796 450,693,558 16,896,032 526,144
assets
Lease
126,071,530 5,258,023 - 78,449,454 5,603,944 -
receivables
3,119,564,695 133,212,037 16,833,337 2,836,600,672 102,291,552 4,547,308
Non-trade
15,813,310 - - 29,694,392 - -
receivables
Accrued revenue 16,858,350 - - 17,963,211 - -
Leasehold
11,083,914 - - 9,963,176 - -
deposits
Derivative assets 137,775 - - 1,369,009 - -
Unused loan
1,905,528 - - 12,542,306 - -
commitments
3,448,196,367 133,212,037 16,833,337 3,184,148,885 102,291,552 4,547,308

Credit quality according to internal credit rating of financial receivables which are neither past due
nor impaired are as follows:

2012
Gross amount Allowance Book value
First-rate 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
3,134,522,322 (14,957,627) 3,119,564,695
2011
First-rate 286,871,742 (194,844) 286,676,898
Second-rate 1,099,608,490 (1,473,737) 1,098,134,753
Third-rate 936,455,547 (5,663,424) 930,792,123
Fourth-rate 161,475,901 (1,954,387) 159,521,514
Fifth-rate 70,267,989 (2,470,217) 67,797,772
Sixth-rate 38,813,635 (2,584,630) 36,229,005
No rating 258,882,906 (1,434,299) 257,448,607
2,852,376,210 (15,775,538) 2,836,600,672

56


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
credit rating for reason of lacking in research data such as information on new loan accounts of the
current month or requiring additional management.

Financial receivables past due but not impaired are as follows:

2012
Less than Between Between Over
1 Total
1 month 1 ~ 2 months 2~3 months 3 months
Loans
99,058,460 15,125,448 - - 114,183,908
receivable
Installment
13,729,517 2,205,380 359,955 924,195 17,219,047
financial assets
Lease
2,979,899 - - 2,307,262 5,287,161
receivables
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 113,218,184 16,413,322 357,524 3,223,007 133,212,037

1
The Group does not include the receivables provided with guarantees from the related parties in the
receivables which are past due for over three months (Note 25).

2011
Less than Between Between Over
1 Total
1 month 1 ~ 2 months 2~3 months 3 months
Loans
70,092,177 11,795,790 - - 81,887,967
receivable
Installment
14,046,556 2,839,682 244,776 162,441 17,293,455
financial assets
Lease
531,398 6,916 - 5,080,257 5,618,571
receivables
84,670,131 14,642,388 244,776 5,242,698 104,799,993
Allowance (1,890,170) (613,402) (1,653) (3,216) (2,508,441)
Book value 82,779,961 14,028,986 243,123 5,239,482 102,291,552

57


Impaired financial receivables

2012
Loans receivable 19,738,069 (3,858,528) 15,879,541
Installment financial assets 1,472,960 (519,164) 953,796
21,211,029 (4,377,692) 16,833,337

2011
Loans receivable 7,323,987 (3,302,823) 4,021,164
Installment financial assets 904,253 (378,109) 526,144
8,228,240 (3,680,932) 4,547,308

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 are as follows:

1
Cash and deposits 2012 2011
AAA 147,832,795 151,016,119
AA+ 45,000,000 5,000,000
AA 20,000,000 50,000,000
AA- 20,000,000 20,000,000
A+ 50,000,000 50,000,000
282,832,795 276,016,119

1
The average external credit rating of three domestic credit rating agencies is used.

2
Derivative assets 2012 2011
AAA 63,352 -
A- - 867,216
No rating 74,423 501,793
137,775 1,369,009

2
Derivative assets are classified based on S&P credit rating.

58


The assets pledged as collateral for financial receivables are as follows:

2012
Unimpaired
Impaired Total
Delinquent Non-delinquent
Total financial
16,833,337 133,212,037 3,119,564,695 3,269,610,069
receivables
Collateralized assets
Collateralized
9,774,223 113,563,749 2,038,596,606 2,161,934,578
vehicles
Collateralized real
9,464,286 - 186,259,014 195,723,300
estate
19,238,509 113,563,749 2,224,855,620 2,357,657,878

2011
Unimpaired
Impaired Total
Delinquent Non-delinquent
Total financial
4,547,308 102,291,552 2,836,600,672 2,943,439,532
receivables
Collateralized assets
Collateralized
6,223,117 92,976,078 2,074,357,242 2,173,556,437
vehicles
Collateralized real
- - 103,434,000 103,434,000
estate
Collateralized
- - 65,500,000 65,500,000
other assets
6,223,117 92,976,078 2,243,291,242 2,342,490,437

Credit risk concentration of financial receivables by debtors is as follows:

2012
Excluding allowance Ratio Allowance Book value
Finance 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 4.75% (2,201,887) 154,195,264
3,292,423,468 100.00% (22,813,399) 3,269,610,069

59


2011
Excluding allowance Ratio Allowance Book value
Finance 33,921,201 1.14% (67,728) 33,853,473
Manufacturing 131,928,411 4.45% (1,106,069) 130,822,342
Service 2,632,052,498 88.76% (16,929,438) 2,615,123,060
Others 167,502,333 5.65% (3,861,676) 163,640,657
2,965,404,443 100.00% (21,964,911) 2,943,439,532

27.2 Liquidity risk

Cash flows of financial liabilities based on remaining contractual maturities are as follows:

2012
Immediate 3 months to 1
Type Up to 3 months 1 to 5 years Over 5 years Total
payment 1 year

Borrowings - 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
1,905,528 - - - - 1,905,528
agreements

Gross settlement
2
derivative liabilities

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

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
Gross settlement derivatives and contractual undiscounted cash flows.

2011
Immediate 3 months to 1
Type Up to 3 months 1 to 5 years Over 5 years Total
payment 1 year

Borrowings - 287,311,811 150,244,775 319,199,274 - 756,755,860

Debentures - 106,809,390 607,556,217 1,213,497,147 104,404,500 2,032,267,254

Securitized debts - 4,428,867 62,788,662 336,633,216 - 403,850,745

Other liabilities 1,798,476 17,975,817 1,318,441 16,796,669 - 37,889,403

Payment guarantee
12,542,306 - - - - 12,542,306
agreements

Gross settlement

60

2
derivative liabilities

Cash inflow - (1,562,742) (4,244,427) (45,948,302) - (51,755,471)

Cash outflow - 1,745,180 4,890,469 48,610,256 - 55,245,905

14,340,782 416,708,323 822,554,137 1,888,788,260 104,404,500 3,246,796,002

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.

27.3 Market risk

a. Interest rate risk

The Group manages the interest rate risk through Value at Risk(VaR), Earnings 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 are as follows:

2012 2011
Interest rate VaR 4,157,195 5,146,625

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 borrowings and debentures 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.

61


Foreign exchange position exposures of the Group are as follows:

Currency 2012 2011
USD 58,910,500 63,431,500

The Group’s exposure to foreign exchange risk is hedged by derivatives. Therefore, the 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 are as follows:

2012
Comprehensive income 830,700
Equity 830,700

27.4 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 are as follows:
2012 2011
Adjusted total assets (A) 3,625,546,783 3,187,354,902
Adjusted equity (B) 422,760,975 464,735,912
Adjusted capital adequacy ratio (B/A) 11.66% 14.58%

The above adjusted capital adequacy ratio is calculated according to Supervision of Specialized
Credit Financial Business Law.

62

Hci con audit_report_2012_final

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Hci con audit_report_2012_final