Audit Report: Hyundai Commercial 3Q2011

Hyundai Commercial, Inc. andSubsidiaries

Interim Consolidated Financial Statements

September 30, 2011

Hyundai Commercial, Inc. and SubsidiariesIndexSeptember 30, 2011

Report on Review of Interim Financial Statements ..........................................................................1-2

Interim Consolidated Financial Statements

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

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

Interim Consolidated Statements of Changes in Shareholders’ Equity ................................................ 8-9

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

Notes to the Interim Consolidated Financial Statements...................................................................11-63

1

Report on Review of Interim Financial Statements

To the Shareholders and Board of Directors of

Hyundai Commercial, Inc.

Reviewed Financial Statements

We have reviewed the accompanying interim consolidated financial statements of Hyundai

Commercial, Inc. (the Company) and subsidiaries. These financial statements consist of the

consolidated statement of financial position of the Company and subsidiaries as of September

30, 2011, and the related consolidated statements of comprehensive income for the three-

month and the nine-month periods ended September 30, 2011, and statements of changes in

equity and cash flows for the nine-month period ended September 30, 2011, and a summary

of significant accounting policies and other explanatory notes, expressed in Korean won.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these interim

consolidated financial statements in accordance with the International Financial Reporting

Standards as adopted by the Republic of Korea (Korean IFRS) 1034, Interim Financial

Reporting, and for such internal control as management determines is necessary to enable

the preparation of interim consolidated financial statements that are free from material

misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to issue a report on these interim consolidated financial statements based

on our review.

We conducted our review in accordance with the quarterly and semi-annual review standards

established by the Securities and Futures Commission of the Republic of Korea. A review of

interim financial information consists of making inquiries, primarily of persons responsible for

financial and accounting matters, and applying analytical and other review procedures. A

review is substantially less in scope than an audit conducted in accordance with auditing

standards generally accepted in the Republic of Korea and consequently does not enable us

to obtain assurance that we would become aware of all significant matters that might be

identified in an audit. Accordingly, we do not express an audit opinion.

2

Conclusion

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

accompanying interim consolidated financial statements do not present fairly, in all material

respects, in accordance with the Korean IFRS 1034, Interim Financial Reporting.

Emphasis of Matter

Without qualifying our opinion, as mentioned in Note 2, we draw attention to the fact that

these interim consolidated financial statements are prepared in accordance with Korean IFRS

and the interpretations which are effective as of this report date. Therefore, there may be

changes in the Korean IFRS and related interpretations adopted in the preparation of these

consolidated financial statements when Company prepares its first full Korean IFRS financial

statements.

Others

The consolidated statement of financial position as of December 31, 2010, and the related

consolidated statements of comprehensive income for the three-month and the nine-month

periods ended September 30, 2010, and statements of changes in equity and cash flows for

the nine-month period ended September 30, 2010, presented herein for comparative

purposes, were not reviewed.

Review standards and their application in practice vary among countries. The procedures and

practices used in the Republic of Korea to review such interim consolidated 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 review standards

and their application in practice.

Seoul, Korea

November 25, 2011

This report is effective as of November 25, 2011, the review report date. Certain subsequent

events or circumstances, which may occur between the review report date and the time of

reading this report, could have a material impact on the accompanying interim consolidated

financial statements and notes thereto. Accordingly, the readers of the review report should

understand that there is a possibility that the above review report may have to be revised to

reflect the impact of such subsequent events or circumstances, if any.

Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Financial PositionSeptember 30, 2011 and December 31, 2010

3

(In Korean won)September 30,

2011December 31,

2010(Non-reviewed)

Assets

Cash and deposits

Cash and cash equivalents (Note 24) \ 218,105,096,125 \ 99,938,403,013

Deposits (Note 4) 11,500,000 11,500,000

218,116,596,125 99,949,903,013

Securities (Note 5)

Available-for-sale securities 19,200,000,000 17,657,945,000

Equity method investment 145,266,553,556 133,160,973,077

164,466,553,556 150,818,918,077

Loans receivable (Notes 6 and 7)

Factoring 1,625,298,851 1,185,464,975

Allowance for doubtful accounts (18,665,309) (15,550,313)

Loans 2,315,431,842,907 1,789,237,279,462

Allowance for doubtful accounts (18,909,932,635) (12,780,139,160)

2,298,128,543,814 1,777,627,054,964

Installment financial assets (Notes 6 and 7)

Auto installment financing receivables 427,813,157,856 487,175,195,698

Allowance for doubtful accounts (3,182,159,852) (3,055,399,069)

Durable goods installment financing receivables 74,628,123,313 81,485,373,499


498,742,707,371 565,051,542,230

Lease receivables (Notes 6, 7 and 9) 72,741,134,268 40,950,640,964

Property and equipment (Note 10)

Vehicles 129,646,100 119,066,527

Fixtures and furniture 1,984,541,538 1,986,277,290

Others 410,999,664 410,999,664

2,525,187,302 2,516,343,481


4

(In Korean won)

September 30,2011

December 31,2010

(Non-reviewed)

Other assets

Intangible assets (Note 11) ￦ 2,516,565,361 ￦ 2,481,402,934

Non-trade receivables 33,810,976,180 39,739,949,691


Accrued revenues 16,189,936,027 13,110,214,431


Advance payments 778,132,273 770,372,440

Prepaid expenses 2,817,674,227 8,350,859,781

Leasehold deposits 9,035,008,747 7,233,368,763

Derivative assets (Note 17) 801,711,375 6,151,267,007

Others 4,206,566,420 5,319,566,420

69,763,771,687 82,784,027,145

Total assets ￦3,324,484,494,123 ￦2,719,698,429,874

Liabilities and Shareholders’ Equity

Borrowings

Borrowings (Note 12) ￦ 791,324,613,619 ￦ 774,749,000,000

Debentures (Note 13) 1,859,042,348,791 1,504,362,479,869

Securitized debts (Note 14) 359,288,034,223 199,530,274,091

3,009,654,996,633 2,478,641,753,960

Other liabilities

Non-trade payables 8,976,922,344 4,345,884,784

Accrued expenses 20,095,614,922 22,977,718,513

Unearned revenue 4,687,160,341 2,897,710,421

Advances 151,325,169 216,279,513

Withholdings 3,544,125,001 2,809,860,961

Accrued income taxes 9,523,430,123 10,125,301,190

Defined benefit liability (Note 15) 3,209,275,173 1,681,174,959

Leasehold deposits received 13,133,759,946 2,824,085,004

Deferred income tax liabilities (Note 16) 13,541,654,518 8,472,287,159

Derivative liabilities (Note 17) 2,424,486,286 4,088,617,272

79,287,753,823 60,438,919,776

Total liabilities 3,088,942,750,456 2,539,080,673,736


5

(In Korean won)

September 30,2011

December 31,2010

(Non-reviewed)

Shareholders' equity

Common stock (Notes 1 and 18) ￦100,000,000,000 ￦100,000,000,000

Accumulated other comprehensive income andexpenses (Note 23)

Loss on valuation of derivatives (2,087,104,429) (1,662,559,500)

Gain on valuation of available-for-salesecurities

7,077,033,132 2,180,056,816

Accumulated comprehensive income of equitymethod investee

(2,235,205,518) (1,379,778,772)

2,754,723,185 (862,281,456)

Retained earnings (Note 18) 132,767,200,482 81,470,127,594

Non-controlling interests 19,820,000 9,910,000

Total shareholders' equity 235,541,743,667 180,617,756,138

Total liabilities and shareholders' equity ￦3,324,484,494,123 ￦2,719,698,429,874

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

Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Comprehensive IncomeThree-Month and Nine-Month Periods ended September 30, 2011 and 2010

6

(In Korean won)

Three months Nine months

2011 2010(Non-reviewed)


Operating revenue

Interest income ￦1,463,352,131 ￦ 488,395,025 ￦3,850,521,688 ￦1,563,100,490

Income on loans 63,099,307,058 42,813,465,180 176,904,907,139 108,672,193,977

Income on installment financialreceivables

14,604,672,104 16,948,539,741 46,079,748,476 49,050,140,997

Income on leases 1,268,004,041 888,353,190 3,603,492,901 2,912,357,288

Gain on disposal of loans 698,180,192 42,335,462 1,815,211,113 467,311,435

Gain on foreign currency transactions

Gain on foreign currencytransactions

--

3,348,000,000 -

Gain on foreign exchangetranslation

- 6,327,500,000 - 3,765,500,000

- 6,327,500,000 3,348,000,000 3,765,500,000

Dividend income - - 300,000,000 -

Other operating income

Gain on valuation of derivatives 5,577,000,000 - 3,391,000,000 -

Gain on disposal of securities 1,638,531,160 - 1,638,531,160 -

Others 329,443,519 271,323,025 1,083,927,325 832,185,855

7,544,974,679 271,323,025 6,113,458,485 832,185,855

Total operating revenue 88,678,490,205 67,779,911,623 242,015,339,802 167,262,790,042

Operating expenses

Interest expenses 38,051,809,194 29,243,387,478 108,972,256,146 78,928,781,740

Bad debts expense (Note 7) 4,476,291,109 1,954,455,925 15,436,407,844 4,736,666,586

Loss on disposal of loans 428,685,968 1,178,070,180 715,160,437 1,833,478,780

Loss on foreign transactions

Loss on foreign currencytransactions

- - 1,962 -

Loss on foreign exchangetranslation

5,577,000,000 - 3,391,000,000 -

5,577,000,000 - 3,391,001,962 -

General and administrative expenses(Note 21)

13,271,443,099 12,346,812,307 40,336,862,691 32,962,325,276

Other operating expenses

Loss on valuation of derivatives - 6,327,500,000 - 3,765,500,000

Loss on derivatives transactions - - 3,348,000,000 -

Others 984,033,880 147,796,878 2,533,236,714 1,069,465,243

984,033,880 6,475,296,878 5,881,236,714 4,834,965,243

Total operating expenses 62,789,263,250 51,198,022,768 174,732,925,794 123,296,217,625

Operating income 25,889,226,955 16,581,888,855 67,282,414,008 43,966,572,417

Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Comprehensive IncomeThree-Month and Nine-Month Periods ended September 30, 2011 and 2010

7

(In Korean won)




Non-operating income

Gain on equity method valuation(Note 5)

￦ 4,542,225,051 ￦ 8,868,228,688 ￦13,202,281,435 ￦16,479,176,413

Non-operating expenses

Donations - - - 1,197,915

Income before income taxes 30,431,452,006 25,450,117,543 80,484,695,443 60,444,550,915

Income tax expense (Note 16) 6,212,784,801 4,950,947,410 19,187,622,555 13,412,241,785

Net income ￦24,218,667,205 ￦20,499,170,133 ￦61,297,072,888 ￦47,032,309,130

Net income attributable to:

Owners of the parent 24,218,667,205 20,499,170,133 61,297,072,888 47,032,309,130

Non-controlling interests - - - -

24,218,667,205 20,499,170,133 61,297,072,888 47,032,309,130

Other comprehensive income,net of income taxes (Note 23)

Gain (Loss) on valuation ofderivatives

(1,194,466,843) 874,942,583 (424,544,929) 951,057,432

Gain(Loss) on valuation ofavailable-for-sale financialsecurities

1,060,345,650 302,917,227 4,896,976,316 174,217,227

Other comprehensive income ofequity method investee

(531,244,953) (1,804,778,728) (855,426,746) (1,945,726,807)

(665,366,146) (626,918,918) 3,617,004,641 (820,452,148)

Total comprehensive income ￦23,553,301,059 ￦19,872,251,215 ￦64,914,077,529 ￦46,211,856,982

Total comprehensive incomeattributable to:

Owners of the parent 23,553,301,059 19,872,251,215 64,914,077,529 46,211,856,982

Non-controlling interests - - - -

23,553,301,059 19,872,251,215 64,914,077,529 46,211,856,982

Earnings per share attributable tothe ordinary equity holders of theParent Company (Note 22)

Basic earnings pershare (Note 22)

￦ 1,211 ￦ 1,025 ￦ 3,065 ￦ 2,352


Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Changes in Shareholders’ EquityNine-Month Periods ended September 30, 2011 and 2010

8

(In Korean won)

Capital stockCapitalsurplus

Accumulatedother

comprehensiveincome andexpenses

Retainedearnings

Totalattributable toowners of the

parent

Non-controllinginterests Total equity

Balances as of January 1, 2010 \100,000,000,000 \(663,810,140) \ (1,931,396,310) \25,005,933,366 \122,410,726,916 \ - \122,410,726,916

Total comprehensive income

Net income - - - 47,032,309,130 47,032,309,130 - 47,032,309,130

Other comprehensive income

Gain on valuation of derivatives - - 951,057,432 - 951,057,432 - 951,057,432Gain on valuation of available-for-

sale securities- - 174,217,227 - 174,217,227 - 174,217,227


- - (1,945,726,807) - (1,945,726,807) - (1,945,726,807)

Total comprehensive income - - (820,452,148) 47,032,309,130 46,211,856,982 - 46,211,856,982

Transactions with owners

Discount on stock issuance - 663,810,140 - (663,810,140) - - -Establishment of special purpose

entity- - - - - 9,910,000 9,910,000

Other - - - (13,520,488) (13,520,488) - (13,520,488)

Total transactions with owners - 663,810,140 - (677,330,628) (13,520,488) 9,910,000 (3,610,488)

Balances as of September 30, 2010(Non-reviewed) \100,000,000,000 \ - \ (2,751,848,458) \71,360,911,868 \168,609,063,410 \ 9,910,000 \168,618,973,410

Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Changes in Shareholders’ EquityNine-Month Periods ended September 30, 2011 and 2010

9

(In Korean won)

Capital stockCapitalsurplus

Accumulatedother

comprehensiveincome andexpenses

Retainedearnings

Total attributableto owners of the

parent

Non-controllinginterests 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

Total comprehensive income

Net income - - - 61,297,072,888 61,297,072,888 - 61,297,072,888

Other comprehensive income

Loss on valuation of derivatives - - (424,544,929) - (424,544,929) - (424,544,929)Gain on valuation of available-for-

sale securities- - 4,896,976,316 - 4,896,976,316 - 4,896,976,316


- - (855,426,746) - (855,426,746) - (855,426,746)

Total comprehensive income - - 3,617,004,641 61,297,072,888 64,914,077,529 - 64,914,077,529

Transactions with ownersEstablishment of special purpose

entity- - - - - 9,910,000 9,910,000

Dividends - - - (10,000,000,000) (10,000,000,000) - (10,000,000,000)

Total transactions with owners - - - (10,000,000,000) (10,000,000,000) 9,910,000 (9,990,090,000)

Balances as of September 30, 2011 \100,000,000,000 \ - \ 2,754,723,185 \132,767,200,482 \235,521,923,667 \ 19,820,000 \235,541,743,667


Hyundai Commercial, Inc. and SubsidiariesInterim Consolidated Statements of Cash FlowsNine-Month Periods ended September 30, 2011 and 2010

10

(In Korean won)


Cash flows from operating activities

Cash generated from operations (Note 24) \ (289,762,803,517) \ (577,953,544,447)

Interest received 3,714,417,543 1,198,424,342Interest paid (106,489,312,810) (74,722,178,964)Dividends received 300,000,000 -Income taxes paid (15,721,051,020) (4,519,840,107)

Net cash used in operations (407,958,749,804) (655,997,139,176)

Cash flows from investing activitiesDisposal of available-for-sale securities 6,293,531,160 345,000,000Acquisition of available-for-sale securities - (10,126,880,600)Dividends from equity method investment - 5,778,254,300Disposal of vehicles 27,020,000 -Acquisition of vehicles (79,715,188) -Acquisition of fixtures and furniture (949,359,799) (681,383,816)Acquisition of intangible assets (138,324,876) (967,600,200)Decrease in leasehold deposits - 29,532,250Increase in leasehold deposits (2,036,847,000) (288,400,000)Disposal of other investment assets - 25,000,000

Net cash provided by(used in) investing activities 3,116,304,297 (5,886,478,066)

Cash flows from financing activitiesProceeds from borrowings 649,994,814,251 1,271,400,000,000Repayments of borrowings (633,419,200,632) (1,204,650,000,000)Issuance of debentures 600,707,289,400 649,970,000,000Repayments of debentures (243,740,000,000) (243,787,502,430)Issuance of securitized debts 199,456,325,600 249,316,692,300Repayments of securitized debts (40,000,000,000) (20,000,000,000)Cash inflows of transactions with subsidiaries 9,910,000 9,910,000Payments of dividends (10,000,000,000) -

Net cash provided by financing activities 523,009,138,619 702,259,099,870

Net increase in cash and cash equivalents 118,166,693,112 40,375,482,628

Cash and cash equivalentsBeginning of period 99,938,403,013 26,810,646,159

End of period \ 218,105,096,125 \ 67,186,128,787


Hyundai Commercial, Inc. and SubsidiariesNotes to the Interim Consolidated Financial StatementsSeptember 30, 2011 and 2010, and December 31, 2010

11

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 are as follows:

Shareholders Ownership

Hyundai Motor Company 50.00%

Myung-yi Chung 33.33%

Tae-young Chung 16.67%

Total 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 trust and SPC and another subsidiary(collectively the “Group”),

while Hyundai Card Co., Ltd. is accounted for under the equity method.

Subsidiaries as of September 30, 2011 and December 31, 2010, 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%.

2011 2010

Special

Purpose

Entities

Commercial Auto First Trust and SPC Commercial Auto First Trust and SPC

Commercial Auto Second Trust and SPC

The Company’s interim consolidated financial statements are prepared in the Korean language

(Hangul) in conformity with International Financial Reporting Standards as adopted by the Republic

of Korea (“Korean IFRS”). The Company’s Korean IFRS transition date is January 1, 2010, and the

adoption date is January 1, 2011.

The interim consolidated financial statements are stated at historical cost unless otherwise stated

in the notes.

The reconciliations and descriptions of the effect of the transition from the consolidated financial

statements of the Company prepared in accordance with accounting principles generally accepted

in the Republic of Korea (“K-GAAP”) before the adoption date to Korean IFRS on the Company’s

equity as of January 1, 2010, September 30, 2010, and December 31, 2010, its comprehensive

income and cash flows for the nine-month period ended September 30, 2010 and year ended

December 31, 2010, are provided in Note 3.


12

The interim consolidated financial statements for the nine-month periods ended September 30,

2011 and 2010, have been prepared in accordance with Korean IFRS 1034. Because these interim

consolidated financial statements are a part of financial statements prepared by Korean IFRS as of

December 31, 2011, these are subject to Korean IFRS 1101, ‘First-time Adoption of Korean IFRS’.

These interim consolidated financial statements have been prepared in accordance with the

Korean IFRS standards and interpretations issued and effective at the reporting date. The Korean

IFRS standards and interpretations that will be applicable at December 31, 2011, including those

that will be applicable on an optional basis, are not known with certainty at the time of preparing

these interim consolidated financial statements.

The legislative and amended standards and interpretations the Group has not adopted earlier,

which have been promulgated but are not yet effective for the fiscal year starting from January 1,

2011, are as follows.

- Amendments to Korean IFRS 1101, ‘Deletion of Hyperinflation and the particular date’

(announced in December, 2010)

The date of prospective application, the exceptions to retrospective application in derecognition of

financial assets, has been changed from the particular date(January 1, 2004) to Korean IFRS

transition date according to the amendment above. Therefore, derecognition transactions that

occurred before the transition date are not restated in accordance with Korean IFRS. The

modification is required to be adopted from July 1, 2011.

- Amendments to Korean IFRS 1012, ‘Income Taxes’

If there is no disproof, investment property measured at fair value when measuring deferred

income tax assets and liabilities should be measured in consideration of recovered tax effects by

selling. This will be effective on January 1, 2011.

- Amendments to Korean IFRS 1107, ‘Financial Instruments: Disclosures’

The financial assets transferred to counterparts but still remained in the financial statements are

required to be disclosed in terms of the nature of the assets, the book value, the risks and rewards.

If an entity is exposed to the particular risks and rewards on the derecognized financial assets,

additional disclosures are required to the understand effects of the risks. The amendments are

applicable from July 1, 2011.

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.


13

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. Subsidiaries are fully consolidated from the date on which control is transferred to

the Company. They are deconsolidated 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.

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.


14

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.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent

of the Group’s interest in the associates. Unrealised 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

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


15

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 the

market, comparative 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.

2.4 Revenue recognition

The Group recognizes capital lent to customers as loans receivable, when installment payments or

deferred payments on services and goods are made. 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.


16

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, other short-term

highly liquid investments with original maturities of nine months or less and bank overdrafts.

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.

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 (the date on

which the Group commits to purchase or sell the asset). Investments are initially recognized at fair

value plus transaction costs for all financial assets not carried at fair value through profit or loss.

Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are

subsequently carried at amortized cost using the effective interest method.

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.


17

The Group can transfer an asset in statement of financial position but retains parts of or all the risks

and rewards of ownership of the transferred asset substantially. To the extent that a transfer of a

financial asset retains rights and obligations, the Group accounts both asset and liability at the

same time. After the Group transfers a financial asset and still retains control, it shall continue to

recognize the asset to the extent of its continuing involvement in the asset.

d. Impairment of financial assets

(1) Assets carried at amortized cost

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.


18

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 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. And

the interest for impaired assets is recognized through the amortization of present value discounts.

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. The

decision to write off a 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 lesser 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 title is

not transferred, ④at the inception of the lease the present value of the minimum lease payments


19

amounts to at least substantially all of the fair value of the leased asset, and 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, plant

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

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

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 income statement.

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


20

amortization calculated based on using the following amortization method and estimated useful

lives:

Amortization Method Useful life

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

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 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

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 profits or losses in the period in which they arise.

2.15 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.


21

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.

2.16 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.

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. 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 profit or loss.


22

2.17 Current and deferred income tax

Interim period income tax expense is calculated by applying to an interim period’s pre-tax income

the tax rate that would be applicable to expected total annual earnings.

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 accounted for if they arise

from the 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 date of the statement of financial position 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.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries

and associates, 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 which intend either to settle current tax liabilities and

assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future

period in which significant amounts of deferred tax liabilities or assets are expected to be settled or

recovered.

2.18 Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the

Company by the weighted average number of ordinary shares in issue during the period excluding

ordinary shares purchased by the Company 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.

3. Transition to Korean IFRS

The interim consolidated financial statements as of September 30, 2011, are prepared according

to Korean IFRS at the adoption date of January 1, 2011. The statements of financial position as of


23

December 31, 2010 and as of September 30, 2010, which were prepared previously under K-

GAAP are restated in accordance with Korean IFRS 1101, “First-time adoption of Korean IFRS”,

for the comparative purposes, at the transition date of January 1, 2010.

a. Exemptions of Korean IFRS 1101 elected by the Group

The Group has elected to apply the following optional exemptions from full retrospective

application.

(1) Business combination

The Group has not retrospectively applied Korean IFRS 1103 (Business combination) to the

business combinations that took place prior to the transition date.

(2) Deemed cost of property and equipment

The Group has elected to use the carrying amount of property and equipment under K-GAAP as

deemed cost at the date of transition to Korean IFRS.

b. Explanation on the reconciliation of K-GAAP and Korean IFRS

Major reconciliations of the transition between K-GAAP and Korean IFRS are as follows:

(1) Impairment of financial assets (allowance for financial assets)

Under K-GAAP, allowances for financial receivables are calculated based on the long-term

average expected loss. In case the allowance calculated based on the expected loss is smaller

than the allowance calculated in accordance to the guidelines provided in the Act on the

Specialized Credit Financial Business, the Group recognizes an allowance in accordance to the

guidelines provided in the Act on the Specialized Credit Financial Business. Under Korean IFRS,

impairment losses are recognized where there is evidence that impairment occurred. Allowance for

financial receivables is measured individually for assets that are individually significant and on a

collective basis for portfolios with similar risk characteristics.

(2) Accrued revenue for overdue receivables

Under K-GAAP, accrued revenue for receivables which are overdue is not recognized. Under

Korean IFRS, accrued revenue for past due and impaired receivables is recognized.

(3) Measurement of financial assets carried at amortized cost

Under K-GAAP, non-marketable loan and receivables are measured at nominal value if the

difference between nominal value and discounted value is not substantial. Under Korean IFRS,

loan and receivables are initially measured at fair value and subsequently carried at amortized cost

using the effective interest method.


24

(4) Depreciation method for property and equipment

Under K-GAAP, depreciation method used for certain property and equipment was the declining-

balance method. Under Korean IFRS, the Group uses the straight-line method to reflect properly

the matching of the future economic benefits.

(5) Retirement benefit obligations

Under K-GAAP, the Group recognizes the amount which would be payable assuming all eligible

employees and directors were to terminate their employment as of the statement of financial

position date as accrued severance benefits represent. Under Korean IFRS, the Group recognizes

the estimated amount using the projected unit credit method which is on an actuarial basis as the

defined benefit obligation.

(6) Recognition of unused compensated absences

According to K-GAAP, unused compensated absences given to employees are recognized as

liabilities at the end of the reporting period only when the right to be paid has been established.

Under Korean IFRS, the Group recognizes liabilities when an employee has provided service in

exchange for compensated absences.

(7) Consolidation

Under K-GAAP, Commercial Auto First SPC, trust and other subsidiaries were previously excluded

from consolidation in accordance with Article 1.3, Clause 1 of Enforcement Decree of the Act on

External Audit of Stock Companies. Under Korean IFRS, they are consolidated (Note 2).

(8) Income tax effects

The Group recognized changes in deferred tax representing the impact of deferred taxes on the

adjustments for the transition to Korean IFRS.


25

c. Effects on assets, liabilities, equity, comprehensive income and net income

(1) Reconciliation of assets, liabilities and equity as of January 1, 2010

(in thousands of Korean won)

Assets Liabilities Equity

K-GAAP \ 1,628,843,966 \ 1,519,996,760 \ 108,847,206

Conversion effects to Korean IFRS

Allowance for doubtful accounts 7,431,968 - 7,431,968

Accrued revenues 1,132,941 - 1,132,941

Measurement of amortized cost (1,378,454) - (1,378,454)

Depreciation 2,001,667 - 2,001,667

Retirement benefit obligations - 5,711 (5,711)

Recognition of unused compensatedabsences

- 229,507 (229,507)

Conversion adjustments of the associates 8,260,061 (92,431) 8,352,492

Others 366,621 33,745 332,876

Deferred income taxes (337,432) 3,737,319 (4,074,751)

Total effect of transition 17,477,372 3,913,851 13,563,521

Korean IFRS \ 1,646,321,338 \ 1,523,910,611 \ 122,410,727

(2) Reconciliation of assets, liabilities and equity as of September 30, 2010


Assets Liabilities Equity

K-GAAP \ 2,175,508,752 \ 2,017,890,077 \ 157,618,675


Allowance for doubtful accounts 9,599,653 - 9,599,653

Accrued revenues 1,864,208 - 1,864,208

Measurement of amortized cost (3,559,980) - (3,559,980)

Depreciation 1,409,455 - 1,409,455

Retirement benefit obligations - (101,796) 101,796

Recognition of unused compensatedabsences

- 363,347 (363,347)

Conversion adjustments of the associates 11,213,262 (442,244) 11,655,506

Others 108,002 17,066 90,936

Scope of consolidation 212,631,483 219,234,433 (6,602,950)

Deferred income taxes - 3,194,978 (3,194,978)

Total effect of transition 233,266,083 222,265,784 11,000,299

Korean IFRS \ 2,408,774,835 \ 2,240,155,861 \ 168,618,974


26

(3) Reconciliation of total comprehensive income and net income for the three-month and the nine-

month periods ended September 30, 2010



Totalcomprehensive

incomeNet Income

Totalcomprehensive

incomeNet Income

K-GAAP \ 15,363,080 \ 17,204,341 \ 48,771,469 \ 50,714,481


Allowance for doubtfulaccounts

2,332,855 2,332,855 2,167,685 2,167,685

Accrued revenues 584,823 584,823 731,267 731,267

Measurement of amortizedcost

(291,212) (291,212) (2,181,526) (2,181,526)

Depreciation (168,105) (168,105) (592,213) (592,213)

Retirement benefit obligations 32,239 32,239 99,013 99,013

Recognition of unusedcompensated absences

(36,898) (36,898) (133,840) (133,840)

Conversion adjustments ofthe associates

2,060,478 1,768,600 2,924,152 2,773,223

Others 930,680 8,213 1,084,116 112,484

Scope of consolidation 2,540,557 2,540,557 (5,150,359) (5,150,359)

Deferred income taxes (3,476,244) (3,476,244) (1,507,907) (1,507,907)

Total effect of transition 4,509,173 3,294,828 (2,559,612) (3,682,173)

Korean IFRS \ 19,872,253 \ 20,499,169 \ 46,211,857 \ 47,032,308


27

(4) Reconciliation of assets, liabilities, equity, total comprehensive income and net income as of

and for the year ended December 31, 2010


Assets Liabilities Total equityTotal

comprehensiveincome

Net Income

K-GAAP \2,534,174,650 \2,359,395,222 \174,779,428 \ 65,932,223 \ 64,833,503


Allowance for doubtfulaccounts

9,071,121 - 9,071,121 1,639,153 1,639,153

Accrued revenues 495,782 - 495,782 (637,159) (637,159)

Measurement ofamortized cost

(4,130,557) - (4,130,557) (2,752,102) (2,752,102)

Depreciation 1,275,895 - 1,275,895 (725,772) (725,772)

Retirement benefitobligations

- 378,378 (378,378) (372,667) (372,667)

Recognition of unusedcompensated absences

- 258,690 (258,690) (29,184) (29,184)

Conversion adjustmentsof the associates

6,603,813 (29,025) 6,632,838 (1,930,262) (1,900,657)

Others - (135,307) 135,307 132,857 132,857

Scope of consolidation 172,207,726 177,075,156 (4,867,430) (4,877,341) (4,877,341)

Deferred income taxes - 2,137,560 (2,137,560) 1,958,632 1,958,632

Total effect of transition 185,523,780 179,685,452 5,838,328 (7,593,845) (7,564,240)

Korean IFRS \ 2,719,698,430 \ 2,539,080,674 \180,617,756 \ 58,338,378 \ 57,269,263

d. Adjustments of cash flows in 2010

According to Korean IFRS, cash flows of the related income (expenses) and assets (liabilities) are

adjusted to separately disclose the cash flows from interest received, interest paid and cash

payments of income taxes that were not presented separately under K-GAAP. There are no other

significant differences between cash flows under Korean IFRS and K-GAAP.

e. Adjustments of operating income and expenses

The Group reclassified certain non-operating income and expenses under K-GAAP to other

operating income and expenses according to Korean IFRS.


28

Adjustments for the three-month and the nine-month periods ended September 30, 2011 and

2010, are as follows:

(in thousands of Korean won) 2011 2010

TypeThree

monthsNine

monthsThree

monthsNine

months

Other operating income \ 94,422 \ 337,071 \ 50,659 \ 191,684

Other operating expenses 1,187,056 1,317,200 508,871 558,445

4. Restricted Financial Instruments

Restricted financial instruments as of September 30, 2011 and December 31, 2010, are as follows:

(in thousands of Korean won) Amount

Type Entities 2011 2010 Restriction

DepositsKookmin Bankand 3 others \ 11,500 \ 11,500

Maintaining depositsfor opening accounts

5. Securities

Securities as of September 30, 2011 and December 31, 2010, are as follows:


Type 2011 2010

Available-for-sale securities

Equity securities

Marketable equitysecurities \ 19,200,000 \ 11,518,000

Unlisted equitysecurities

- 6,139,945

Sub-total 19,200,000 17,657,945

Equity method investment 145,266,554 133,160,973

\ 164,466,554 \ 150,818,918


29

Available-for-sale securities

Available-for-sale securities as of September 30, 2011 and December 31, 2010, are as follows:


Book value

Number ofshares

Ownership(%)

Acquisitioncost

2011 2010

Marketable equity securities

JNK Heaters Co.,Ltd.

1,000,000 12.5 \10,126,881 \19,200,000 \11,518,000

Unlisted equity securities

West EndCorporateRestructuringCorp.

- - - - 6,139,945

\10,126,881 \19,200,000 \17,657,945

Equity method investment

Equity method investment as of September 30, 2011 and December 31, 2010, is as follows:


2011Number of

sharesOwnership

(%)Acquisition

costNet asset

valueBook value

Hyundai Card Co.,

Ltd.1 8,889,622 5.54 \ 113,820,162 \108,338,706 \145,266,554


2010Number of

sharesOwnership

(%)Acquisition

costNet asset

valueBook value

Hyundai Card Co.,

Ltd.1 8,889,622 5.54 \ 113,820,162 \ 96,233,125 \133,160,973

1The Company’s shareholdings in Hyundai Card Co., Ltd. are less than 20%. However, the

Company 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 for the nine-month periods ended September 30, 2011

and 2010, is as follows:


30


2011

BeginningBalance

Gain (loss)on valuation

Dividends

Changes inaccumulated

othercomprehensive

income

OthersEndingBalance

Hyundai CardCo., Ltd.

\133,160,973 \13,202,282 \ - \ (1,096,701) \ - \ 145,266,554


2010

BeginningBalance

Gain (loss)on valuation

Dividends

Changes inaccumulated

othercomprehensive

income

Changesin

retainedearnings

EndingBalance

Hyundai CardCo., Ltd.

\127,357,477 \16,479,176 \(5,778,254) \ (2,494,522) \ (13,520) \ 135,550,357

The difference between the acquired amounts of equity method investment and its corresponding

net asset value as of September 30, 2011 and December 31, 2010, follows:


2011 2010

Hyundai Card Co., Ltd. \ 36,926,750 \ 36,926,750

Summary of financial information of investee for the nine-month periods ended September 30,

2011 and for the year ended December 31, 2010, follows:


2011

Assets LiabilitiesOperatingrevenue

Net income

Hyundai Card Co., Ltd. \10,325,096,646 \ 8,369,470,458 \ 1,817,218,582 \ 238,312,480


2010

Assets LiabilitiesOperatingrevenue

Net income

Hyundai Card Co., Ltd. \10,416,574,470 \8,679,464,372 \ 2,316,447,184 \ 284,376,845


31

6. Financial Receivables

Financial receivables as of September 30, 2011 and December 31, 2010, are as follows:


2011

Principal

Deferred loanorigination fees and

costs(Initial direct costsfor lease assets)

Presentvalue

discounts

Allowancefor doubtful

accountsBook value

Loan receivables

Factoringreceivables

\ 1,625,299 \ - \ - \ (18,665) \ 1,606,634

Loans 2,301,226,570 14,366,058 (160,785) (18,909,933) 2,296,521,910

2,302,851,869 14,366,058 (160,785) (18,928,598) 2,298,128,544

Installment financial assets

Auto 429,211,658 (1,398,501) - (3,182,159) 424,630,998

Durable goods 75,439,087 (810,964) - (516,414) 74,111,709

504,650,745 (2,209,465) - (3,698,573) 498,742,707

Lease receivables

Finance leasereceivables

73,292,995 (19,719) - (532,142) 72,741,134

\2,880,795,609 \ 12,136,874 \ (160,785) \(23,159,313) \2,869,612,385


2010

Principal

Deferred loanorigination fees and

costs(Initial direct costsfor lease assets)

Presentvalue

discounts

Allowancefor doubtful

accountsBook value

Loan receivables

Factoring \ 1,185,465 \ - \ - \ (15,550) \ 1,169,915

Loans 1,782,518,786 6,898,083 (179,590) (12,780,139) 1,776,457,140

1,783,704,251 6,898,083 (179,590) (12,795,689) 1,777,627,055

Installment financial assets

Auto 493,287,083 (6,111,888) - (3,055,399) 484,119,796

Durable goods 81,961,709 (476,335) - (553,628) 80,931,746

575,248,792 (6,588,223) - (3,609,027) 565,051,542

Lease receivables

Finance leasereceivables

41,206,800 (41,546) - (214,613) 40,950,641

\2,400,159,843 \ 268,314 \ (179,590) \(16,619,329) \2,383,629,238


32

7. Allowance for Doubtful Accounts

Changes in allowance for doubtful accounts for the nine-month periods ended September 30, 2011

and 2010, are as follows:


2011

TypeLoan

receivablesInstallment

financial assetsLease

receivablesOther assets Total

Beginning balance \ 12,795,689 \ 3,609,027 \ 214,613 \ 372,974 \ 16,992,303

Amounts written off (1,651,217) (136,040) - - (1,787,257)

Recoveries of amountspreviously written off

(6,037,785) (1,031,878) 90,152 - (6,979,511)

Unwinding of discount (102,787) (6,936) (108) - (109,831)

Additional(reversed)allowance

13,924,698 1,264,400 227,485 19,825 15,436,408

Ending balance \ 18,928,598 \ 3,698,573 \ 532,142 \ 392,799 \ 23,552,112


2010

TypeLoan

receivablesInstallment

financial assetsLease

receivablesOther assets Total

Beginning balance \ 10,110,193 \ 3,420,293 \ 233,056 \ 387,760 \ 14,151,302

Amounts written off (563,514) (57,734) - - (621,248)

Recoveries of amountspreviously written off

(963,372) (290,359) 266,654 - (987,077)

Unwinding of discount (50,287) (8,907) (13,369) - (72,563)

Additional(reversed)allowance

3,158,764 1,342,189 133,744 101,970 4,736,667

Ending balance \ 11,691,784 \ 4,405,482 \ 620,085 \ 489,730 \ 17,207,081


33

8. Financial Instruments

The fair values of financial instruments as of September 30, 2011 and December 31, 2010, are as

follows:


Type

2011 2010

Bookvalue

Fairvalue

Bookvalue

Fairvalue

Financial assets

Cash and deposits \ 218,116,596 \ 218,116,596 \ 99,949,903 \ 99,949,903

Available-for-salesecurities

19,200,000 19,200,000 17,657,945 17,657,945

Loans receivable 2,298,128,544 2,298,641,895 1,777,627,055 1,713,240,877

Installment financialassets

498,742,707 499,036,938 565,051,542 576,954,790

Derivative assets 801,711 801,711 6,151,267 6,151,267

Non-trade

receivables33,537,341 33,537,341 39,460,549 39,460,549

Accrued revenues 16,070,772 16,070,772 13,016,641 13,016,641

Leasehold deposits 9,035,009 8,876,874 7,233,369 7,632,659

\ 3,093,632,680 \ 3,094,282,127 \ 2,526,148,271 \ 2,474,064,631

Financial liabilities

Borrowings \ 791,324,614 \ 793,383,501 \ 774,749,000 \ 774,193,924

Debentures 1,859,042,349 1,893,535,914 1,504,362,480 1,543,521,096

Securitized debts 359,288,034 364,002,331 199,530,274 202,500,316

Derivative liabilities 2,424,486 2,424,486 4,088,617 4,088,617

Non-trade payables 8,976,922 8,976,922 4,345,885 4,345,885

Accrued expenses 20,095,615 20,095,615 22,977,719 22,977,719

Withholdings1

3,119,293 3,119,293 2,583,344 2,583,344

Leasehold depositsreceived

13,133,760 13,133,760 2,824,085 2,854,340

\ 3,057,405,073 \ 3,098,742,743 \ 2,515,461,404 \ 2,557,065,241

1Excluding taxes.


34

The fair value hierarchy of financial assets and liabilities carried at fair value as of September 30,

2011 and December 31, 2010, are as follows:


2011

TypeBookvalue

Fairvalue

Fair value hierarchy1

level 1 level 2 level 3

Financial assets at fair

value


\ 19,200,000 \ 19,200,000 \ 19,200,000 \ - \ -

Derivative assets 801,711 801,711 - 801,711 -

\ 20,001,711 \ 20,001,711 \ 19,200,000 \ 801,711 \ -

Financial liabilities at

fair value

Derivative liabilities \ 2,424,486 \ 2,424,486 \ - \2,424,486 \ -

1The 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 the liability that are not based on observable market data.

Unlisted stocks, complicated structured bonds, complicated unlisted derivatives and others.


2010

TypeBookvalue

Fairvalue

Fair value hierarchy(*)

level 1 level 2 level 3

Financial assets at fair

value


\ 17,657,945 \ 17,657,945 \ - \ - \ 17,657,945

Derivative assets 6,151,267 6,151,267 - 6,151,267 -

\ 23,809,212 \ 23,809,212 \ - \ 6,151,267 \ 17,657,945

Financial liabilities at

fair value

Derivative liabilities \ 4,088,617 \ 4,088,617 \ - \ 4,088,617 \ -


35

The changes in financial instruments of level 3 for the nine-month periods ended September 30,

2011 and 2010, are as follows:


TypeAvailable-for-sale securities

2011 2010

Beginning balance \ 17,657,945 \ 5,450,000

Acquisition - 10,126,881

Gains on valuation(Other comprehensive income)

(1,484,945) 1,219,304

Disposal (4,655,000) (345,000)

Reclassification1

(11,518,000) -

Ending balance \ - \ 16,451,185

1The 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 current period.

The book value of financial instruments by categories as of September 30, 2011 and December 31,



2011

TypeLoans andreceivables

Available-for-salefinancial assets

Hedgingderivative

instrumentsTotal

Financial assets

Cash and deposits \ 218,116,596 \ - \ - \ 218,116,596

Available-for- salesecurities

- 19,200,000 - 19,200,000

Loans receivable 2,298,128,544 - - 2,298,128,544

Installmentfinancial assets

498,742,707 - - 498,742,707

Derivative assets - - 801,711 801,711

Non-tradereceivables

33,537,341 - - 33,537,341

Accrued revenues 16,070,772 - - 16,070,772

Leaseholddeposits

9,035,009 - - 9,035,009

\ 3,073,630,969 \ 19,200,000 \ 801,711 \ 3,093,632,680


36


2010

TypeLoans andreceivables

Available-for-salefinancial assets

Hedgingderivative

instrumentsTotal

Financial assets

Cash and deposits \ 99,949,903 \ - \ - \ 99,949,903

Available-for- salesecurities

- 17,657,945 - 17,657,945

Loans receivable 1,777,627,055 - - 1,777,627,055


565,051,542 - - 565,051,542

Derivative assets - - 6,151,267 6,151,267


39,460,549 - - 39,460,549

Accrued revenues 13,016,641 - - 13,016,641

Leaseholddeposits

7,233,369 - - 7,233,369

\ 2,502,339,059 \ 17,657,945 \ 6,151,267 \ 2,526,148,271


2011 2010

TypeFinancial

liabilities atamortized cost

Hedgingderivative

instrumentsTotal

Financialliabilities at

amortized cost

Hedgingderivative

instrumentsTotal

Financial liabilities

Borrowings \ 791,324,614 \ - \ 791,324,614 \ 774,749,000 \ - \ 774,749,000

Debentures 1,859,042,349 - 1,859,042,349 1,504,362,480 - 1,504,362,480

Securitized debts 359,288,034 359,288,034 199,530,274 199,530,274

Derivativeliabilities

- 2,424,486 2,424,486 - 4,088,617 4,088,617

Non-tradepayables

8,976,922 - 8,976,922 4,345,885 - 4,345,885

Accrued expenses 20,095,615 - 20,095,615 22,977,719 - 22,977,719

Withholdings 3,119,293 - 3,119,293 2,583,344 - 2,583,344

Leaseholddepositsreceived

13,133,760 - 13,133,760 2,824,085 - 2,824,085

\3,054,980,587 \ 2,424,486 \3,057,405,073 \ 2,511,372,787 \ 4,088,617 \ 2,515,461,404


37

9. Finance Lease Receivables

Details of total lease investments and present value of minimum lease receipts as of September

30, 2011 and December 31, 2010, are as follows:


Type

2011 2010

Total leaseinvestments

Present value ofminimum lease

receipts

Total leaseinvestments

Present value ofminimum lease

receipts

Less than 1 year \ 33,827,360 \ 29,183,599 \ 21,101,532 \ 18,109,108

1 to 5 years 47,358,632 44,089,677 24,931,950 23,056,146

\ 81,185,992 \ 73,273,276 \ 46,033,482 \ 41,165,254

Details of unearned interest income as of September 30, 2011 and December 31, 2010, are as

follows:


2011

Total lease

investments

Net lease investmentsUnearnedinterestincome

Minimum leasereceipts (present

value)

Unguaranteedresidual value(present value)

Total

\ 81,185,992 \ 73,273,276 \ - \ 73,273,276 \ 7,912,716

2010

Total lease

investments

Net lease investmentsUnearnedinterestincome

Minimum leasereceipts (present

value)

Unguaranteedresidual value(present value)

Total

\ 46,033,482 \ 41,165,254 \ - \ 41,165,254 \ 4,868,228

10. Property and Equipment

Property and equipment as of September 30, 2011 and December 31, 2010, consist of:


Type2011 2010

Acquisitioncost

Accumulateddepreciation

Book valueAcquisition

costAccumulateddepreciation

Book value

Vehicles \ 238,639 \ (108,993) \ 129,646 \ 219,387 \ (100,321) \ 119,066

Fixture andfurniture

6,457,221 (4,472,680) 1,984,541 5,567,947 (3,581,670) 1,986,277

Others 411,000 - 411,000 411,000 - 411,000

\ 7,106,860 \ (4,581,673) \ 2,525,187 \ 6,198,334 \ (3,681,991) \ 2,516,343


38

Changes in property and equipment for the nine-month periods ended September 30, 2011 and



2011

Type Beginning balance Acquisition Disposal Depreciation Ending balance

Vehicles \ 119,066 \ 79,715 \ (22,673) \ (46,462) \ 129,646


1,986,277 949,360 (48,895) (902,201) 1,984,541

Others 411,000 - - - 411,000

\ 2,516,343 \ 1,029,075 \ (71,568) \ (948,663) \ 2,525,187


2010

Type Beginning balance Acquisition Disposal Depreciation Ending balance

Vehicles \ 173,913 \ - \ - \ (41,135) \ 132,778


2,188,895 681,384 - (897,898) 1,972,381

Others 411,000 - - - 411,000

\ 2,773,808 \ 681,384 \ - \ (939,033) \ 2,516,159

As of September 30, 2011, the Company carries comprehensive property insurance with Hyundai

Marine and Fire Insurance for its other tangible assets and electronic equipment for up to

￦ 2,196,426 thousand, vehicles insurance for its vehicles, and group accident insurance, travel

insurance and business damage insurance for its employees. And the Company carries

comprehensive property insurance with Hyundai Marine and Fire Insurance for its machine tool

installment financial assets and lease assets for up to ￦ 211,209,784 thousand.

11. Intangible Assets

Intangible assets as of September 30, 2011 and December 31, 2010, consist of:


Type2011 2010

Acquisitioncost


Bookvalue

Acquisitioncost


Bookvalue

Software \ 5,014,047 \ (4,116,035) \ 950,922 \ 4,960,422 \ (3,328,226) \ 1,632,196

Other intangibleassets

1,878,733 (313,090) 1,565,643 915,728 (66,521) 849,207

\ 6,945,690 \ (4,429,125) \ 2,516,565 \ 5,876,150 \ (3,394,747) \ 2,481,403


39

Changes in intangible assets for the nine-month periods ended September 30, 2011 and 2010, are

as follows:


2011

Type Beginning balance Increase1

Amortization Ending balance

Software \ 1,632,196 \ 106,535 \ (787,809) \ 950,922

Other intangible assets 849,207 963,005 (246,569) 1,565,643

\ 2,481,403 \ 1,069,540 \ (1,034,378) \ 2,516,565

1Inclusive of transfer from advance payments.


2010

Type Beginning balance Increase1

Amortization Ending balance

Software \ 2,408,636 \ 352,283 \ (876,254) \ 1,884,665

Other intangible assets 13,019 615,316 (15,292) 613,043

\ 2,421,655 \ 967,599 \ (891,546) \ 2,497,708

12. Borrowings

Borrowings as of September 30, 2011 and December 31, 2010, consist of:


Types LenderAnnual

interest rate (%)2011 2010

Borrowings in won

Commercial paperSK Securities

and 4 others3.57 ~ 4.32 \ 230,000,000 \ 323,000,000

General loansShinhan Bank

and 9 others3.71 ~ 6.35 561,324,614 451,749,000

\ 791,324,614 \ 774,749,000

13. Debentures

Debentures issued by the Group and outstanding as of September 30, 2011 and December 31,



40


TypeAnnualinterest

rates (%)

2011 2010

Par value Issue price Par value Issue price

Current portion of debenture

Debenture 4.23 ~ 7.50 \ 495,000,000 \ 495,000,000 \ 310,334,000 \ 310,334,000

Less: Discount ondebentures

(228,807) (288,552)

494,771,193 310,045,448

Non-current portion of debenture

Debenture 4.10 ~ 8.00 1,366,154,500 1,366,154,500 1,196,143,500 1,196,143,500

Less: Discount ondebentures

(1,883,344) (1,826,468)

1,364,271,156 1,194,317,032

\ 1,861,154,500 \ 1,859,042,349 \ 1,506,477,500 \ 1,504,362,480

14. Securitized debts

The amounts of securitized debts which are secured by loans and installment financial assets in

accordance with Asset Backed Securitization Act, as of September 30, 2011 and December 31,



TypeAnnualinterest

rates (%)

2011 2010

Par value Issue price Par value Issue price

Current portion of securitized debts

Debenture 4.12 ~ 4.19 \ 30,000,000 \ 30,000,000 \ - \ -

Less: Discount onsecuritized debts

(48,686) -

29,951,314 -

Non-current portion of securitized debts

Debenture 4.23 ~ 5.43 330,000,000 330,000,000 200,000,000 200,000,000

Less: Discount onsecuritized debts

(663,280) (469,726)

329,336,720 199,530,274

\ 360,000,000 \ 359,288,034 \ 200,000,000 \ 199,530,274

15. Defined Benefit Liability

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

September 30, 2011 and December 31, 2010, are as follows:


41


Type 2011 2010

Present value of funded obligations \ 6,826,744 \ 5,493,658

Fair value of plan assets (3,617,469) (3,812,483)

Defined benefit liability \ 3,209,275 \ 1,681,175

Changes in present value of defined benefit obligations for the nine-month periods ended

September 30, 2011 and 2010:


Type 2011 2010


Current service cost 1,296,066 966,955

Interest cost 201,235 177,661

Actuarial losses 217,476 -

Transfer of severance benefits from

related parties

412,549 434,606

Transfer of severance benefits to related

parties

- (254,171)

Benefits paid (794,240) (371,750)

Ending balance \ 6,826,744 \ 5,368,083

Changes in the fair value of plan assets for the nine-month periods ended September 30, 2011 and

2010:

(in thousands of Korean

won)

Type 2011 2010


Expected return on plan assets 112,058 94,740

Actuarial (losses)/gains 5,174 10,889

Transfer of severance benefits from

related parties

365,608 327,257

Transfer of severance benefits to

related parties

- (139,945)

Contributions by plan participants - 1,000,000

Benefits paid (677,854) (267,742)

Ending balance \ 3,617,469 \ 3,703,654


42

Details of the amounts recognized in the income statement for the nine-month periods ended

September 30, 2011 and 2010:


Type 2011 2010

Current service cost \ 1,296,066 \ 966,955

Interest cost 201,235 177,661

Expected return on plan assets (112,058) (94,740)

Actuarial losses 212,302 (10,889)

\ 1,597,545 \ 1,038,987

Actual return on plan assets for the nine-month periods ended September 30, 2011 and 2010:


Type 2011 2010

Actual return on plan assets \ 117,232 \ 105,629

Details of plan assets as of September 30, 2011 and December 31, 2010:


Type2011 2010

Amount Ratio(%) Amount Ratio(%)

Cash \ 17 0.01 \ 47,125 1.24

Deposits 2,219,772 61.36 2,146,754 56.31

Interest rate guaranteedasset for 1-year

1,397,680 38.63 1,618,604 42.45

\ 3,617,469 100.00 \ 3,812,483 100.00

Actuarial assumptions

Actuarial assumptions required to recognize defined benefit liability as of September 30, 2011 and

December 31, 2010, are as follows:

Type 2011 2010

Discount rate 4.89% 4.90%

Expected return on plan assets 3.82% 4.20%

Future salary increases 5.69% 5.43%

Assumptions regarding future mortality experience are set based on actuarial advice published by

Korea Insurance Development Institute.


43

16. Income Tax

Income tax expense for the nine-month periods ended September 30, 2011 and 2010, consists of:


Type 2011 2010

Current tax1 \ 15,119,182 \ 8,677,278

Changes in deferred tax assets(liabilities) 5,069,367 4,510,036

Deferred tax credited directly to equity (1,000,926) 224,928

Income tax \ 19,187,623 \ 13,412,2421

Income tax for the nine-month period ended September 30, 2011, includes changes in tax

reconciliation of the previous year.

Deferred tax credited directly to equity


Type 2011 2010

Loss on valuation of derivatives \ 57,879 \ (55,621)

Gain(Loss) on valuation of available-for-sale financial securities

(1,300,079) (268,247)

Accumulated comprehensive income of

equity method investee

241,274 548,796

\ (1,000,926) \ 224,928

Reconciliation between income before income tax and income tax expense


Type 2011 2010

Profit before tax \ 80,483,598 \ 60,444,551

Current tax (24.2%) \ 19,450,630 \ 14,601,181

Adjustments:

Income not subject to tax (25,959) -

Expenses not deductible for taxpurposes

- 71,206

Others (237,048) (1,260,145)

Income tax \ 19,187,623 \ 13,412,242

Effective tax rate

(Income tax over net income before tax)23.8% 22.2%


44

Changes in temporary differences and deferred assets (liabilities)


2011

TypeTemporary differences Deferred assets (liabilities)

Beginning Changes Ending Beginning Ending

Deferred loan originationfees and costs

\ (32,402,378) \ 2,332,662 \ (30,069,716) \ (6,963,514) \ (6,615,337)

Allowances for doubtfulaccounts

(9,058,852) (10,387) (9,069,239) (2,192,242) (1,995,233)

Equity methodinvestment

(19,472,745) (11,973,647) (31,446,392) (3,845,072) (6,918,205)

Derivatives (2,062,650) 3,685,425 1,622,775 (499,162) 357,010

Gain on foreigncurrency translation

4,256,000 (3,203,000) 1,053,000 1,029,952 231,660

Goodwill 8,913,333 (5,730,000) 3,183,333 2,157,027 700,333

Accrued expenses 5,284,115 (378,042) 4,906,073 1,278,756 1,079,336


(2,876,064) (6,197,055) (9,073,119) (696,007) (1,996,086)

SPC consolidationeffects

6,537,815 (402,004) 6,135,811 1,532,690 1,349,878

Others (1,090,929) 2,295,428 1,204,499 (274,715) 264,990

\ (41,972,355) \ (19,580,620) \ (61,552,975) \ (8,472,287) \ (13,541,654)


2010

TypeTemporary differences Deferred assets (liabilities)

Beginning Changes Ending Beginning Ending

Deferred loan originationfees and costs

\ (20,525,769) \ (7,945,914) \ (28,471,683) \ (4,944,290) \ (6,734,222)

Allowances for doubtfulaccounts

(7,158,030) (2,412,690) (9,570,720) (1,732,243) (2,316,114)

Equity methodinvestment

3,016,018 (13,922,880) (10,906,862) 999,684 (2,399,510)

Derivatives (4,806,544) 1,306,162 (3,500,382) (1,163,184) (847,092)

Gain on foreign currencytranslation

8,316,000 (1,536,000) 6,780,000 2,012,472 1,640,760

Accrued expenses 8,583,263 (1,686,836) 6,896,427 2,077,150 1,668,935

SPC consolidationeffects

- 8,308,313 8,308,313 - 1,827,829

Others (4,148,615) (435,102) (4,583,717) (986,909) (1,087,942)

\ (16,723,677) \(18,324,947) \ (35,048,624) \ (3,737,320) \ (8,247,356)

Realization of the deferred tax assets and basic judgment

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.


45

17. Derivative Financial Instruments and Hedge Accounting

Derivatives designated as cash flow hedges as of September 30, 2011 and December 31, 2010,

are as follows:


Type

2011 2010

Notionalprincipalamounts

Assets LiabilitiesNotionalprincipalamounts

Assets Liabilities

Interest rate swaps \100,000,000 \ 111,516 \ - \ 40,000,000 \ - \ 596,237

Currency swaps 64,872,500 690,195 2,424,486 108,195,500 6,151,267 3,492,380

\164,872,500 \ 801,711 \ 2,424,486 \148,195,500 \ 6,151,267 \ 4,088,617

The amount recognized as other comprehensive income, representing the effective portion related

to cash flow hedge, is \ (-)1,859,171 thousand as of September 30, 2011, and the reclassified

amount from other comprehensive income to profit or loss is \ 1,376,747 thousand. There is no

ineffective portion recognized related to cash flow hedge for the nine-months periods ended

September 30, 2011 and 2010.

18. Shareholders’ Equity

Capital stock

The Company is authorized to issue 80,000,000 shares. As of September 30, 2011, the Company

has 20,000,000 shares issued and outstanding with a par value of \ 5,000 per share.

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.

Legal reserve and discretionary reserve

Legal reserve and discretionary reserve as of September 30, 2011 and December 31, 2010, are as

follows:


46


Type 2011 2010

Legal reserve Revenue reserve \ 1,000,000 \ -

Discretionaryreserve

Reserve for electronic financialtransactions

100,000 -

1,100,000 -

Unappropriated retained earnings

(Expected reserve for bad loans

2011: \ 3,286,975 thousand

2010: \ 2,407,178 thousand)

131,667,200 81,470,128

\ 132,767,200 \ 81,470,128

Reserve for bad loans

If allowances for doubtful accounts do not meet the minimum amount calculated in accordance

with allowance reserve standards of Regulation on Supervision under the Specialized Credit

Financial Business Law Article 11, 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

attributed to discretionary reserve for retained earnings. If the existing reserve for bad loans

exceeds the reserve for bad to be reserved, the excess amounts are able to write-back. And if

unappropriated deficit is existing, the reserve for bad loans is able to be reserved after

unappropriated deficit is appropriated.

(1) Appropriated and expected reserves for bad loans as of September 30, 2011 and year ended



Type 2011 2010

Appropriated reserve for bad loans \ - \ -

Expected reserve for bad loans 3,286,975 2,407,178

\ 3,286,975 \ 2,407,178

(2) Transfer to reserve for bad loans and net income in consideration of effect of changes in

reserve for bad loan for the three-month and nine-month periods ended September 30, 2011,

are as follows:

(in thousands of Korean won) Amount

Type Three Months Nine Months

Net income \ 24,218,667 \ 61,297,073

Transfer to reserve for bad loans1

(470,842) (879,797)

Net income in consideration of changes in reserve forbad loans

2 23,747,825 60,417,276

Net income per share in consideration of changes inreserve for bad loans (In won)

1,188 3,021


47

1Transfer to reserve for bad loans are subtracted from balance of reserve for bad loans in 2011

to balance in 2010.2

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.

19. Net Interest Income

Net interest income for the nine-month periods ended September 30, 2011 and 2010, are as

follows:


Type 2011 2010

Interest income

Cash and deposits \ 3,644,697 \ 1,215,163

Loans receivable 167,653,679 102,914,368

Installment financial assets 44,749,777 47,688,786

Lease receivables 3,410,253 2,872,617

Other 205,825 347,938

219,664,231 155,038,872

Interest expenses

Borrowings 28,337,003 21,547,440

Debentures 67,253,045 52,850,460

Securitized debts 13,069,891 4,481,270

Other1

312,317 49,612

108,972,256 78,928,782

\ 110,691,975 \ 76,110,090

1Amortization of present value discount account according to the effective interest method.


48

20. Net Commission Income

Net commission income for the nine-month periods ended September 30, 2011 and 2010, are as

follows:


Type 2011 2010

Commission income

Loans receivable \ 9,251,228 \ 5,757,826


Lease receivables 193,240 39,740

10,774,439 7,158,921

Commission expenses - -

\ 10,774,439 \ 7,158,921

21. General and Administrative Expenses

General and administrative expenses for the three-month and the nine-month periods ended

September 30, 2011 and 2010, are as follows:


Type2011 2010

Three months Nine months Three months Nine months

Payroll \ 4,922,014 \ 13,617,550 \ 4,438,707 \ 10,305,267

Severance benefits 594,967 1,597,555 343,256 1,073,883

Fringe benefits 1,231,654 3,594,521 1,035,902 2,921,170

Outsourcing service charges 797,106 2,306,684 539,488 1,434,594

Sales promotions 2,149,058 7,875,414 2,690,407 7,047,466

Commission 520,369 1,729,053 273,229 1,144,978

Outsourcing service commission 444,236 1,402,242 484,507 2,170,009

Depreciation 276,598 948,663 329,465 939,033

Amortization 323,335 1,034,378 314,075 891,547

Taxes and dues 412,467 1,291,738 238,402 506,562

Electronic expenses 451,273 1,089,285 303,370 917,209

Rent 212,141 641,799 293,668 769,924

Maintenance expenses on

building243,442 704,033 195,967 547,907

Travel and transportation 106,202 417,455 108,637 407,170

Education 97,814 484,136 152,201 349,983

Communication 147,554 394,455 92,892 279,533

Other expenses 341,213 1,207,902 512,639 1,256,090

\ 13,271,443 \ 40,336,863 \ 12,346,812 \ 32,962,325


49

22. Earnings Per Share

Basic earnings per share attributable to common stock for the three-month and the nine-month

periods ended September 30, 2011 and 2010, follows:

Type

2011 2010

Three months Nine months Three months Nine months(1) Net income attributable

to common stock(In won)

\ 24,218,667,205 \ 61,297,072,888 \ 20,499,170,133 \ 47,032,309,130

(2) Weighted average ofnumber of outstandingcommon shares

20,000,000 20,000,000 20,000,000 20,000,000

(3) Basic earnings pershare (In won) (1)÷(2)

\ 1,211 \ 3,065 \ 1,025 \ 2,352

As there was no discontinued operation during the nine-month periods ended September 30, 2011

and 2010, basic earnings per share is the same as basic earnings per share from continuing

operations. There are no potential common stocks as of September 30, 2011 and 2010. Therefore,

the diluted earnings per share is the same as basic earnings per share for nine-month periods

ended September 30, 2011 and 2010.

23. Other Comprehensive Income

Other comprehensive income for the nine-month periods ended September 30, 2011 and 2010,

consists of:

(in thousands of Korean won)2011

TypeBeginning

balance

ChangesIncome tax

effectsEndingbalance

Reclassifi-cation of

profit or loss

Otherchanges

Loss on valuation ofderivatives

\ (1,662,559) \ 1,376,747 \(1,859,171) \ 57,879 \(2,087,104)

Gain on valuation ofavailable-for-salefinancial assets

2,180,057 (1,638,531) 7,835,586 (1,300,079) 7,077,033

Accumulatedcomprehensiveexpense of equitymethod investee

(1,379,779) - (1,096,701) 241,274 (2,235,206)

\ (862,281) \ (261,784) \ 4,879,714 \(1,000,926) \ 2,754,723


50


2010

TypeBeginning

balance

ChangesIncome

tax effectsEndingbalance

Reclassifi-cation of

profit or loss

Otherchanges

Loss on valuation ofderivatives

\ (2,660,167) \ 2,410,956 \ (2,181,118) \ (55,621) \ (2,485,950)

Gain on valuation ofavailable-for-salefinancial assets

351,000 - 1,219,304 (268,247) 1,302,057

Accumulatedcomprehensiveexpense of equitymethod investee

377,771 - (2,494,522) 548,796 (1,567,955)

\ (1,931,396) \ 2,410,956 \ (3,456,336) \ 224,928 \ (2,751,848)

24. Cash Flow Statement

Cash and cash equivalents in cash flow statements as of September 30, 2011 and December 31,

2010, consist of follows:


Type 2011 2010

Cash \ 2,000 \ 2,010

Ordinary deposits 9,329,006 3,922,889

Current deposits 10 10

Short-term financial instruments 208,774,080 96,013,494

\ 218,105,096 \ 99,938,403


51

Cash generated from operations for the nine-month periods ended September 30, 2011 and 2010,

are as follows:


2011 2010

Net income \ 61,297,073 \ 47,032,309

Adjustments

Net interest expenses 105,121,734 77,365,681

Dividends (300,000) -

Income tax 19,187,623 13,412,242

Gain on loans receivable 31,413,605 24,459,575

Gain on installment financing (2,528,657) (3,303,940)

Gain on leased assets (109,176) (159,896)

Gain on foreign currency translation - (3,765,500)

Gain on disposal of property and equipment (4,346) -

Gain on valuation of derivatives (3,391,000) -

Gain on disposal of securities (1,638,531) -

Gain on equity method valuation (13,202,282) (16,479,176)

Bad debts expense 15,436,408 4,736,667

Severance benefits 1,597,545 1,038,987

Depreciation 948,663 939,033

Amortization of intangible assets 1,034,378 891,546

Loss on foreign exchange translations 3,391,000 -

Loss on disposal of property and equipment 48,895 -

Impairment loss on investment assets 1,113,000 486,789

Loss on disposal of investment assets - 550

Loss on valuation of derivatives - 3,765,500

158,118,859 103,388,058

Changes in operating assets and liabilities

(Increase) in loans receivable (526,496,920) (630,637,051)

Decrease(increase) in installment financingreceivables

69,730,527 (67,718,220)

Decrease (increase) in finance lease receivables (32,115,586) 5,357,258

(Increase) in deferred loan origination fees andcosts

(40,826,798) (23,158,783)

Increase(decrease) in present value discounts (1,492,701) 103,023

(Decrease) in allowance for bad debts (520,558) (987,078)

Decrease(increase) in non-trade receivables 5,928,974 (12,376,576)

(Increase) in accrued revenues (2,708,410) (3,879,222)

Decrease(increase) in advance payments (938,975) 122,201

Decrease in prepaid expenses 5,533,186 2,635,692

Increase in non-trade payables 4,631,038 2,320,793

(Decrease) in accrued expenses (3,835,716) (1,379,679)

Increase in unearned revenue 1,789,450 615,189

Increase(decrease) in advance receipts (64,954) 157,998


52

Increase in withholdings 734,264 1,359,285

Payment of severance benefits (794,240) (371,750)

Decrease(increase) in plan assets 312,246 (919,570)

Transfer of severance benefits from related parties 412,549 434,606

Transfer of severance benefits to related parties - (254,171)

Increase in leasehold deposits received 11,543,889 202,143

(509,178,735) (728,373,912)

\ (289,762,803) \ (577,953,545)

Significant investing and financing activities not affecting cash flows for the nine-month periods

ended September 30, 2011 and 2010, are as follows:


Type 2011 2010

Transferred from advance payments to otherintangible assets

\ 931,215 \ -

Discount on stock issuance - 663,810

Transferred to legal reserve 1,000,000 -Transferred to discretionary reserve 100,000 -

25. Commitments and Contingencies

Details of credit line agreements of the Company as of September 30, 2011, and December 31,



Type Financial institutions 2011 2010

Limit of overdraftWoori Bank and 3 other

banksKRW 130 billion KRW 50 billion

Limit of L/C Shinhan Bank USD 8 million USD 8 million

The amounts of pending significant litigations involving the Company as of September 30, 2011,

total \ 1,289,042 thousand. 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 September 30, 2011.

The Company enters into a financial support agreement with Shinhan Bank for acquisitions of mold

equipments 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

September 30, 2011, is \ 15,939,278 thousand (2010: \ 27,061,444 thousand).


53

Details of guarantees involving third parties as of September 30, 2011, and December 31, 2010,

are as follows:


Guarantor Details Amount

Hyundai WiaGuarantees on machinery installment

financing receivables\ 67,811,845

Hyundai Motor

Company

Guarantees on finance leasereceivables 10,161,266

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 nine-month periods ended September 30, 2011 and 2010, are as follows:

(in thousands of Korean won) 2011 2010Purchases Sale Purchases Sale

Parent Company

Hyundai Motor Company \ 232,568 \ - \ 1,754,196 \ -

Others

Kia Motors Corp. - - 292,391 -

Hyundai Wia Corp. 43,142,490 - 60,000 -Hyundai Capital Services

Inc. - 24,005,621 - 9,931,606

Hyundai Autoever Corp. 621,571 - 185,717 -

43,764,061 24,005,621 538,108 9,931,606

\ 43,996,629 \ 24,005,621 \ 2,292,304 \ 9,931,606


54

Revenues and expenses arising from transactions with related parties for the three-month and the

nine-month periods ended September 30, 2011 and 2010, and receivables and payables as of

September 30, 2011 and December 31, 2010, are as follows:

(in thousands of Korean won) 2011 2010Receivables Payables Receivables Payables

Parent Company

Hyundai Motor Company \ 248,159 \ 296,115 \ 282,173 \ 179,930

Others

Kia Motors Corp. 3,252 - 3,440 -Hyundai Capital Services

Inc. 2,446,162 37,572 2,458,803 9,868

HMC Investment Securities - - - 10,000,000

Hyundai Card Co., Ltd. 3,504,061 1,301,723 3,478,586 741,324

Samwoo Co., Ltd. 21,462,441 118,675 1,797,127 118,675

Haevichi Hotel and Resort - - 12,188 -

Mseat Inc. 15,000,000 - 5,000,000 -

Wia Magna Powertrain - - 2,000,000 -

Employees 1,322,652 - 1,409,292 -

43,738,568 1,457,970 16,159,436 10,869,867

\ 43,986,727 \ 1,754,085 \ 16,441,609 \11,049,797


2011

Revenues Expenses

Three monthsNine

months Three monthsNine

months

Parent Company

Hyundai Motor Company \ 782,869 ₩ 2,385,388 ₩ 2,260 ₩ 8,441

Others

Kia Motors Corp. 16,802 29,439 - -Hyundai Capital Services

Inc.1,143,742 2,579,672 696,031 1,525,890

Hyundai Autoever Corp. - - 529,211 1,507,786

HMC Investment Securities - 21,931 - 82,000

Hyundai Card Co., Ltd. 337,206 573,074 165,311 478,391

Innocean Worldwide Corp. - - 9,900 56,016Samwoo 321,264 513,455 - -Haevichi Hotel and Resort - - - -Mseat Inc. 309,740 521,305 - -Wia Magna Powertrain 25,237 84,654 - -Employees 7,136 22,731 40 95

2,161,127 4,346,261 1,400,493 3,650,178

\ 2,943,996 \ 6,731,649 \ 1,402,753 \ 3,658,619


55


2010

Revenues Expenses

Three monthsNine

months Three monthsNine

months

Parent Company

Hyundai Motor Company \ 847,912 \ 2,650,377 \ 47 \ 3,880

Others

Kia Motors Corp. 2,702 9,820 - -Hyundai Capital Services

Inc.502,388 1,046,722 1,786,209 2,417,649

Hyundai Autoever Corp. - - 430,780 1,266,371

HMC Investment Securities - 74,977 53,439 190,241

Hyundai Card Co., Ltd. 49,446 356,821 151,250 350,658

Innocean Worldwide Corp. - - 44,000 127,092Haevichi Hotel and Resort - - 330 880Employees 1,631 20,263 - -

556,167 1,508,603 2,466,008 4,352,891

\ 1,404,079 \ 4,158,980 \ 2,466,055 \ 4,356,771

The Company has been provided with guarantees by the related parties.

Compensation for key management for the nine-month periods ended September 30, 2011 and

2010, consists of:


Type 2011 2010

Short-term employee benefits \ 970,859 \ 1,064,326

Severance benefits 516,045 442,893

The key management above consists of directors (including non permanent directors), who have

significant authority and responsibilities for planning, operating and controlling the Group.

27. Financial Risk Management

The Group is exposed to credit risk, liquidity risk and market 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.


56

27.1 Credit risk

Exposures to credit risk as of September 30, 2011 and December 31, 2010, are as follows:


Type 2011 2010

Cash and deposits \ 218,114,596 \ 99,947,893

Loans receivable 2,298,128,544 1,777,627,055


Financial lease receivables 72,741,134 40,950,641

Non-trade receivables 33,537,341 39,460,549

Accrued revenue 16,070,772 13,016,641

Leasehold deposits 9,035,009 7,233,369

Derivative assets 801,711 6,151,267

Payment guarantee agreement 15,939,278 27,061,444

\ 3,163,111,092 \ 2,576,500,401

Credit quality of financial assets exposed to credit risk as of September 30, 2011 and December

31, 2010, follows:


Type2011 2010

Normal Past due Impaired Normal Past due Impaired

Cash and deposits \ 218,114,596 \ - \ - \ 99,947,893 \ - \ -

Financial receivables

Loans receivable 2,176,115,859 116,966,100 5,046,585 1,705,904,173 69,971,081 1,751,801


468,133,374 30,116,100 493,233 532,706,801 32,099,772 244,969

Leasereceivables

65,864,327 6,876,807 - 31,798,795 9,145,323 6,523

2,710,113,560 153,959,007 5,539,818 2,270,409,769 111,216,176 2,003,293


33,537,341 - - 39,460,549 - -

Accrued revenue 16,070,772 - - 13,016,641 - -

Leaseholddeposits

9,035,009 - - 7,233,369 - -

Derivative assets 801,711 - - 6,151,267 - -

\2,987,672,989 \153,959,007 \5,539,818 \2,436,219,488 \111,216,176 \2,003,293


57

Credit quality according to internal credit rating of financial receivables which are neither past due

nor impaired as of September 30, 2011 and December 31, 2010, are as follows:


Type2011 2010

Gross amount Allowance Book value Gross amount Allowance Book value

First-rate \ 256,058,109 \ (175,709) \255,882,400 \ 610,115,997 \ (265,721) \609,850,276

Second-rate 1,023,046,907 (1,371,515) 1,021,675,392 524,819,937 (729,173) 524,090,764

Third-rate 897,377,538 (5,685,774) 891,691,764 640,914,070 (3,791,269) 637,122,801

Fourth-rate 183,637,754 (2,253,273) 181,384,481 158,778,521 (1,978,523) 156,799,998

Fifth-rate 63,517,625 (1,794,001) 61,723,624 51,196,723 (1,477,666) 49,719,057

Sixth-rate 31,644,264 (2,047,866) 29,596,398 22,117,745 (1,473,724) 20,644,021

No rating 269,828,847 (1,669,346) 268,159,501 273,666,029 (1,483,177) 272,182,852

\2,725,111,044 \(14,997,484) \2,710,113,560 \2,281,609,022 \(11,199,253) \2,270,409,769

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.

Financial receivables past due but not impaired as of September 30, 2011 and December 31, 2010,

are as follows:


2011

TypesLess than1 month

Between1 ~ 2 months

Between2~3 months

Over

3 months1 Total

Loans receivable \103,321,411 \ 16,729,857 \ - \ - \120,051,268

Installment financial assets 27,318,993 2,917,319 332,609 201,960 30,770,881

Lease receivables 1,632,632 75,614 155,106 5,039,032 6,902,384

132,273,036 19,722,790 487,715 5,240,992 157,724,533

Allowance (2,768,466) (991,284) (2,311) (3,465) (3,765,526)

Carrying amount \129,504,570 \ 18,731,506 \ 485,404 \ 5,237,527 \153,959,007

1The Group does not include the receivables provided with guarantees from the related parties in

the receivables which are past due for over 3 months (Note 25).


58


2010

TypesLess than1 month

Between1 ~ 2 months

Between2~3 months

Over3 months

1 Total

Loans receivable \ 62,812,645 \ 9,455,118 \ - \ - \ 72,267,763

Installment financial assets 26,546,419 4,568,769 927,797 826,468 32,869,453

Lease receivables 1,359,514 349,231 309,449 7,173,387 9,191,581

90,718,578 14,373,118 1,237,246 7,999,855 114,328,797

Allowance (2,263,883) (830,854) (6,396) (11,488) (3,112,621)

Carrying amount \ 88,454,695 \ 13,542,264 \ 1,230,850 \ 7,988,367 \111,216,176

Impaired financial receivables as of September 30, 2011 and December 31, 2010, are as follows:


2011 2010

Type Gross amount Allowance Book value Gross amount Allowance Book value

Loans receivable \ 8,944,550 \(3,897,965) \ 5,046,585 \ 3,675,662 \(1,923,861) \ 1,751,801


991,571 (498,338) 493,233 679,999 (435,030) 244,969

Lease receivables - - - 10,255 (3,732) 6,523

\ 9,936,121 \(4,396,303) \ 5,539,818 \ 4,365,916 \(2,362,623) \ 2,003,293

Credit quality according to external credit rating of other assets except for financial receivables

which are neither past due nor impaired as of September 30, 2011 and December 31, 2010, are as

follows:


Cash and deposits1

2011 2010

AAA \ 83,114,596 \ 49,947,893

AA+ 5,000,000 -

AA 70,000,000 20,000,000

AA- 20,000,000 -

A+ 20,000,000 10,000,000

A 20,000,000 10,000,000

No rating - 10,000,000

\ 218,114,596 \ 99,947,893

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


59


Derivative assets2

2011 2010

AA \ - \ 6,151,267

AA- 76,478 -

A+ 725,233 -

\ 801,711 \ 6,151,267

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

The assets pledged as collaterals for financial receivables as of September 30, 2011 and



2011

Type ImpairedUnimpaired

TotalDelinquent Non-delinquent

Total financialreceivables

\ 5,539,818 \ 153,959,007 \ 2,710,113,560 \ 2,869,612,385

Collateralized assets

Collateralizedvehicles

7,115,764 140,705,686 2,002,069,300 2,149,890,750

Collateralized realestate

- - 94,121,831 94,121,831

Collateralizedothers

- - 65,500,000 65,500,000

\ 7,115,764 \ 140,705,686 \2,161,691,131 \2,309,512,581


2010

Type ImpairedUnimpaired

TotalDelinquent Non-delinquent

Total financialreceivables

\ 2,003,293 \ 111,216,176 \2,270,409,769 \2,383,629,238

Collateralized assets

Collateralizedvehicles

2,997,154 94,484,215 1,741,813,504 1,839,294,873

Collateralizedreal estate

- - 15,442,164 15,442,164

Others - - 65,500,000 65,500,000

\ 2,997,154 \ 94,484,215 \1,822,755,668 \1,920,237,037


60

Credit risk concentration of financial receivables by debtors as of September 30, 2011 and



Type

2011 2010

Includingallowance

Ratio Allowance Book valueIncludingallowance

Ratio Allowance Book value

Finance \ 33,707,712 1.17% \ (80,613) \ 33,627,099 \ 38,147,620 1.59% \ (276,412) \ 37,871,208

Manufacturing 133,211,627 4.60% (1,246,729) 131,964,898 113,422,784 4.73% (1,190,223) 112,232,561

Service 2,547,394,644 88.06% (17,751,006) 2,529,643,638 2,035,575,575 84.81% (12,105,812) 2,023,469,763

Others 178,457,716 6.17% (4,080,965) 174,376,751 213,102,587 8.87% (3,046,881) 210,055,706

\2,892,771,699 100.0% \(23,159,313) \ 2,869,612,386 \2,400,248,566 100.0% \(16,619,328) \2,383,629,238

27.2 Liquidity risk

Cash flows of financial liabilities based on remaining contractual maturities as of September 30,

2011 and December 31, 2010, are as follows:


TypeImmediatepayment

Up to 3months

3 months to1 year

1 to 5 years Over 5 years Total1

Borrowings \ - \ 207,396,236 \ 257,469,646 \ 363,646,214 \ - \ 828,512,096

Debentures - 81,767,344 453,741,170 1,322,639,583 41,170,000 1,899,318,097

Securitized

debts- 4,428,867 43,204,097 360,646,648 - 408,279,612

Other liabilities 1,703,214 18,069,117 1,110,503 13,328,140 - 34,210,974

Payment

guarantee

agreements

15,939,278 - - - - 15,939,278

Derivative

liabilities2

Cash inflow - (306,086) (1,000,269) (42,627,916) - (43,934,271)

Cash outflow - 542,264 1,626,791 44,368,554 - 46,537,609

\17,642,492 \311,897,742 \ 756,151,938 \2,062,001,223 \ 41,170,000 \3,188,863,395

1The 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.2Gross settlement derivatives and contractual undiscounted cash flows.


61


TypeImmediatepayment

Up to 3months

3 months to1 year

1 to 5 years Over 5 years Total1

Borrowings \ - \ 395,342,116 \ 256,239,605 \ 134,049,847 \ - \ 785,631,568

Debentures - 101,244,390 190,626,623 1,214,931,753 40,216,000 1,547,018,766

Securitized

debts- 2,560,500 7,681,500 226,693,000 - 236,935,000

Other

liabilities1,511,379 17,400,384 581,331 2,601,385 - 22,094,479

Payment

guarantee

agreement

s

27,061,444 - - - - 27,061,444

Derivative

liabilities2

Cash inflow - (131,179) (2,024,005) (42,786,883) - (44,942,067)

Cash

outflow- 243,500 3,441,727 45,995,345 - 49,680,572

\28,572,823 \516,659,711 \ 456,546,781 \1,581,484,447 \ 40,216,000 \2,623,479,762

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), Earning at Risk(EaR)

measurement and Interest Rate Gap Analysis that analyze the maturity between the interest

revenue-generating assets and the interest-bearing liabilities.

VaR is calculated using the standard framework of the Bank for International Settlements(BIS). The

VaR model uses the proxy of modified duration per expiration interval proposed by the BIS and

expected interest rate volatility of expiration interval by reason of interest rate fluctuation of 100bp.

The interest rate risk using VaR as of September 30, 2011 and December 31, 2010, follows:


Type 2011 2010

Interest rate VaR \ 6,457,535 \ 3,523,795


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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.

Foreign exchange position exposures of the Group as of September 30, 2011 and December 31,


The Group’s exposure to foreign exchange risk is hedged by derivatives. Therefore, foreign

exchange risk of the Group is not significant.

c. Price risk

Marketable equity securities which are classified into available-for-sale securities are exposed to

price risk. The effects of 10% price variation for comprehensive income and shareholders' equity

are as follows:


Type 2011

Comprehensive income \ 1,497,600

Shareholders' equity 1,497,600

27.4 Capital risk management

The objective of the Group’s capital management is to maintain a sound capital structure. The

Group uses adjusted capital adequacy ratio under the regulation on Supervision of Specialized

Credit Financial Business Law as a capital management indicator. This ratio is calculated as

adjusted total asset divided by adjusted equity.


Currency 2011 2010

USD \ 64,872,500 \ 108,195,500


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Adjusted capital adequacy ratio of the Group as of September 30, 2011 and December 31, 2010, is

as follows:

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

Credit Financial Business Law.

28. Subsequent Events

a. Capital increase

The Company’s Board of Directors decided on November 7, 2011, to increase its capital by

offering to third parties the following:

b. Acquisition of Green Cross Life Insurance’s stock

The Company’s Board of Directors decided on October 21, 2011, to acquire the shares of Green

Cross Life Insurance Co., Ltd. from Green Cross Holdings Corp.


Type 2011 2010

Adjusted total assets (1) \ 3,103,092,423 \ 2,619,760,027

Adjusted equity (2) 354,159,023 249,439,164

Adjusted capital adequacy ratio (2)÷(1) 11.41% 9.52%

Capital increase Description

Type Preferred stock

Shares to be issued 5,000,000 shares

Par value per share \ 5,000

Price per share \ 20,000

Stock acquisition Description

Number of shares to beacquired

5,517,944 shares

Purchase price \ 71.7 billion

Ownership afteracquisition

28.1%

Investor Relations

Audit Report: Hyundai Commercial 3Q2011