ANNUAL REPORT 2002 Investor Relations : Investors wishing to recieve detailed information on Kookmin Credit Card, please feel free to contact the IR Team.

167 Naesu-dong, Jongno-gu, Seoul 110-070, Korea

TEL :: 82-2-3700-3068 FAX :: 82-2-3700-3069 e-Mail :: ir@kmcard.co.kr

to ShareholdersPromiseK

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EPOR

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www.irkookmincard.co.kr2

HeighteningAsset Quality

While Seeking Substantiality for a New Start

ANNUAL REPORT 2002

3

CompanyProfile

FinancialHighlights

Highlightsin 2002

SolidInfrastructure

andCompetitiveness

FinancialSection

Effective RiskManagement

MarketingStrategy

OrganizationChart

Board ofDirectors andExecutive Vice

Presidents

Message fromthe CEO

4 5 6 8 10 14 18 22 68

contents

CorporateEthics

Policies

CorporateData

69 70 71

www.irkookmincard.co.kr2

HeighteningAsset Quality

While Seeking Substantiality for a New Start

ANNUAL REPORT 2002

3

CompanyProfile

FinancialHighlights

Highlightsin 2002

SolidInfrastructure

andCompetitiveness

FinancialSection

Effective RiskManagement

MarketingStrategy

OrganizationChart

Board ofDirectors andExecutive Vice

Presidents

Message fromthe CEO

4 5 6 8 10 14 18 22 68

contents

CorporateEthics

Policies

CorporateData

69 70 71

ANNUAL REPORT 2002

5www.irkookmincard.co.kr

4

Kookmin Credit Card (the Company) was spun off in 1987,as a subsidiary of Kookmin Bank (KB). Today, the Company provides abroad range of financial services aside from credit card services,including loans, consumer financing and living-convenience services.Through dedication and transparent management, the Company hassecured its industry leadership and demonstrated an array ofaccomplishments:

Introduced the world’s first non-contact credit card system to be usedfor transportation

Received ‘Best Customer Satisfaction Award’ from the KoreaManagement Association (KMA) for five consecutive years

Named ‘Best IR Company’ by several institutions

Kookmin Card is one of the most widely known credit card brands inKorea, and is committed to meeting the diverse needs of customersthrough competitive products, services, and technologies, backed byhighly dedicated professionals and a strong network.

As of 2002-end, the Company’s assets, shareholders’ equity, andliabilities stood at 13,381 billion, 918 billion and 12,463 billion,respectively. Meanwhile, operating revenues amounted to 3,156 billion,with the number of cardholders growing to 12.8 million.

2000 2001 22000022

NNeett IInnccoommee 301 458 ((226611))OOppeerraattiinngg RReevveennuuee 1,460 2,341 33,,115566

IInntteerreesstt 1,322 2,160 22,,994422FFeeee 74 116 113366OOtthheerrss 63 65 7777

TToottaall AAsssseettss 8,181 10,577 1133,,338811SShhaarreehhoollddeerrss’’ EEqquuiittyy 803 1,178 991188

RR OO AA 4.84% 4.89% --22..1188%%RR OO EE 52.36% 46.28% --2244..9900%%

(Billions of Korean won)

Shareholders’ Equity

9181,178

803

2000 2001 2002

Total Assets

13,381

10,577

8,181

2000 2001 2002

Net income

(261)

2002

301

458

2000 2001

(Billions of Korean won) (Billions of Korean won) (Billions of Korean won)

Company profile Financial Highlight

ANNUAL REPORT 2002

5www.irkookmincard.co.kr

4

Kookmin Credit Card (the Company) was spun off in 1987,as a subsidiary of Kookmin Bank (KB). Today, the Company provides abroad range of financial services aside from credit card services,including loans, consumer financing and living-convenience services.Through dedication and transparent management, the Company hassecured its industry leadership and demonstrated an array ofaccomplishments:

Introduced the world’s first non-contact credit card system to be usedfor transportation

Received ‘Best Customer Satisfaction Award’ from the KoreaManagement Association (KMA) for five consecutive years

Named ‘Best IR Company’ by several institutions

Kookmin Card is one of the most widely known credit card brands inKorea, and is committed to meeting the diverse needs of customersthrough competitive products, services, and technologies, backed byhighly dedicated professionals and a strong network.

As of 2002-end, the Company’s assets, shareholders’ equity, andliabilities stood at 13,381 billion, 918 billion and 12,463 billion,respectively. Meanwhile, operating revenues amounted to 3,156 billion,with the number of cardholders growing to 12.8 million.

2000 2001 22000022

NNeett IInnccoommee 301 458 ((226611))OOppeerraattiinngg RReevveennuuee 1,460 2,341 33,,115566

IInntteerreesstt 1,322 2,160 22,,994422FFeeee 74 116 113366OOtthheerrss 63 65 7777

TToottaall AAsssseettss 8,181 10,577 1133,,338811SShhaarreehhoollddeerrss’’ EEqquuiittyy 803 1,178 991188

RR OO AA 4.84% 4.89% --22..1188%%RR OO EE 52.36% 46.28% --2244..9900%%

(Billions of Korean won)

Shareholders’ Equity

9181,178

803

2000 2001 2002

Total Assets

13,381

10,577

8,181

2000 2001 2002

Net income

(261)

2002

301

458

2000 2001

(Billions of Korean won) (Billions of Korean won) (Billions of Korean won)

Company profile Financial Highlight

ANNUAL REPORT 2002

7www.irkookmincard.co.kr

6

First, we will be committed to maximizing shareholdervalue

Management will focus on profitability by identifying risksand revenue drivers, and optimizing efficiency based on aflexible organizational structure. We will also resolutelyabandon all inefficient and unprofitable businesses.

Second, we will realign and consolidate all our systems andmanpower to enhance profitability

We will heighten our ability to analyze current and potentialcustomers and markets, a core competence in the creditcard industry. In addition, we will develop a newmanagement information system (MIS) to leverage theseactivities, and a managerial accounting system to improvecorporate efficiency. Going forward, we will continue toaccumulate our expertise and know-how by strengtheningour investments in employee education and training.

Third, we will establish a transparent management system

We realize that a transparent decision-making process isthe key to gaining acceptance by our customers and themarket, and it is also vital to improve employee perception.As such, ethical management procedures will continue to befocused on by eliminating all grounds for moral hazardwithin the Company through greater transparency.

Fourth, we will foster success by establishing aperformance-based evaluation system

A starting point for all reforms stems from establishing ameritocracy-based evaluation system to recognize employee

efforts and results. We will continue fostering anorganization where creativity and innovative ideas arevalued, and where knowledge and experience lead topositive outcomes.

Lastly, we are committed to reducing NPLs byconcentrating on delinquency management.

Concurrently, we aim to secure new core business modelsthis year to prepare against any environmental challengesand volatility of the future.

Furthermore, we will put forth all of our energy to reinforceour industry-leading status, taking present conditions as anopportunity to move ahead of our competitors. I would like toexpress my grateful appreciation for the loyalty of ourclients, shareholders and investors. We pledge that we willcontinue to be committed to maximizing shareholder valueby focusing on transparency, profitability, and high assetquality.

CHO, BONG HWAN CEO & President

Management will focus on profitability byidentifying risks and revenue drivers, andoptimizing efficiency based on a flexibleorganizational structure.

In retrospect, the credit card industry underwent radicalchanges during 2002. Credit card issuers suffered fromdeteriorating asset quality behind increasing householddebts and tightened government regulations.Consequently, credit card companies posted significantlosses last year, with Kookmin Card being no exception.We witnessed substantial losses in 2002, mainly due toextraordinarily high credit costs.

However, Kookmin Card is well positioned to lead themarket amid such environmental challenges. In 2003, wewill be dedicated to providing creative value-addedproducts and services with an aim to further develop intoa world-class player.

Above all, we will concentrate on improving assetsoundness, heightening internal efficiencies, andenhancing core capabilities. To this end, we will upgradethe quality of our services, adopting advanced creditsystems, and introduce new marketing initiatives, creditcard products, and CRM ( Customer RelationshipManagement ) systems.

Management will specifically concentrate on thefollowing:

Letter ToShareholders

We are committed to reducing NPLs by concentrating on delinquency management

Message from the CEO

ANNUAL REPORT 2002

7www.irkookmincard.co.kr

6

First, we will be committed to maximizing shareholdervalue

Management will focus on profitability by identifying risksand revenue drivers, and optimizing efficiency based on aflexible organizational structure. We will also resolutelyabandon all inefficient and unprofitable businesses.

Second, we will realign and consolidate all our systems andmanpower to enhance profitability

We will heighten our ability to analyze current and potentialcustomers and markets, a core competence in the creditcard industry. In addition, we will develop a newmanagement information system (MIS) to leverage theseactivities, and a managerial accounting system to improvecorporate efficiency. Going forward, we will continue toaccumulate our expertise and know-how by strengtheningour investments in employee education and training.

Third, we will establish a transparent management system

We realize that a transparent decision-making process isthe key to gaining acceptance by our customers and themarket, and it is also vital to improve employee perception.As such, ethical management procedures will continue to befocused on by eliminating all grounds for moral hazardwithin the Company through greater transparency.

Fourth, we will foster success by establishing aperformance-based evaluation system

A starting point for all reforms stems from establishing ameritocracy-based evaluation system to recognize employee

efforts and results. We will continue fostering anorganization where creativity and innovative ideas arevalued, and where knowledge and experience lead topositive outcomes.

Lastly, we are committed to reducing NPLs byconcentrating on delinquency management.

Concurrently, we aim to secure new core business modelsthis year to prepare against any environmental challengesand volatility of the future.

Furthermore, we will put forth all of our energy to reinforceour industry-leading status, taking present conditions as anopportunity to move ahead of our competitors. I would like toexpress my grateful appreciation for the loyalty of ourclients, shareholders and investors. We pledge that we willcontinue to be committed to maximizing shareholder valueby focusing on transparency, profitability, and high assetquality.

CHO, BONG HWAN CEO & President

Management will focus on profitability byidentifying risks and revenue drivers, andoptimizing efficiency based on a flexibleorganizational structure.

In retrospect, the credit card industry underwent radicalchanges during 2002. Credit card issuers suffered fromdeteriorating asset quality behind increasing householddebts and tightened government regulations.Consequently, credit card companies posted significantlosses last year, with Kookmin Card being no exception.We witnessed substantial losses in 2002, mainly due toextraordinarily high credit costs.

However, Kookmin Card is well positioned to lead themarket amid such environmental challenges. In 2003, wewill be dedicated to providing creative value-addedproducts and services with an aim to further develop intoa world-class player.

Above all, we will concentrate on improving assetsoundness, heightening internal efficiencies, andenhancing core capabilities. To this end, we will upgradethe quality of our services, adopting advanced creditsystems, and introduce new marketing initiatives, creditcard products, and CRM ( Customer RelationshipManagement ) systems.

Management will specifically concentrate on thefollowing:

Letter ToShareholders

We are committed to reducing NPLs by concentrating on delinquency management

Message from the CEO

ANNUAL REPORT 2002

9www.irkookmincard.co.kr

8

Reliabilty and ValueJanuary 2 - Declaredjoint announcement of‘Labor-ManagementUnity’

Declared a jointannouncement of ‘labor-management unity’ tosecure an honest andsincere cooperativeenvironment between laborand management with aview to recapturingindustry-leading position.Attended by CEO and thetrade union leader.

February 14 - Introducednew credit card operationsystem

Opened Next-GenerationCredit Card System, enablingintegrated customerinformation management anda variety of transactions. Withthe system, constructed over aperiod of 25 months about 200people, customers are nowprovided with desired services24 hours a day throughout theyear.

May 27 - Launched freeInternet medicalinformation services

Introduced Internetmedical informationservices, offering freeaccess to all users onKookmin Card’s web site.

March 29 - Selected fouroutside directors andorganized the AuditCommittee

Appointed four outsidedirectors and organized theAudit Committee through ageneral shareholders’ meetingto improve corporategovernance.

April 17 - Selected forBest CustomerSatisfaction for secondconsecutive year

Selected for ‘Best CustomerSatisfaction’ in a survey onthe ‘top six Korean creditcard companies’ by P&PResearch. Kookmin Cardranked first in categories ofreliability, online service,image and overall customersatisfaction.

June 22 - Tightenedcredit limits on multidebtors

Reduced credit limits onabout 80,000 multi-debtorsby an average of 20% inorder to improve assetsoundness.

July 9 - Reinforcedstandards for creditcard membership

Tightened requirementsfor credit card by takingmeasures to examineincome and employmentstatus more closely.These measures areexpected to blockpotential customers withlow credit ratings.

August 20 - Receivedthe KOSDAQ IR Award

Selected for the KOSDAQIR Award for having thebest IR practices among128 KOSDAQ-listedcorporations.

October 16 - Ranked firstin customer satisfactionindex for five consecutiveyears

Selected as the ‘BestCustomer SatisfactionCompany’ in the category ofcredit card issures for theKorean Customer SatisfactionIndex (KCSI) Award conductedby the Korea ManagementAssociation (KMA). This awardacknowledges the company’ssuperior image and services,and highest-level of customersatisfaction.

October 18 - ReceivedInternet World Koreaaward for e-commerce

Presented with thegrand prize at the ‘4thInternet World Korea’award for e-commercein the financial servicescategory, recognized forits innovative productsand services.

September 16 -Opened a KnowledgeManagement System(KMS)

Opened a KMS to buildup a foundation forknowledge sharing andimprove businessefficiencies by activatinginternalcommunications.

November 18 - Launched CRMsystem

Launched a CustomerRelationshipManagement (CRM)system, to generateearnings fromselected customersand prolong customerrelationships.

December - Conductedyear-end campaignwith the SalvationArmy to helpunfortunate neighbors

Unfolded a joint event tocollect contribution forunfortunate neighbors,using credit card mileagepoints, with the SalvationArmy.

Delivering Convenience,

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Highlights in 2002

ANNUAL REPORT 2002

9www.irkookmincard.co.kr

8

Reliabilty and ValueJanuary 2 - Declaredjoint announcement of‘Labor-ManagementUnity’

Declared a jointannouncement of ‘labor-management unity’ tosecure an honest andsincere cooperativeenvironment between laborand management with aview to recapturingindustry-leading position.Attended by CEO and thetrade union leader.

February 14 - Introducednew credit card operationsystem

Opened Next-GenerationCredit Card System, enablingintegrated customerinformation management anda variety of transactions. Withthe system, constructed over aperiod of 25 months about 200people, customers are nowprovided with desired services24 hours a day throughout theyear.

May 27 - Launched freeInternet medicalinformation services

Introduced Internetmedical informationservices, offering freeaccess to all users onKookmin Card’s web site.

March 29 - Selected fouroutside directors andorganized the AuditCommittee

Appointed four outsidedirectors and organized theAudit Committee through ageneral shareholders’ meetingto improve corporategovernance.

April 17 - Selected forBest CustomerSatisfaction for secondconsecutive year

Selected for ‘Best CustomerSatisfaction’ in a survey onthe ‘top six Korean creditcard companies’ by P&PResearch. Kookmin Cardranked first in categories ofreliability, online service,image and overall customersatisfaction.

June 22 - Tightenedcredit limits on multidebtors

Reduced credit limits onabout 80,000 multi-debtorsby an average of 20% inorder to improve assetsoundness.

July 9 - Reinforcedstandards for creditcard membership

Tightened requirementsfor credit card by takingmeasures to examineincome and employmentstatus more closely.These measures areexpected to blockpotential customers withlow credit ratings.

August 20 - Receivedthe KOSDAQ IR Award

Selected for the KOSDAQIR Award for having thebest IR practices among128 KOSDAQ-listedcorporations.

October 16 - Ranked firstin customer satisfactionindex for five consecutiveyears

Selected as the ‘BestCustomer SatisfactionCompany’ in the category ofcredit card issures for theKorean Customer SatisfactionIndex (KCSI) Award conductedby the Korea ManagementAssociation (KMA). This awardacknowledges the company’ssuperior image and services,and highest-level of customersatisfaction.

October 18 - ReceivedInternet World Koreaaward for e-commerce

Presented with thegrand prize at the ‘4thInternet World Korea’award for e-commercein the financial servicescategory, recognized forits innovative productsand services.

September 16 -Opened a KnowledgeManagement System(KMS)

Opened a KMS to buildup a foundation forknowledge sharing andimprove businessefficiencies by activatinginternalcommunications.

November 18 - Launched CRMsystem

Launched a CustomerRelationshipManagement (CRM)system, to generateearnings fromselected customersand prolong customerrelationships.

December - Conductedyear-end campaignwith the SalvationArmy to helpunfortunate neighbors

Unfolded a joint event tocollect contribution forunfortunate neighbors,using credit card mileagepoints, with the SalvationArmy.

Delivering Convenience,

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Highlights in 2002

www.irkookmincard.co.kr10

ANNUAL REPORT 2002

11

Solid Infrastructure and Competitivenessin the credit card business

Kookmin Card is carrying forward management ideas forcustomer satisfaction, maximizing shareholder value,transparent management, sound asset quality, knowledge-based management and strategic marketing.

Boasting strong infrastructure

The credit card business requires a unique infrastructure, different from that of otherfinancial sectors, which determines the competitiveness of a credit card issurer. TheCompany boasts optimized infrastructure for its services and also focuses on employinghighly specialized professionals as it has been devoted to the continuous development andcultivation of competitive and innovative systems, technologies and services.

In 2002, the Company successfully completed the establishment of CRM system, theextension of a call center, and the construction of an IT back-up system. In addition, theCompany has secured a variety of Internet-based business systems such as specializedportal sites for online transactions, insurance agency services, travel (www.passtour.co.kr),Internet home shopping (www.passmall.co.kr) and a content mall (www.passzone.co.kr),which are currently used by some 4.2 million online customers.

Particularly, its new IT system, the ‘Next Generation System,’ is designed to build acustomer-oriented architecture with improved integration, flexibility, efficiency andanalytical capabilities. The system primarily enables (1) web-based customer services andmarketing activities in alliance with the CRM system, (2) online transactions including B2Band B2C through around-the-clock operations, (3) enhancement in flexibility andaccessibility, and (4) closer connection with other systems.

A target for benchmarking, the Company’s exhaustive risk management utilizes a full arrayof specialized devices and vehicles for comprehensive asset quality management. In 2003,the Company will keep on concentrating on stable and efficient operations of itsinfrastructure, enhancement of security systems, and improvement of diverse processes.

Solid infrastructureand systems for thecredit card business

Advantages ofboth monolinecredit cardcompanies andcredit carddivision of banks

Managementstrategies aimingat maximizingenterprise andshareholder value

Optimalcompetitivenessin the creditcard industry

Solid Infrastructure andCompetitiveness in the credit

card business

Kookmin Card provides awide spectrum ofcompetitive products andservices throughstrategic alliances withaffiliates.

www.irkookmincard.co.kr10

ANNUAL REPORT 2002

11

Solid Infrastructure and Competitivenessin the credit card business

Kookmin Card is carrying forward management ideas forcustomer satisfaction, maximizing shareholder value,transparent management, sound asset quality, knowledge-based management and strategic marketing.

Boasting strong infrastructure

The credit card business requires a unique infrastructure, different from that of otherfinancial sectors, which determines the competitiveness of a credit card issurer. TheCompany boasts optimized infrastructure for its services and also focuses on employinghighly specialized professionals as it has been devoted to the continuous development andcultivation of competitive and innovative systems, technologies and services.

In 2002, the Company successfully completed the establishment of CRM system, theextension of a call center, and the construction of an IT back-up system. In addition, theCompany has secured a variety of Internet-based business systems such as specializedportal sites for online transactions, insurance agency services, travel (www.passtour.co.kr),Internet home shopping (www.passmall.co.kr) and a content mall (www.passzone.co.kr),which are currently used by some 4.2 million online customers.

Particularly, its new IT system, the ‘Next Generation System,’ is designed to build acustomer-oriented architecture with improved integration, flexibility, efficiency andanalytical capabilities. The system primarily enables (1) web-based customer services andmarketing activities in alliance with the CRM system, (2) online transactions including B2Band B2C through around-the-clock operations, (3) enhancement in flexibility andaccessibility, and (4) closer connection with other systems.

A target for benchmarking, the Company’s exhaustive risk management utilizes a full arrayof specialized devices and vehicles for comprehensive asset quality management. In 2003,the Company will keep on concentrating on stable and efficient operations of itsinfrastructure, enhancement of security systems, and improvement of diverse processes.

Solid infrastructureand systems for thecredit card business

Advantages ofboth monolinecredit cardcompanies andcredit carddivision of banks

Managementstrategies aimingat maximizingenterprise andshareholder value

Optimalcompetitivenessin the creditcard industry

Solid Infrastructure andCompetitiveness in the credit

card business

Kookmin Card provides awide spectrum ofcompetitive products andservices throughstrategic alliances withaffiliates.

ANNUAL REPORT 2002

13www.irkookmincard.co.kr

12

The first issuer of general-purpose credit cards in Korea, the Company has engaged in thecredit card business for over two decades. The enormous customer database which theCompany has accumulated thus far is an essential factor for maintaining optimalcompetitiveness.

The Company also takes pride in its highly dedicated human capital comprisingprofessionals. While stressing the education and training of its staff, the Company carriesout meritocracy-based management, continuously developing and improving rationalcompensation programs, fair and transparent evaluation processes and differentiatedperformance guidelines, encouraging active participation of employees.

Leveraging the merits of both monoline credit card companies and credit carddivision of banks

The Company has secured the advantages of both monoline credit card companies andcredit card division of banks, backed by its extensive network of the KB Group which isKorea’s largest comprehensive financial group with 12 affiliates and four overseassubsidiaries. Accordingly, the Company can provide customers with unrivaled services byutilizing its superior business infrastructure which enables the deployment of diverseactivities to acquire new customers who visit KB’s branches. Furthermore, as all of theCompany’s structures including the IT system and manpower are designed and operatedwith a focus on the credit card business unlike the card business division at bank, thesubscription and screening of members, marketing, risk management and others areeffectively managed in accordance with the characteristics of the credit card business. Inaddition, not only can it maintain a high quality of customer services, it is also seeking todiversify revenues by focusing on the operation of living convenience service.

Carrying forward management strategies aimed at maximizing shareholders’value

The Company is carrying forward management ideas for ‘customer satisfaction,’‘maximizing shareholder value,’ ‘transparent management,’ ‘sound asset quality,’‘knowledge-based management’ and ‘strategic marketing.’ Top priority is being given to the‘maximization of shareholder value.’

To this end, the Company advanced its corporate governance during 2002. Specifically, itreorganized the board of directors to be centered around outside directors and ushered inthe audit committee system in a bid to prepare institutional foundation for shareholders-centered transparent management, following the announcement of corporate ethicspolicies and the introduction of the compliance officer in 2001.

The Company has held a great deal of Investor elations (IR) events so as to pay attention tothe opinions of shareholders and market participants while trying to reflect such collectedviews and suggestions on its management. Such endeavors resulted in its selection as anoutstanding IR enterprise for two consecutive years from the Korea Economic Daily and thereceipt of KOSDAQ IR Award for outstanding IR practices.

Currently, it is deploying earnings-oriented business strategies with a focus on ‘values’ and‘stability’ rather than ‘growth’ and ‘size’ in order to maximize shareholder value.Subsequently, it is concentrating all its energies on ‘risk management’ and CRM to reducecredit losses and maximize the efficiency of marketing.

Going forward, it will continue to set up its management targets based on ‘profitability’ and‘the interests of shareholders.’

Solid Infrastructure andCompetitiveness in the credit

card business

ANNUAL REPORT 2002

13www.irkookmincard.co.kr

12

The first issuer of general-purpose credit cards in Korea, the Company has engaged in thecredit card business for over two decades. The enormous customer database which theCompany has accumulated thus far is an essential factor for maintaining optimalcompetitiveness.

The Company also takes pride in its highly dedicated human capital comprisingprofessionals. While stressing the education and training of its staff, the Company carriesout meritocracy-based management, continuously developing and improving rationalcompensation programs, fair and transparent evaluation processes and differentiatedperformance guidelines, encouraging active participation of employees.

Leveraging the merits of both monoline credit card companies and credit carddivision of banks

The Company has secured the advantages of both monoline credit card companies andcredit card division of banks, backed by its extensive network of the KB Group which isKorea’s largest comprehensive financial group with 12 affiliates and four overseassubsidiaries. Accordingly, the Company can provide customers with unrivaled services byutilizing its superior business infrastructure which enables the deployment of diverseactivities to acquire new customers who visit KB’s branches. Furthermore, as all of theCompany’s structures including the IT system and manpower are designed and operatedwith a focus on the credit card business unlike the card business division at bank, thesubscription and screening of members, marketing, risk management and others areeffectively managed in accordance with the characteristics of the credit card business. Inaddition, not only can it maintain a high quality of customer services, it is also seeking todiversify revenues by focusing on the operation of living convenience service.

Carrying forward management strategies aimed at maximizing shareholders’value

The Company is carrying forward management ideas for ‘customer satisfaction,’‘maximizing shareholder value,’ ‘transparent management,’ ‘sound asset quality,’‘knowledge-based management’ and ‘strategic marketing.’ Top priority is being given to the‘maximization of shareholder value.’

To this end, the Company advanced its corporate governance during 2002. Specifically, itreorganized the board of directors to be centered around outside directors and ushered inthe audit committee system in a bid to prepare institutional foundation for shareholders-centered transparent management, following the announcement of corporate ethicspolicies and the introduction of the compliance officer in 2001.

The Company has held a great deal of Investor elations (IR) events so as to pay attention tothe opinions of shareholders and market participants while trying to reflect such collectedviews and suggestions on its management. Such endeavors resulted in its selection as anoutstanding IR enterprise for two consecutive years from the Korea Economic Daily and thereceipt of KOSDAQ IR Award for outstanding IR practices.

Currently, it is deploying earnings-oriented business strategies with a focus on ‘values’ and‘stability’ rather than ‘growth’ and ‘size’ in order to maximize shareholder value.Subsequently, it is concentrating all its energies on ‘risk management’ and CRM to reducecredit losses and maximize the efficiency of marketing.

Going forward, it will continue to set up its management targets based on ‘profitability’ and‘the interests of shareholders.’

Solid Infrastructure andCompetitiveness in the credit

card business

www.irkookmincard.co.kr14

ANNUAL REPORT 2002

15

The Company has implemented marketing strategies underlining its emphasis on maximizing earnings atminimal cost. To this end, it is utilizing a variety of marketing activities with merchant members along with co-brand marketing with other industries including electronics, telecommunications, merchandizing andmanufacturing.

Marketing activities by financial institutions in the past had been driven by mass marketing to provideindiscriminate products and services for the general public. It was obvious, however, that they were not able tosecure the loyalty of customers by selling their products without considering the needs of individualcustomers. Credit card issuers then began introducing scientific marketing programs by statistically groupingcustomers through accumulated and analyzed information on the credit card usage.

Market Segmentation and Target Marketing

Accordingly, the Company identified customer needs through the analysis of customer database includingcredit card usage and geographical/demographical factors, and decided on the types, targets and marketingchannels. For instance, the Company would be able to heighten customer loyalty if they design and introducegolf-related new products, targeting customers who are interested in the sport, based on the analysis of creditcard usage patterns of customers. The Company’s ‘Golfro’ card was created with such a concept.

Customer Relationship Management - CRM

The CRM system becomes a basis for such marketing activities. The CRM is also an IT solution, which enablesthe Company to generate earnings from selected customers and prolong customer relationships and helps theCompany analyze customer contributions to earnings, loyalty and credit risks from diverse perspectives andestablish marketing strategies based on these.

Kookmin Card deployseffective customer value-based marketing activities,materializing higher-levelcustomer satisfaction.

Kookmin Card’s CRM initiatives are designed tounderstand and serve customers better, while seekingmore effective growth strategies.

Marketing Strategy Focused on MaximizingEarnings at Minimal Cost

Marketing Strategy Focusedon Maximizing Earnings at

Minimal Cost

www.irkookmincard.co.kr14

ANNUAL REPORT 2002

15

The Company has implemented marketing strategies underlining its emphasis on maximizing earnings atminimal cost. To this end, it is utilizing a variety of marketing activities with merchant members along with co-brand marketing with other industries including electronics, telecommunications, merchandizing andmanufacturing.

Marketing activities by financial institutions in the past had been driven by mass marketing to provideindiscriminate products and services for the general public. It was obvious, however, that they were not able tosecure the loyalty of customers by selling their products without considering the needs of individualcustomers. Credit card issuers then began introducing scientific marketing programs by statistically groupingcustomers through accumulated and analyzed information on the credit card usage.

Market Segmentation and Target Marketing

Accordingly, the Company identified customer needs through the analysis of customer database includingcredit card usage and geographical/demographical factors, and decided on the types, targets and marketingchannels. For instance, the Company would be able to heighten customer loyalty if they design and introducegolf-related new products, targeting customers who are interested in the sport, based on the analysis of creditcard usage patterns of customers. The Company’s ‘Golfro’ card was created with such a concept.

Customer Relationship Management - CRM

The CRM system becomes a basis for such marketing activities. The CRM is also an IT solution, which enablesthe Company to generate earnings from selected customers and prolong customer relationships and helps theCompany analyze customer contributions to earnings, loyalty and credit risks from diverse perspectives andestablish marketing strategies based on these.

Kookmin Card deployseffective customer value-based marketing activities,materializing higher-levelcustomer satisfaction.

Kookmin Card’s CRM initiatives are designed tounderstand and serve customers better, while seekingmore effective growth strategies.

Marketing Strategy Focused on MaximizingEarnings at Minimal Cost

Marketing Strategy Focusedon Maximizing Earnings at

Minimal Cost

ANNUAL REPORT 2002

17www.irkookmincard.co.kr

16

The CRM enables the Company to break down customers using its database according to the purpose ofspecific campaigns and then perform customer-oriented campaigns following changes in customers’s needs.Equipped with top-notch database volume based on extensive experience in the business, the Company canleverage the CRM in a greater variety of ways.

A number of specialists are participating in the operation of this system while immediately reflecting thefeedback of marketing results on the system so that they can refer to them when establishing marketingstrategies going forward. Accomplishments of marketing activities that are unfolded at each branch are alsoshared by all branches to double the effects of such efforts. The system also provides a tool to sort out and de-market some delinquent customers in addition to enhance the loyalty of customers.

e-CRM

Currently, about 200 thousand customers are using the Company’s homepage for about 1 million items ofinquiries and transaction services on a daily basis. Such use of services through the Internet will likely expandfurther going forward. Given such situation, the Company secured a web log analysis system and introducede-CRM, enabling more efficient CRM activities through customized and tailored web-based services.

Completed in August 2002, for the first time in the domestic industry, the Company’s e-CRM system offersindividualized online services through three specialized portal sites including Pass Tour (tour services), PassCity (living information) and Pass Mall (Internet shopping mall).

e-Queens Card e-Leisure Card

Co-branding(Airline)Card

Pass Card

Co-branding(Shopping Mall)CardCo-branding(Automobile)Card

Find a Kookmin Card that suits your needs andenjoy worldwide acceptance and a myriad ofbenefits and offers

Marketing Strategy Focusedon Maximizing Earnings at

Minimal Cost

Managing Lifetime Value of Customers

Which potential customers with certain characteristics are highly likely to become

quality customers?

Where are potential customers and what needs do they have?

How do we secure the loyalty of new customers?

How can we awaken dormant customers?

Why do customers leave and how can we prevent it?

How can we develop general customers into quality customers?

ANNUAL REPORT 2002

17www.irkookmincard.co.kr

16

The CRM enables the Company to break down customers using its database according to the purpose ofspecific campaigns and then perform customer-oriented campaigns following changes in customers’s needs.Equipped with top-notch database volume based on extensive experience in the business, the Company canleverage the CRM in a greater variety of ways.

A number of specialists are participating in the operation of this system while immediately reflecting thefeedback of marketing results on the system so that they can refer to them when establishing marketingstrategies going forward. Accomplishments of marketing activities that are unfolded at each branch are alsoshared by all branches to double the effects of such efforts. The system also provides a tool to sort out and de-market some delinquent customers in addition to enhance the loyalty of customers.

e-CRM

Currently, about 200 thousand customers are using the Company’s homepage for about 1 million items ofinquiries and transaction services on a daily basis. Such use of services through the Internet will likely expandfurther going forward. Given such situation, the Company secured a web log analysis system and introducede-CRM, enabling more efficient CRM activities through customized and tailored web-based services.

Completed in August 2002, for the first time in the domestic industry, the Company’s e-CRM system offersindividualized online services through three specialized portal sites including Pass Tour (tour services), PassCity (living information) and Pass Mall (Internet shopping mall).

e-Queens Card e-Leisure Card

Co-branding(Airline)Card

Pass Card

Co-branding(Shopping Mall)CardCo-branding(Automobile)Card

Find a Kookmin Card that suits your needs andenjoy worldwide acceptance and a myriad ofbenefits and offers

Marketing Strategy Focusedon Maximizing Earnings at

Minimal Cost

Managing Lifetime Value of Customers

Which potential customers with certain characteristics are highly likely to become

quality customers?

Where are potential customers and what needs do they have?

How do we secure the loyalty of new customers?

How can we awaken dormant customers?

Why do customers leave and how can we prevent it?

How can we develop general customers into quality customers?

ANNUAL REPORT 2002

19

Amid growing concerns over the additional generation of delinquencies by multi debtors behindongoing efforts to cut down credit limits by domestic financial institutions, the Companymanaged to clean up a substantial portion of its NPLs through continuous restructuring of itsassets. It has also limited the credit card usage of those with lower credit status, whilecompletely intercepting those with excessive debts to other financial establishments andtightening credit control on existing members.

In addition, the Company has been committed to restraining new delinquencies by sorting andpreemptively managing such members with higher probability of default.

Above all, it upgraded its capabilities to judge credit risks in an aggravating credit environmentduring 2002 while faithfully accumulating credit information so that it can minimize creditlosses and overcome crisis in case if it has to undergo similar conditions again in the future.

Credit Risk Management System

Managing credit risks is a key success factor for credit card companies in Korea. TheCompany’s credit risk management consists largely of two stages: (1) credit policy, and (2) riskmanagement on individual customer.

At the first stage, the Company considers all macro and micro-economic factors that have adirect or indirect influence on the credit status of its customers. The Company classifiescircumstances of a certain point of time into several stages, and in order to minimize creditrisks at each stage, it devises a contingency plan and prepares for any possible crisis.

At the second stage, the Credit Scoring System performs credit risk management for individualcustomers. This system consists of two stages: (1) Application Scoring System, used todetermine credit limit of customers who apply for membership, and (2) Behavior ScoringSystem, used to review credit standing and regulate credit limits of existing customers.

www.irkookmincard.co.kr19

Kookmin Card’s powerful risk management tools andprograms aim to identify, assess, and manage theimpacts of a vast array of risks on our businesses andcustomers.

Effective Risk Management Focusing onAsset Quality and Soundness

Kookmin Card isleveraging a wide array oftools and systems toprevent and manage creditcard-related risks.

Effective Risk ManagementFocusing on Asset Quality

and Soundness

ANNUAL REPORT 2002

19

Amid growing concerns over the additional generation of delinquencies by multi debtors behindongoing efforts to cut down credit limits by domestic financial institutions, the Companymanaged to clean up a substantial portion of its NPLs through continuous restructuring of itsassets. It has also limited the credit card usage of those with lower credit status, whilecompletely intercepting those with excessive debts to other financial establishments andtightening credit control on existing members.

In addition, the Company has been committed to restraining new delinquencies by sorting andpreemptively managing such members with higher probability of default.

Above all, it upgraded its capabilities to judge credit risks in an aggravating credit environmentduring 2002 while faithfully accumulating credit information so that it can minimize creditlosses and overcome crisis in case if it has to undergo similar conditions again in the future.

Credit Risk Management System

Managing credit risks is a key success factor for credit card companies in Korea. TheCompany’s credit risk management consists largely of two stages: (1) credit policy, and (2) riskmanagement on individual customer.

At the first stage, the Company considers all macro and micro-economic factors that have adirect or indirect influence on the credit status of its customers. The Company classifiescircumstances of a certain point of time into several stages, and in order to minimize creditrisks at each stage, it devises a contingency plan and prepares for any possible crisis.

At the second stage, the Credit Scoring System performs credit risk management for individualcustomers. This system consists of two stages: (1) Application Scoring System, used todetermine credit limit of customers who apply for membership, and (2) Behavior ScoringSystem, used to review credit standing and regulate credit limits of existing customers.

www.irkookmincard.co.kr19

Kookmin Card’s powerful risk management tools andprograms aim to identify, assess, and manage theimpacts of a vast array of risks on our businesses andcustomers.

Effective Risk Management Focusing onAsset Quality and Soundness

Kookmin Card isleveraging a wide array oftools and systems toprevent and manage creditcard-related risks.

Effective Risk ManagementFocusing on Asset Quality

and Soundness

ANNUAL REPORT 2002

21www.irkookmincard.co.kr

20

Kookmin Card’s risk managementorganization reviews all business proceduresto identify risks and establish effectivecontrols to mitigate those risks.

In 2002, the Company newly developed the Loss-Given Default (LGD) system to be utilized forthe management of credit risks of individual customers along with the scoring system. Enablingto estimate customers’ repayment ability by analyzing their income level, residence type,occupation and the volume of debts and estimated debt service ratios, the LGD grades arecombined with the credit scores to be utilized mainly for the development of debt collectiontechniques and internal workout programs. Meanwhile, the Company plans to redevelop andupgrade scoring models that are currently in operation, given the credit situation of late.

Credit Control in 2002

In addition, the Company took various measures to reinforce credit management throughpreemptive control during 2002. To begin, it continuously reduced credit limits on multi-debtorssince the first quarter, contracting average usage limits for all credit cardholders to 6.3million at year-end from 7.6 million at 2001-end. The limits on cash advances to total limitswere also lowered to the 28% level at the end of 2002 from about 41% at 2001-end. The initiallygiven limits were lowered to 2.4 million from average 3.2 million. The credit card issuanceapproval ratio also fell to 62% in 4Q02 from 74% in the first half of the year as the requirementsfor the membership and the screening processes were significantly tightened to minimize thegeneration of delinquencies. Furthermore, the organization heading delinquency managementwas expanded and restructured to contract the amount of delinquencies by strengthening therecovery of the already-generated delinquencies while professional delinquency managementstaff members were also substantially supplemented.

Meanwhile, the Company operated a scheme which extends the repayment schedule by up to sixmonths, assuming the reinforcement of credit ratings including joint liability on guarantees forcustomers who became delinquents due to increased burdens on repayment at the same timealthough they had financial ability to pay back.

Credit Risk-weighted Pricing

The Company has constructed and continuously improved its pricing system where credit risksare reflected, utilizing the risk management system. It is a pricing policy which will ultimatelyheighten asset quality by selecting customers and fixing prices that are equivalent to creditrisks.

Household Credit Problem in Korea

Increasing Level ofHousehold Leverage

Household debt to personaldisposable income has reachedover 100%

However, mainly thanks tolow-interest rate environmentand increased income,households are overallyhealthy excluding some multidebtors.

Regulatory Measures- Adjust loan portfolio- Increase reserve level

Consumer credit service as awhole adopted quite conservativecredit policy

“A Bank rescinded contractswith 400,000 customers....”

“B Card announced that itrecently cut credit limit of300,000 customers sharply....”

Intensive industrywide creditcontrol focused on rolled overdebts with low quality

No. of borrowers with record ofdefault at the public creditbureau increased

Characteristic of short termmaturity of card receivableworsened the situation

Collective CreditTightening

Greater than expected Credit Problem

Effective Risk ManagementFocusing on Asset Quality

and Soundness

ANNUAL REPORT 2002

21www.irkookmincard.co.kr

20

Kookmin Card’s risk managementorganization reviews all business proceduresto identify risks and establish effectivecontrols to mitigate those risks.

In 2002, the Company newly developed the Loss-Given Default (LGD) system to be utilized forthe management of credit risks of individual customers along with the scoring system. Enablingto estimate customers’ repayment ability by analyzing their income level, residence type,occupation and the volume of debts and estimated debt service ratios, the LGD grades arecombined with the credit scores to be utilized mainly for the development of debt collectiontechniques and internal workout programs. Meanwhile, the Company plans to redevelop andupgrade scoring models that are currently in operation, given the credit situation of late.

Credit Control in 2002

In addition, the Company took various measures to reinforce credit management throughpreemptive control during 2002. To begin, it continuously reduced credit limits on multi-debtorssince the first quarter, contracting average usage limits for all credit cardholders to 6.3million at year-end from 7.6 million at 2001-end. The limits on cash advances to total limitswere also lowered to the 28% level at the end of 2002 from about 41% at 2001-end. The initiallygiven limits were lowered to 2.4 million from average 3.2 million. The credit card issuanceapproval ratio also fell to 62% in 4Q02 from 74% in the first half of the year as the requirementsfor the membership and the screening processes were significantly tightened to minimize thegeneration of delinquencies. Furthermore, the organization heading delinquency managementwas expanded and restructured to contract the amount of delinquencies by strengthening therecovery of the already-generated delinquencies while professional delinquency managementstaff members were also substantially supplemented.

Meanwhile, the Company operated a scheme which extends the repayment schedule by up to sixmonths, assuming the reinforcement of credit ratings including joint liability on guarantees forcustomers who became delinquents due to increased burdens on repayment at the same timealthough they had financial ability to pay back.

Credit Risk-weighted Pricing

The Company has constructed and continuously improved its pricing system where credit risksare reflected, utilizing the risk management system. It is a pricing policy which will ultimatelyheighten asset quality by selecting customers and fixing prices that are equivalent to creditrisks.

Household Credit Problem in Korea

Increasing Level ofHousehold Leverage

Household debt to personaldisposable income has reachedover 100%

However, mainly thanks tolow-interest rate environmentand increased income,households are overallyhealthy excluding some multidebtors.

Regulatory Measures- Adjust loan portfolio- Increase reserve level

Consumer credit service as awhole adopted quite conservativecredit policy

“A Bank rescinded contractswith 400,000 customers....”

“B Card announced that itrecently cut credit limit of300,000 customers sharply....”

Intensive industrywide creditcontrol focused on rolled overdebts with low quality

No. of borrowers with record ofdefault at the public creditbureau increased

Characteristic of short termmaturity of card receivableworsened the situation

Collective CreditTightening

Greater than expected Credit Problem

Effective Risk ManagementFocusing on Asset Quality

and Soundness

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Management’s Discussion & Analysis

ANNUAL REPORT 2002

23

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

FY 2002 FY 2001 FY 2000 FY 1999 FY 1998 FY 1997 FY 1996TTrraannssaaccttiioonn VVoolluummee (Billions of Korean Won)

Purchases (lump-sum & installment) 29,734 21,039 13,349 6,824 4,679 5,269 4,946 Cash advance 57,166 44,343 24,526 7,088 5,244 5,200 5,068 Total 86,900 65,382 37,877 13,912 9,923 10,469 10,014 RReeppoorrtteedd DDaattaa

IInnccoommee SSttaatteemmeenntt DDaattaa ffoorr tthhee YYeeaarrOperating revenue 3,156,230 2,340,631 1,460,600 896,721 753,784 629,843 580,093 Interest expense 738,607 578,166 477,594 373,046 375,822 334,048 304,905 Net provision 1,548,177 428,248 113,611 109,099 195,398 62,346 56,989 Other operating expenses 1,175,593 677,135 431,412 329,825 234,409 236,778 195,169 Net income (260,888) 458,195 300,541 42,891 (30,748) 5,247 12,709

BBaallaannccee SShheeeett DDaattaa aatt YYeeaarr EEnnddCurrent Assets 1,226,687 292,510 179,033 291,679 615,148 75,417 153,747 Credit Card Assets 9,239,522 9,405,138 7,182,644 3,523,001 2,746,246 2,968,406 2,516,534Financial Assets 300,994 158,086 272,321 371,684 899,313 163,074 235,317 Fixed Assets 3,506,791 970,616 711,482 252,430 252,141 196,558 185,382

ABS investment securities 3,093,782 621,098 412,008 (Reserve for Loan Losses) (892,745) (248,858) (164,004) (213,906) (386,820) (71,420) (47,885)Total Assets 13,381,248 10,577,492 8,181,476 4,224,889 4,126,029 3,332,036 3,043,096

PPeerr SShhaarree DDaattaaEarnings per share (EPS) (3,589) 6,303 4,577 788 (1,255) 219 673 Book value per share (BVPS) 12,406 16,197 11,039 5,914 5,011 6,325 6,457

RRaattiioossDelinquency 12.12% 4.44% 4.59% 10.19% 23.81% 15.00% 14.84%Return on asset (ROA) -2.18% 4.89% 4.84% 1.03% -0.82% 0.16% 0.44%Return on equity (ROE) -24.90% 46.28% 52.36% 14.57% -15.58% 3.50% 9.57%

MMaannaaggeedd DDaattaa

IInnccoommee SSttaatteemmeenntt DDaattaa ffoorr tthhee YYeeaarrOperating revenue 3,480,598 2,515,010 1,489,051 896,721 753,784 629,843 580,093 Interest expense 1,062,975 752,545 506,045 373,046 375,822 334,048 304,905 Net provision 1,548,177 428,248 113,611 109,099 195,398 62,346 56,989 Other operating expenses 1,175,593 677,135 431,412 329,825 234,409 236,778 195,169 Net income (260,888) 458,195 300,541 42,891 (30,748) 5,247 12,709

BBaallaannccee SShheeeett DDaattaa aatt YYeeaarr EEnnddCurrent Assets 1,226,687 292,510 179,033 291,679 615,148 75,417 153,747 Credit Card Assets 16,949,844 12,725,761 8,371,621 3,523,001 2,746,246 2,968,406 2,516,534 Financial Assets 300,994 158,086 272,321 371,684 899,313 163,074 235,317 Fixed Assets 413,008 349,518 299,474 252,430 252,141 196,558 185,382 (Reserve for Loan Losses) (892,745) (248,858) (164,004) (213,906) (386,820) (71,420) (47,885)

Total Assets 17,997,787 13,277,017 8,958,445 4,224,889 4,126,029 3,332,036 3,043,096 Average loans outstanding 16,507,447 10,461,303 5,984,599 3,404,057 2,806,219 2,856,264 2,573,682

RRaattiioossDelinquency 9.83% 3.56% 4.01% 10.19% 23.81% 15.00% 14.84%Net provision / average loans outstanding 9.38% 4.09% 1.90% 3.20% 6.96% 2.18% 1.72%Write-off / average loans outstanding 6.16% 4.07% 3.41% 9.16% 2.88% 1.68% 1.81%Net write-off / average loans outstanding 5.48% 3.28% 2.73% 8.28% 2.26% 1.26% 1.67%Reserve balance / loans outstanding, end of period 5.17% 1.93% 1.89% 5.46% 10.52% 2.28% 1.74%

(Millions of Korean Won, except per share data, %)7 Years Summary

Financial SectionManagement’s Discussion & Analysis 23Report of Independent Public Accountants 38Balance Sheets 40Statements of Operations 42Statements of Disposition of Accumulated Deficit 43Statements of Cash Flows 44Notes to Financial Statements 46

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Management’s Discussion & Analysis

ANNUAL REPORT 2002

23

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

FY 2002 FY 2001 FY 2000 FY 1999 FY 1998 FY 1997 FY 1996TTrraannssaaccttiioonn VVoolluummee (Billions of Korean Won)

Purchases (lump-sum & installment) 29,734 21,039 13,349 6,824 4,679 5,269 4,946 Cash advance 57,166 44,343 24,526 7,088 5,244 5,200 5,068 Total 86,900 65,382 37,877 13,912 9,923 10,469 10,014 RReeppoorrtteedd DDaattaa

IInnccoommee SSttaatteemmeenntt DDaattaa ffoorr tthhee YYeeaarrOperating revenue 3,156,230 2,340,631 1,460,600 896,721 753,784 629,843 580,093 Interest expense 738,607 578,166 477,594 373,046 375,822 334,048 304,905 Net provision 1,548,177 428,248 113,611 109,099 195,398 62,346 56,989 Other operating expenses 1,175,593 677,135 431,412 329,825 234,409 236,778 195,169 Net income (260,888) 458,195 300,541 42,891 (30,748) 5,247 12,709

BBaallaannccee SShheeeett DDaattaa aatt YYeeaarr EEnnddCurrent Assets 1,226,687 292,510 179,033 291,679 615,148 75,417 153,747 Credit Card Assets 9,239,522 9,405,138 7,182,644 3,523,001 2,746,246 2,968,406 2,516,534Financial Assets 300,994 158,086 272,321 371,684 899,313 163,074 235,317 Fixed Assets 3,506,791 970,616 711,482 252,430 252,141 196,558 185,382

ABS investment securities 3,093,782 621,098 412,008 (Reserve for Loan Losses) (892,745) (248,858) (164,004) (213,906) (386,820) (71,420) (47,885)Total Assets 13,381,248 10,577,492 8,181,476 4,224,889 4,126,029 3,332,036 3,043,096

PPeerr SShhaarree DDaattaaEarnings per share (EPS) (3,589) 6,303 4,577 788 (1,255) 219 673 Book value per share (BVPS) 12,406 16,197 11,039 5,914 5,011 6,325 6,457

RRaattiioossDelinquency 12.12% 4.44% 4.59% 10.19% 23.81% 15.00% 14.84%Return on asset (ROA) -2.18% 4.89% 4.84% 1.03% -0.82% 0.16% 0.44%Return on equity (ROE) -24.90% 46.28% 52.36% 14.57% -15.58% 3.50% 9.57%

MMaannaaggeedd DDaattaa

IInnccoommee SSttaatteemmeenntt DDaattaa ffoorr tthhee YYeeaarrOperating revenue 3,480,598 2,515,010 1,489,051 896,721 753,784 629,843 580,093 Interest expense 1,062,975 752,545 506,045 373,046 375,822 334,048 304,905 Net provision 1,548,177 428,248 113,611 109,099 195,398 62,346 56,989 Other operating expenses 1,175,593 677,135 431,412 329,825 234,409 236,778 195,169 Net income (260,888) 458,195 300,541 42,891 (30,748) 5,247 12,709

BBaallaannccee SShheeeett DDaattaa aatt YYeeaarr EEnnddCurrent Assets 1,226,687 292,510 179,033 291,679 615,148 75,417 153,747 Credit Card Assets 16,949,844 12,725,761 8,371,621 3,523,001 2,746,246 2,968,406 2,516,534 Financial Assets 300,994 158,086 272,321 371,684 899,313 163,074 235,317 Fixed Assets 413,008 349,518 299,474 252,430 252,141 196,558 185,382 (Reserve for Loan Losses) (892,745) (248,858) (164,004) (213,906) (386,820) (71,420) (47,885)

Total Assets 17,997,787 13,277,017 8,958,445 4,224,889 4,126,029 3,332,036 3,043,096 Average loans outstanding 16,507,447 10,461,303 5,984,599 3,404,057 2,806,219 2,856,264 2,573,682

RRaattiioossDelinquency 9.83% 3.56% 4.01% 10.19% 23.81% 15.00% 14.84%Net provision / average loans outstanding 9.38% 4.09% 1.90% 3.20% 6.96% 2.18% 1.72%Write-off / average loans outstanding 6.16% 4.07% 3.41% 9.16% 2.88% 1.68% 1.81%Net write-off / average loans outstanding 5.48% 3.28% 2.73% 8.28% 2.26% 1.26% 1.67%Reserve balance / loans outstanding, end of period 5.17% 1.93% 1.89% 5.46% 10.52% 2.28% 1.74%

(Millions of Korean Won, except per share data, %)7 Years Summary

Financial SectionManagement’s Discussion & Analysis 23Report of Independent Public Accountants 38Balance Sheets 40Statements of Operations 42Statements of Disposition of Accumulated Deficit 43Statements of Cash Flows 44Notes to Financial Statements 46

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Management’s Discussion & Analysis

ANNUAL REPORT 2002

25

Management’s Discussion & Analysis

www.irkookmincard.co.kr24

Overview Kookmin Credit Card (the Company) was established in September 1987, after being spun off fromKookmin Bank (KB). Today, the Company provides a broad range of financial services aside from creditcard services, including loans and consumer financing. The Company merged with Kookmin Financeand Korea Long-Term Bank (KLB) Credit Card in 1998.

The credit card industry has seen rapid growth over the past few years, led by (1) a focus on retailbanking by Korean financial institutions, which have relatively lower risks than corporate banking,since the Asian Financial Crisis of 1997~1998, (2) an increase in consumption backed by an economicrecovery following the Asian Financial Crisis, and (3) government policies to boost credit card usagethrough various supportive schemes such as tax deductions, credit card receipt lotteries, and theenforcement of merchant acceptance. The industry is forecasted to steadily expand in line witheconomic growth, although it is currently experiencing difficulties due to a rise in delinquencies. Thecurrent hardship shall be resolved through strengthened collection efforts on delinquent accounts andcurtailments in operating expenses. Most importantly, the Company is determined to develop into afirm of excellence, establishing low-cost systems and heightening asset quality, while retaining andsecuring quality customers.

As for the Company’s equity structure, its controlling shareholder, KB, holds a 74.27% stake, while theremaining 25.04% (excluding treasury stocks) is actively traded on the stock market.

The data mentioned in this analysis is primarily based on corporate accounting standards. However,some data were reclassified and rearranged for analytical purposes when necessary. In addition,managed financial data is based on readjusted financials given their original status before assetsecuritization.

General Analysis of Financial Statements

Income Statement(Millions of Korean Won)

FY 2002 FY 2001 FY 2000((RReeppoorrtteedd))Operating Revenue (Interest & Fee & Others) 3,156,230 2,340,631 1,460,600

Interest 2,942,398 2,159,667 1,322,858 Installment Purchase 322,140 279,128 176,766Cash Advance 671,874 644,584 547,728 Revolving 43,397 18,782 936 Card Loan 476,852 234,506 167,202 Late Payment 86,407 92,743 61,843 Securitization 642,700 399,086 1,915 Merchant 660,618 469,910 336,357 Financing 38,410 20,928 30,111

Fee 136,414 115,549 73,839 Annual Fee 38,565 39,588 35,081 Interchange & Settlement 97,848 75,961 38,758

Others 77,418 65,415 63,903 Operating Expense 1,536,573 1,022,498 766,926

FY 2002 FY 2001 FY 2000

Interest Expense 738,607 578,166 477,594 Fees & Commissions 566,086 399,855 256,508Securitization Loss 97,896 Others 133,984 44,477 32,824

G & A Expense 1,925,803 661,051 255,691 Salaries 87,706 69,326 51,001 Overheads 289,920 163,477 91,079 Net Provision 1,548,177 428,248 113,611

Operating Income (306,147) 657,082 437,983 Ordinary Income (260,888) 657,802 435,696 Net Income (260,888) 458,195 300,541 ((MMaannaaggeedd))Operating Revenue (Interest & Fee & Others) 3,480,598 2,515,010 1,489,051

Interest 3,266,767 2,334,046 1,351,309 Installment Purchase 350,235 279,128 176,766 Cash Advance 1,261,052 1,101,415 564,465 Revolving 85,354 29,391 1,058 Card Loan 762,505 326,716 180,375 Late Payment 108,593 106,558 62,177 Merchant 660,618 469,910 336,357 Financing 38,410 20,928 30,111

Fee 136,414 115,549 73,839 Annual Fee 38,565 39,588 35,081 Interchange & Settlement 97,848 75,961 38,758

Others 77,418 65,415 63,903 Operating Expense 1,860,942 1,196,877 795,377

Interest Expense 1,062,975 752,545 506,045 Fees & Commissions 566,086 399,855 256,508Securitization Loss 97,896 Others 133,984 44,477 32,824

G & A Expense 1,925,803 661,051 255,691 Salaries 87,706 69,326 51,001 Overheads 289,920 163,477 91,079 Net Provision 1,548,177 428,248 113,611

Operating Income (306,147) 657,082 437,983 Ordinary Income (260,888) 657,802 435,696 Net Income (260,888) 458,195 300,541

* Managed data add back the effect of securitization.

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Management’s Discussion & Analysis

ANNUAL REPORT 2002

25

Management’s Discussion & Analysis

www.irkookmincard.co.kr24

Overview Kookmin Credit Card (the Company) was established in September 1987, after being spun off fromKookmin Bank (KB). Today, the Company provides a broad range of financial services aside from creditcard services, including loans and consumer financing. The Company merged with Kookmin Financeand Korea Long-Term Bank (KLB) Credit Card in 1998.

The credit card industry has seen rapid growth over the past few years, led by (1) a focus on retailbanking by Korean financial institutions, which have relatively lower risks than corporate banking,since the Asian Financial Crisis of 1997~1998, (2) an increase in consumption backed by an economicrecovery following the Asian Financial Crisis, and (3) government policies to boost credit card usagethrough various supportive schemes such as tax deductions, credit card receipt lotteries, and theenforcement of merchant acceptance. The industry is forecasted to steadily expand in line witheconomic growth, although it is currently experiencing difficulties due to a rise in delinquencies. Thecurrent hardship shall be resolved through strengthened collection efforts on delinquent accounts andcurtailments in operating expenses. Most importantly, the Company is determined to develop into afirm of excellence, establishing low-cost systems and heightening asset quality, while retaining andsecuring quality customers.

As for the Company’s equity structure, its controlling shareholder, KB, holds a 74.27% stake, while theremaining 25.04% (excluding treasury stocks) is actively traded on the stock market.

The data mentioned in this analysis is primarily based on corporate accounting standards. However,some data were reclassified and rearranged for analytical purposes when necessary. In addition,managed financial data is based on readjusted financials given their original status before assetsecuritization.

General Analysis of Financial Statements

Income Statement(Millions of Korean Won)

FY 2002 FY 2001 FY 2000((RReeppoorrtteedd))Operating Revenue (Interest & Fee & Others) 3,156,230 2,340,631 1,460,600

Interest 2,942,398 2,159,667 1,322,858 Installment Purchase 322,140 279,128 176,766Cash Advance 671,874 644,584 547,728 Revolving 43,397 18,782 936 Card Loan 476,852 234,506 167,202 Late Payment 86,407 92,743 61,843 Securitization 642,700 399,086 1,915 Merchant 660,618 469,910 336,357 Financing 38,410 20,928 30,111

Fee 136,414 115,549 73,839 Annual Fee 38,565 39,588 35,081 Interchange & Settlement 97,848 75,961 38,758

Others 77,418 65,415 63,903 Operating Expense 1,536,573 1,022,498 766,926

FY 2002 FY 2001 FY 2000

Interest Expense 738,607 578,166 477,594 Fees & Commissions 566,086 399,855 256,508Securitization Loss 97,896 Others 133,984 44,477 32,824

G & A Expense 1,925,803 661,051 255,691 Salaries 87,706 69,326 51,001 Overheads 289,920 163,477 91,079 Net Provision 1,548,177 428,248 113,611

Operating Income (306,147) 657,082 437,983 Ordinary Income (260,888) 657,802 435,696 Net Income (260,888) 458,195 300,541 ((MMaannaaggeedd))Operating Revenue (Interest & Fee & Others) 3,480,598 2,515,010 1,489,051

Interest 3,266,767 2,334,046 1,351,309 Installment Purchase 350,235 279,128 176,766 Cash Advance 1,261,052 1,101,415 564,465 Revolving 85,354 29,391 1,058 Card Loan 762,505 326,716 180,375 Late Payment 108,593 106,558 62,177 Merchant 660,618 469,910 336,357 Financing 38,410 20,928 30,111

Fee 136,414 115,549 73,839 Annual Fee 38,565 39,588 35,081 Interchange & Settlement 97,848 75,961 38,758

Others 77,418 65,415 63,903 Operating Expense 1,860,942 1,196,877 795,377

Interest Expense 1,062,975 752,545 506,045 Fees & Commissions 566,086 399,855 256,508Securitization Loss 97,896 Others 133,984 44,477 32,824

G & A Expense 1,925,803 661,051 255,691 Salaries 87,706 69,326 51,001 Overheads 289,920 163,477 91,079 Net Provision 1,548,177 428,248 113,611

Operating Income (306,147) 657,082 437,983 Ordinary Income (260,888) 657,802 435,696 Net Income (260,888) 458,195 300,541

* Managed data add back the effect of securitization.

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

ANNUAL REPORT 2002

27www.irkookmincard.co.kr

26

Management’s Discussion & AnalysisManagement’s Discussion & AnalysisBalance Sheet

FY 2002 FY 2001 FY 2000((RReeppoorrtteedd))AAsssseettssCurrent Assets 1,226,687 292,510 179,033

(Reserve for Loan Losses) (8,296) (8,078) (8,535)Credit Card Assets 9,239,522 9,405,138 7,182,644

Lump-sum Purchase 1,177,583 1,377,159 1,104,203 Installment Purchase 2,931,555 2,471,094 1,852,916 Cash Advance 2,203,101 3,148,243 3,218,117 Revolving 188,302 161,084 38,292 Card Loan 2,738,671 2,247,235 968,300 Others 311 323 816 (Reserve for Loan Losses) (850,192) (207,655) (102,390)

Financial Assets 300,994 158,086 272,321 (Reserve for Loan Losses) (34,258) (33,125) (53,079)

Fixed Assets 3,506,791 970,616 711,482 ABS Investment Securities 3,093,782 621,098 412,008 Others 413,008 349,518 299,474

Total Assets 13,381,248 10,577,492 8,181,476 LLiiaabbiilliittiieess aanndd SSttoocckkhhoollddeerrss’’ EEqquuiittyyShort-term Borrowings 5,121,383 3,558,536 2,043,168 Long-term Borrowings 507,795 190,000 291,647 Corporate Bonds 5,933,111 4,879,362 4,560,019 Other Liabilities 900,732 772,015 484,114 Total Liabilities 12,463,021 9,399,913 7,378,948 Total Stockholders’ Equity 918,227 1,177,579 802,528

Total Liabilities & Stockholders’ Equity 13,381,248 10,577,492 8,181,476 ((SSeeccuurriittiizzaattiioonn))Balance, end of period 7,710,322 3,320,623 1,188,977

Lump-sum Purchase 462,017 - -Installment Purchase 1,043,415 - -Cash Advance 3,844,578 2,597,151 845,816 Revolving 315,382 124,856 16,673 Card Loan 2,044,930 598,616 326,488

Managed Total Assets 17,997,787 13,277,017 8,958,445

(Millions of Korean Won) Managed total assets stood at 17,997,787 million, a rise of 4,720,770 million (+35.6%) YoY. Andcredit card assets increased by 4,224,083 million (33.2%) YoY to 16,949,844 million due tocontinually growing credit card usage. Along with the increase of assets, total liabilities, excludingsecuritization, rose to 12,463,021 million at 2002-end, up 1,880,642 million YoY. Securitized assetsincreased 4,389,699 million YoY to 7,710,322 million as of 2002-end. The rise in securitized assetswas primarily led by increases in cash advances and credit card loans. Of note, newly securitizedlump-sum and installment assets reached 462,017 million and 1,043,415 million, respectively, in2002.

Credit Card Transaction VolumeCredit card transaction volume amounted to 86,900 billion in 2002, up 21,518 billion (+32.9%) YoY.Such rise was attributable to the government s favorable credit card policies and the Company sstrengthened marketing strategies, such as the development of co-branded credit cards and a varietyof supplementary services. Volume has been on a steady upturn behind a rise of credit card paymentportion in total payment methods, as the merits of credit cards have been highlighted in terms ofusage convenience and tax savings. By sector, lump-sum purchase grew 3,857 billion (+25.9%) YoYto 18,708 billion, while installment purchase soared 4,838 billion (+78.2%) YoY to 11,026 billionin 2002. Meanwhile, cash advance services increased 12,823 billion (+28.9%) YoY to 57,166 billion.

Credit Card Transaction Volume(Billions of Korean Won)

FY 2002 FY 2001 FY 2000

Lump-sum Purchase 18,708 14,851 9,067 Installment Purchase 11,026 6,188 4,282 Cash Advance 57,166 44,343 24,526 Total 86,900 65,382 37,877

Cardholders and Merchants In 2002, the number of cardholders increased to 12,768,000, up 2,181,000 (+20.6%) YoY. The number ofPass Card ballooned to 8,730,000, which is a rise of 3,994,000 (+84.3%) YoY. Such high growth was

attributed to an increase in the number of existing members who replaced their existing credit cardswith Pass Cards due to greater convenience. Meanwhile, the number of merchants edged down to1,559,000, a decline of 106,000 (-6.3%) YoY in 2002. This was attributed to cancellations of contractswith merchants that closed down their operations or no longer existed.

In 2002, pre-provisioning income amounted to 1,242,030 million, up 156,700 million (+14.4%) froma year earlier. Meanwhile, credit card transaction volume amounted to 86,900 billion, up 21,518billion (+32.9%) year-on-year (YoY). The credit card business continued on a satisfactory note withmanaged operating revenue increasing by 965,588 million (+38.4%) YoY, to reach 3,480,598million. However, burdens on loan loss provisions greatly increased as guidelines for loan lossprovisioning were strengthened amid a significant increase in credit card delinquencies and theCompany decided to adopt more stringent internal loan loss provisioning standard than regulatoryguidelines. Accordingly, the Company recorded a net loss of 260,888 million in 2002, the first deficitseen since the Asian Financial Crisis in 1997~1998.

Number of Cardholders and Merchants (Thousands)

FY 2002 FY 2001 FY 2000

Cardholders 12,768 10,587 8,174 Pass Card 8,730 4,736 3,089

Merchants 1,569 1,675 1,231

Credit Card Transaction Volume

2000 2001 2002

(Billions of Korean won)

11,026

18,708

57,166

6,188

44,343

14,8519,0674,282

24,526

Cash Advance

Installment Purchase

Lump-sum Purchase

Number of Cardholders & Merchants

2000 2001 2002

(Thousands)

10,587

1,675

1,231

8,174

Cardholders

Merchants

1,569

12,768

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

ANNUAL REPORT 2002

27www.irkookmincard.co.kr

26

Management’s Discussion & AnalysisManagement’s Discussion & AnalysisBalance Sheet

FY 2002 FY 2001 FY 2000((RReeppoorrtteedd))AAsssseettssCurrent Assets 1,226,687 292,510 179,033

(Reserve for Loan Losses) (8,296) (8,078) (8,535)Credit Card Assets 9,239,522 9,405,138 7,182,644

Lump-sum Purchase 1,177,583 1,377,159 1,104,203 Installment Purchase 2,931,555 2,471,094 1,852,916 Cash Advance 2,203,101 3,148,243 3,218,117 Revolving 188,302 161,084 38,292 Card Loan 2,738,671 2,247,235 968,300 Others 311 323 816 (Reserve for Loan Losses) (850,192) (207,655) (102,390)

Financial Assets 300,994 158,086 272,321 (Reserve for Loan Losses) (34,258) (33,125) (53,079)

Fixed Assets 3,506,791 970,616 711,482 ABS Investment Securities 3,093,782 621,098 412,008 Others 413,008 349,518 299,474

Total Assets 13,381,248 10,577,492 8,181,476 LLiiaabbiilliittiieess aanndd SSttoocckkhhoollddeerrss’’ EEqquuiittyyShort-term Borrowings 5,121,383 3,558,536 2,043,168 Long-term Borrowings 507,795 190,000 291,647 Corporate Bonds 5,933,111 4,879,362 4,560,019 Other Liabilities 900,732 772,015 484,114 Total Liabilities 12,463,021 9,399,913 7,378,948 Total Stockholders’ Equity 918,227 1,177,579 802,528

Total Liabilities & Stockholders’ Equity 13,381,248 10,577,492 8,181,476 ((SSeeccuurriittiizzaattiioonn))Balance, end of period 7,710,322 3,320,623 1,188,977

Lump-sum Purchase 462,017 - -Installment Purchase 1,043,415 - -Cash Advance 3,844,578 2,597,151 845,816 Revolving 315,382 124,856 16,673 Card Loan 2,044,930 598,616 326,488

Managed Total Assets 17,997,787 13,277,017 8,958,445

(Millions of Korean Won) Managed total assets stood at 17,997,787 million, a rise of 4,720,770 million (+35.6%) YoY. Andcredit card assets increased by 4,224,083 million (33.2%) YoY to 16,949,844 million due tocontinually growing credit card usage. Along with the increase of assets, total liabilities, excludingsecuritization, rose to 12,463,021 million at 2002-end, up 1,880,642 million YoY. Securitized assetsincreased 4,389,699 million YoY to 7,710,322 million as of 2002-end. The rise in securitized assetswas primarily led by increases in cash advances and credit card loans. Of note, newly securitizedlump-sum and installment assets reached 462,017 million and 1,043,415 million, respectively, in2002.

Credit Card Transaction VolumeCredit card transaction volume amounted to 86,900 billion in 2002, up 21,518 billion (+32.9%) YoY.Such rise was attributable to the government s favorable credit card policies and the Company sstrengthened marketing strategies, such as the development of co-branded credit cards and a varietyof supplementary services. Volume has been on a steady upturn behind a rise of credit card paymentportion in total payment methods, as the merits of credit cards have been highlighted in terms ofusage convenience and tax savings. By sector, lump-sum purchase grew 3,857 billion (+25.9%) YoYto 18,708 billion, while installment purchase soared 4,838 billion (+78.2%) YoY to 11,026 billionin 2002. Meanwhile, cash advance services increased 12,823 billion (+28.9%) YoY to 57,166 billion.

Credit Card Transaction Volume(Billions of Korean Won)

FY 2002 FY 2001 FY 2000

Lump-sum Purchase 18,708 14,851 9,067 Installment Purchase 11,026 6,188 4,282 Cash Advance 57,166 44,343 24,526 Total 86,900 65,382 37,877

Cardholders and Merchants In 2002, the number of cardholders increased to 12,768,000, up 2,181,000 (+20.6%) YoY. The number ofPass Card ballooned to 8,730,000, which is a rise of 3,994,000 (+84.3%) YoY. Such high growth was

attributed to an increase in the number of existing members who replaced their existing credit cardswith Pass Cards due to greater convenience. Meanwhile, the number of merchants edged down to1,559,000, a decline of 106,000 (-6.3%) YoY in 2002. This was attributed to cancellations of contractswith merchants that closed down their operations or no longer existed.

In 2002, pre-provisioning income amounted to 1,242,030 million, up 156,700 million (+14.4%) froma year earlier. Meanwhile, credit card transaction volume amounted to 86,900 billion, up 21,518billion (+32.9%) year-on-year (YoY). The credit card business continued on a satisfactory note withmanaged operating revenue increasing by 965,588 million (+38.4%) YoY, to reach 3,480,598million. However, burdens on loan loss provisions greatly increased as guidelines for loan lossprovisioning were strengthened amid a significant increase in credit card delinquencies and theCompany decided to adopt more stringent internal loan loss provisioning standard than regulatoryguidelines. Accordingly, the Company recorded a net loss of 260,888 million in 2002, the first deficitseen since the Asian Financial Crisis in 1997~1998.

Number of Cardholders and Merchants (Thousands)

FY 2002 FY 2001 FY 2000

Cardholders 12,768 10,587 8,174 Pass Card 8,730 4,736 3,089

Merchants 1,569 1,675 1,231

Credit Card Transaction Volume

2000 2001 2002

(Billions of Korean won)

11,026

18,708

57,166

6,188

44,343

14,8519,0674,282

24,526

Cash Advance

Installment Purchase

Lump-sum Purchase

Number of Cardholders & Merchants

2000 2001 2002

(Thousands)

10,587

1,675

1,231

8,174

Cardholders

Merchants

1,569

12,768

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Management’s Discussion & Analysis

ANNUAL REPORT 2002

29

Management’s Discussion & Analysis

www.irkookmincard.co.kr28

Analysis of Operating Revenue In 2002, operating revenue on a managed basis swelled to 3,480,598 million, up 965,588 million(38.4%) YoY. This is attributable to (1) a steady increase in the number of members on the back ofeffective marketing strategies despite intensified competition to secure members, and (2) a rise incard usage value on the back of a rise in transaction volume per member. It was also attributable to adecline in cash payment and a continuous rise in the portion of credit card payment to total payments.Observing the composition of operating revenue, the majority was made up by interest payments withthe remainder coming from fees, including annual fees and other. Interest revenue includes allinterest-bearing commissions and fees through products and services provided by the Company. TheCompany recognizes the revenues on an accrual basis, excluding fees, commissions and interests onoverdue accounts.

Operating Revenue by Category

Income revenue accounts for the majority of the Company’s operating revenue. Specifically,installment purchase enables consumers to purchase goods via credit card on the condition that theprincipal will be equally divided and repaid with interest over a certain period. Cash advance is a short-term loan which cardholders are required to repay the principal and interest on their very nextsettlement date. Card loan is a longer-term loan product than cash advance and cardholders arerequired to pay back principal and interest within the stipulated time on a monthly basis. Revolvingcredit is a credit card product, which requires cardholders to settle at least 10% or more of theaccount balance on their due dates. It is steadily growing although it is not noticeably contributing torevenue so far, as it is still a relatively new product to Korean credit card industry. As for merchant fee,it is a deductible from cardholder’s purchase that credit card company takes from merchant. Creditcard company receives merchant fee because it assumes burdens on capital for a certain period oftime as settlement with merchant occurs in advance to cardholder’s payment. Meanwhile,securitization revenue, appearing on reported operating revenue, is nominal revenue generated fromsecuritized assets. This refers to net interest income, net amount of revenue from securitized assetsless interest to ABS holders, from securitized assets.

As for results by category, revolving presented the highest growth of 190.4%, jumping 55,963 millionYoY to 85,354 million. Revolving will likely continue growing in the long term and its contribution tototal revenue should gradually rise. Card loan soared to W762,505 million, up 435,789 million(+133.4%) YoY. Meanwhile, merchant fee grew 190,708 million (+40.6%) YoY to 660,618 million,exceeding total operating revenue growth. Cash advance totaled 1,261,052 million, rising by

159,637 million (+14.5%) YoY, although it still made up the largest portion of operating revenue.Interest for installment purchase climbed 71,107 million (+25.5%) YoY to 350,235 million. Feerevenue, including annual fees, rose 20,865 million (+18.1%) to 136,414 million, behind the sharingof merchant networks with other credit card companies and affiliates.

Operating Revenue by Category(Millions of Korean Won)

FY 2002 FY 2001 FY 2000IInntteerreesstt((RReeppoorrtteedd)) 22,,994422,,339988 22,,115599,,666677 11,,332222,,885588

Installment Purchase 322,140 279,128 176,766 Cash Advance 671,874 644,584 547,728 Revolving 43,397 18,782 936 Card Loan 476,852 234,506 167,202 Late Payment 86,407 92,743 61,843 Securitization 642,700 399,086 1,915 Merchant 660,618 469,910 336,357 Financing 38,410 20,928 30,111

((MMaannaaggeedd)) 33,,226666,,776677 22,,333344,,004466 11,,335511,,330099

Installment Purchase 350,235 279,128 176,766 Cash Advance 1,261,052 1,101,415 564,465 Revolving 85,354 29,391 1,058 Card Loan 762,505 326,716 180,375 Late Payment 108,593 106,558 62,177 Merchant 660,618 469,910 336,357 Financing 38,410 20,928 30,111

FFeeee 113366,,441144 111155,,554499 7733,,883399 Annual Fees 38,565 39,588 35,081 Interchange & Settlement 97,848 75,961 38,758

OOtthheerrss 7777,,441188 6655,,441155 6633,,990033

Analysis of Operating and G&A ExpenseOperating and G&A expense significantly increased, jumping 1,928,817 million (+103.8%) YoY to

3,786,7456 million in 2002. It can be largely divided into interest expense, fee & commission, G&Aexpense, and securitization loss. Interest expense represents funding cost. Fee and commissioncombines all kinds of charges that are used for the business. Observing these results, interestexpense jumped 310,430 million (+41.3%) YoY to 1,062,975 million, while fee & commission rose

166,231 million (+41.6 %) YoY to 566,086 million. G&A expense surged 1,264,752 million(+191.3%) to 1,925,803 million. In G&A expense, the most significant increase was specifically seenin net provision. When excluding this net provision, G&A expense shot up 144,823 million (+62.2%)YoY to 377,626 million, displaying relatively mild increase. By item, advertising-related expensessignificantly climbed relative to 2001 due to an increase in sales promotion activities, includingadvertisement and promotional efforts.

2000 2001 2002

3,480,598

1,489,051

2,515,010

Operating Revenue(Millions of Korean won)

Cash AdvanceInstallment Purchase

RevolvingCard LoanLate PaymentMerchantFinancing

Interest

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Management’s Discussion & Analysis

ANNUAL REPORT 2002

29

Management’s Discussion & Analysis

www.irkookmincard.co.kr28

Analysis of Operating Revenue In 2002, operating revenue on a managed basis swelled to 3,480,598 million, up 965,588 million(38.4%) YoY. This is attributable to (1) a steady increase in the number of members on the back ofeffective marketing strategies despite intensified competition to secure members, and (2) a rise incard usage value on the back of a rise in transaction volume per member. It was also attributable to adecline in cash payment and a continuous rise in the portion of credit card payment to total payments.Observing the composition of operating revenue, the majority was made up by interest payments withthe remainder coming from fees, including annual fees and other. Interest revenue includes allinterest-bearing commissions and fees through products and services provided by the Company. TheCompany recognizes the revenues on an accrual basis, excluding fees, commissions and interests onoverdue accounts.

Operating Revenue by Category

Income revenue accounts for the majority of the Company’s operating revenue. Specifically,installment purchase enables consumers to purchase goods via credit card on the condition that theprincipal will be equally divided and repaid with interest over a certain period. Cash advance is a short-term loan which cardholders are required to repay the principal and interest on their very nextsettlement date. Card loan is a longer-term loan product than cash advance and cardholders arerequired to pay back principal and interest within the stipulated time on a monthly basis. Revolvingcredit is a credit card product, which requires cardholders to settle at least 10% or more of theaccount balance on their due dates. It is steadily growing although it is not noticeably contributing torevenue so far, as it is still a relatively new product to Korean credit card industry. As for merchant fee,it is a deductible from cardholder’s purchase that credit card company takes from merchant. Creditcard company receives merchant fee because it assumes burdens on capital for a certain period oftime as settlement with merchant occurs in advance to cardholder’s payment. Meanwhile,securitization revenue, appearing on reported operating revenue, is nominal revenue generated fromsecuritized assets. This refers to net interest income, net amount of revenue from securitized assetsless interest to ABS holders, from securitized assets.

As for results by category, revolving presented the highest growth of 190.4%, jumping 55,963 millionYoY to 85,354 million. Revolving will likely continue growing in the long term and its contribution tototal revenue should gradually rise. Card loan soared to W762,505 million, up 435,789 million(+133.4%) YoY. Meanwhile, merchant fee grew 190,708 million (+40.6%) YoY to 660,618 million,exceeding total operating revenue growth. Cash advance totaled 1,261,052 million, rising by

159,637 million (+14.5%) YoY, although it still made up the largest portion of operating revenue.Interest for installment purchase climbed 71,107 million (+25.5%) YoY to 350,235 million. Feerevenue, including annual fees, rose 20,865 million (+18.1%) to 136,414 million, behind the sharingof merchant networks with other credit card companies and affiliates.

Operating Revenue by Category(Millions of Korean Won)

FY 2002 FY 2001 FY 2000IInntteerreesstt((RReeppoorrtteedd)) 22,,994422,,339988 22,,115599,,666677 11,,332222,,885588

Installment Purchase 322,140 279,128 176,766 Cash Advance 671,874 644,584 547,728 Revolving 43,397 18,782 936 Card Loan 476,852 234,506 167,202 Late Payment 86,407 92,743 61,843 Securitization 642,700 399,086 1,915 Merchant 660,618 469,910 336,357 Financing 38,410 20,928 30,111

((MMaannaaggeedd)) 33,,226666,,776677 22,,333344,,004466 11,,335511,,330099

Installment Purchase 350,235 279,128 176,766 Cash Advance 1,261,052 1,101,415 564,465 Revolving 85,354 29,391 1,058 Card Loan 762,505 326,716 180,375 Late Payment 108,593 106,558 62,177 Merchant 660,618 469,910 336,357 Financing 38,410 20,928 30,111

FFeeee 113366,,441144 111155,,554499 7733,,883399 Annual Fees 38,565 39,588 35,081 Interchange & Settlement 97,848 75,961 38,758

OOtthheerrss 7777,,441188 6655,,441155 6633,,990033

Analysis of Operating and G&A ExpenseOperating and G&A expense significantly increased, jumping 1,928,817 million (+103.8%) YoY to

3,786,7456 million in 2002. It can be largely divided into interest expense, fee & commission, G&Aexpense, and securitization loss. Interest expense represents funding cost. Fee and commissioncombines all kinds of charges that are used for the business. Observing these results, interestexpense jumped 310,430 million (+41.3%) YoY to 1,062,975 million, while fee & commission rose

166,231 million (+41.6 %) YoY to 566,086 million. G&A expense surged 1,264,752 million(+191.3%) to 1,925,803 million. In G&A expense, the most significant increase was specifically seenin net provision. When excluding this net provision, G&A expense shot up 144,823 million (+62.2%)YoY to 377,626 million, displaying relatively mild increase. By item, advertising-related expensessignificantly climbed relative to 2001 due to an increase in sales promotion activities, includingadvertisement and promotional efforts.

2000 2001 2002

3,480,598

1,489,051

2,515,010

Operating Revenue(Millions of Korean won)

Cash AdvanceInstallment Purchase

RevolvingCard LoanLate PaymentMerchantFinancing

Interest

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Management’s Discussion & Analysis

ANNUAL REPORT 2002

31

Management’s Discussion & Analysis

www.irkookmincard.co.kr30

Operating Expense(Millions of Korean Won)

FY 2002 FY 2001 FY 2000

Interest 1,062,975 752,545 506,045Short-term borrowings 291,794 146,480 144,831Long-term borrowings 35,187 26,030 17,388Corporate bonds 411,626 405,656 315,375Securitization 324,368 174,379 28,451

FFeeeess && CCoommmmiissssiioonn 556666,,008866 339999,,885555 225566,,550088Fees to Kookmin bank 150,866 136,490 108,994Commissions to affiliates 93,174 72,224 35,501Fees on card acquisition 81,625 49,542 29,552Fees on collection 94,332 38,507 22,944Fees to processing companies 34,451 - -Telemarketing fees 20,411 - -Others 91,227 103,092 59,517

GG && AA eexxppeennssee 11,,992255,,880033 666611,,005511 225555,,669911Salaries 87,706 69,326 51,001Employee benefits 33,197 21,912 17,493Communication expenses 38,984 21,496 12,783Depreciation 53,339 37,330 15,350Advertising 85,955 36,589 14,995IT development 21,983 11,812 7,946Net provision 1,548,177 428,248 113,611Other overheads 56,464 34,339 22,511

SSeeccuurriittiizzaattiioonn LLoossss 9977,,889966 -- --OOtthheerrss 113333,,998844 4444,,447777 3322,,882244Expense (Reported) 3,462,376 1,683,549 1,022,618Expense (Managed) 3,786,745 1,857,928 1,051,068

Analysis of Profits and Losses1) Return Structure

The return structure is a useful indicator for an analysis of return-on-asset (ROA). The higher the ratesof return (yields) are, the more favorable status they present. As for expense ratios, the lower theratios are, the more favorable status they show.

Observing the return structure, the ratio of interest income to average earning assets (AEA) backed off2.52%p YoY to 19.79%, while interest expense to AEA fell 0.75% to record 6.44%. Accordingly, Interestmargin fell 1.77%p YoY, triggered by (1) government policies to induce interest rate reductions, and (2)a decline in recognized revenues due to an increase in delinquent assets that are recognized on a cashbasis. The reason why interest expense ratio fell only marginally was attributed to interest paymentson asset-backed securities (ABS). The interest expense rate to ABS was over 9% during 2002, asinterest payment structure for some ABS is frontloaded although ABS is generally issued at lowerrates than corporate bonds. Thus, interest expense rate for ABS in moving average during its totalduration will show actual interest rates as it matures, as such extraordinary factors will disappear.

G&A expense to AEA edged up 0.06%p YoY to 2.29%, while other operating expense rose 0.59%p YoY to4.83%. Such increases were led by (1) a significant rise in promotional activities to acquirecardholders, and (2) an increase in marketing expenses due to upturns in purchase assets (lump-sum+ installment).

Consequently, pre-provisioning operating income backed off 2.85%p YoY to 7.52%, and the Companyrecorded a net loss in 2002 due to a rise in net provision.

Return Structure

FY 2002 FY 2001 FY 2000

Amount Ratio Amount Ratio Amount Ratio Interest Revenue 3,266,767 19.79% 2,334,046 22.31% 1,351,309 22.58%Interest Expense 1,062,975 6.44% 752,545 7.19% 506,045 8.46%

Interest Margin 2,203,792 13.35% 1,581,501 15.12% 845,264 14.12%Fee & Other Income 213,832 1.30% 180,964 1.73% 137,742 2.30%

Sub Total 2,417,624 14.65% 1,762,465 16.85% 983,006 16.43%Fee, Other Expenses 797,966 4.83% 444,332 4.25% 289,332 4.83%G&A (excluding net provision) 377,626 2.29% 232,803 2.23% 142,080 2.37%

PPOP* 1,242,030 7.52% 1,085,330 10.37% 551,594 9.22%Net Provision 1,548,177 9.38% 428,248 4.09% 113,611 1.90%Operating Profit 306,147 -1.85% 657,082 6.28% 437,983 7.32%Net Profit 260,888 -1.58% 458,195 4.38% 300,541 5.02%Average Earning Assets (AEA) 16,507,447 10,461,303 5,984,599

*Pre-Provisioning Operating Profit

2) Management Efficiency

The cost/income ratio is calculated by dividing total costs by income. ‘Costs’ are defined as fee &commission and G&A expense before providing against loan losses, and ‘income’ is defined as netinterest income and fee income. In 2002, the Company’s cost/income ratio moved up 8.68%p YoY torecord 44.58%, illustrating a slight decline in management efficiency. This was attributed to a downfallin profitability following interest rate cuts during 2002. It was also partially attributable to delayedrecognition (cash basis) of revenues on overdue accounts, and marketing expenses behind intensifyingcompetition.

Cost/Income Ratio(Millions of Korean Won, %)

FY 2002 FY 2001 FY 2000Operating revenue 3,480,598 2,515,010 1,489,051 Interest expense 1,062,975 752,545 506,045

Income 2,417,623 1,762,465 983,006 Fees & commission expense 700,070 399,855 244,889 G & A expense 2,023,699 661,051 255,691 Net provision 1,548,177 428,248 113,611 Securitization loss 97,896

Cost 1,077,696 632,658 386,969 Cost / Income ratio 44.58% 35.90% 39.37%

(Millions of Korean Won, %)

Fees & CommissionInterest

G&A expenseSecuritization LossOthers

Operating Expense

Return Structure in FY 2002(Millions of Korean won)

Fee, Other Expenses4.83%

G&A 2.29%

NetProvision9.38%

TotalMargin14.65%

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

OperatingProfit-1.85%

Net provision

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Management’s Discussion & Analysis

ANNUAL REPORT 2002

31

Management’s Discussion & Analysis

www.irkookmincard.co.kr30

Operating Expense(Millions of Korean Won)

FY 2002 FY 2001 FY 2000

Interest 1,062,975 752,545 506,045Short-term borrowings 291,794 146,480 144,831Long-term borrowings 35,187 26,030 17,388Corporate bonds 411,626 405,656 315,375Securitization 324,368 174,379 28,451

FFeeeess && CCoommmmiissssiioonn 556666,,008866 339999,,885555 225566,,550088Fees to Kookmin bank 150,866 136,490 108,994Commissions to affiliates 93,174 72,224 35,501Fees on card acquisition 81,625 49,542 29,552Fees on collection 94,332 38,507 22,944Fees to processing companies 34,451 - -Telemarketing fees 20,411 - -Others 91,227 103,092 59,517

GG && AA eexxppeennssee 11,,992255,,880033 666611,,005511 225555,,669911Salaries 87,706 69,326 51,001Employee benefits 33,197 21,912 17,493Communication expenses 38,984 21,496 12,783Depreciation 53,339 37,330 15,350Advertising 85,955 36,589 14,995IT development 21,983 11,812 7,946Net provision 1,548,177 428,248 113,611Other overheads 56,464 34,339 22,511

SSeeccuurriittiizzaattiioonn LLoossss 9977,,889966 -- --OOtthheerrss 113333,,998844 4444,,447777 3322,,882244Expense (Reported) 3,462,376 1,683,549 1,022,618Expense (Managed) 3,786,745 1,857,928 1,051,068

Analysis of Profits and Losses1) Return Structure

The return structure is a useful indicator for an analysis of return-on-asset (ROA). The higher the ratesof return (yields) are, the more favorable status they present. As for expense ratios, the lower theratios are, the more favorable status they show.

Observing the return structure, the ratio of interest income to average earning assets (AEA) backed off2.52%p YoY to 19.79%, while interest expense to AEA fell 0.75% to record 6.44%. Accordingly, Interestmargin fell 1.77%p YoY, triggered by (1) government policies to induce interest rate reductions, and (2)a decline in recognized revenues due to an increase in delinquent assets that are recognized on a cashbasis. The reason why interest expense ratio fell only marginally was attributed to interest paymentson asset-backed securities (ABS). The interest expense rate to ABS was over 9% during 2002, asinterest payment structure for some ABS is frontloaded although ABS is generally issued at lowerrates than corporate bonds. Thus, interest expense rate for ABS in moving average during its totalduration will show actual interest rates as it matures, as such extraordinary factors will disappear.

G&A expense to AEA edged up 0.06%p YoY to 2.29%, while other operating expense rose 0.59%p YoY to4.83%. Such increases were led by (1) a significant rise in promotional activities to acquirecardholders, and (2) an increase in marketing expenses due to upturns in purchase assets (lump-sum+ installment).

Consequently, pre-provisioning operating income backed off 2.85%p YoY to 7.52%, and the Companyrecorded a net loss in 2002 due to a rise in net provision.

Return Structure

FY 2002 FY 2001 FY 2000

Amount Ratio Amount Ratio Amount Ratio Interest Revenue 3,266,767 19.79% 2,334,046 22.31% 1,351,309 22.58%Interest Expense 1,062,975 6.44% 752,545 7.19% 506,045 8.46%

Interest Margin 2,203,792 13.35% 1,581,501 15.12% 845,264 14.12%Fee & Other Income 213,832 1.30% 180,964 1.73% 137,742 2.30%

Sub Total 2,417,624 14.65% 1,762,465 16.85% 983,006 16.43%Fee, Other Expenses 797,966 4.83% 444,332 4.25% 289,332 4.83%G&A (excluding net provision) 377,626 2.29% 232,803 2.23% 142,080 2.37%

PPOP* 1,242,030 7.52% 1,085,330 10.37% 551,594 9.22%Net Provision 1,548,177 9.38% 428,248 4.09% 113,611 1.90%Operating Profit 306,147 -1.85% 657,082 6.28% 437,983 7.32%Net Profit 260,888 -1.58% 458,195 4.38% 300,541 5.02%Average Earning Assets (AEA) 16,507,447 10,461,303 5,984,599

*Pre-Provisioning Operating Profit

2) Management Efficiency

The cost/income ratio is calculated by dividing total costs by income. ‘Costs’ are defined as fee &commission and G&A expense before providing against loan losses, and ‘income’ is defined as netinterest income and fee income. In 2002, the Company’s cost/income ratio moved up 8.68%p YoY torecord 44.58%, illustrating a slight decline in management efficiency. This was attributed to a downfallin profitability following interest rate cuts during 2002. It was also partially attributable to delayedrecognition (cash basis) of revenues on overdue accounts, and marketing expenses behind intensifyingcompetition.

Cost/Income Ratio(Millions of Korean Won, %)

FY 2002 FY 2001 FY 2000Operating revenue 3,480,598 2,515,010 1,489,051 Interest expense 1,062,975 752,545 506,045

Income 2,417,623 1,762,465 983,006 Fees & commission expense 700,070 399,855 244,889 G & A expense 2,023,699 661,051 255,691 Net provision 1,548,177 428,248 113,611 Securitization loss 97,896

Cost 1,077,696 632,658 386,969 Cost / Income ratio 44.58% 35.90% 39.37%

(Millions of Korean Won, %)

Fees & CommissionInterest

G&A expenseSecuritization LossOthers

Operating Expense

Return Structure in FY 2002(Millions of Korean won)

Fee, Other Expenses4.83%

G&A 2.29%

NetProvision9.38%

TotalMargin14.65%

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

OperatingProfit-1.85%

Net provision

Management’s Discussion & Analysis

ANNUAL REPORT 2002

33

Capital Operation, Funding, and Net Interest Spread 1) Capital Operation and Funding

During 2002, the majority (38.7%) of capital was used for cash advances, which is a slight decline fromthe 46.7% posted in 2001, followed by 25.5% for card loans, which significantly increased from 17.0% in2001. Meanwhile, installment purchase accounted for 21.8% (20.3% in 2001), while lump-sumpurchase and revolving accounted for 9.9% and 2.7%, respectively. In addition, the majority of fundingwas done via corporate bond issuances in 2002, however the ratio of funding by corporate bonds tototal funding declined to 37.0% in 2002, from 51.5% in 2001. Short-term borrowings, referring toliabilities due in less than one year, largely consisted of commercial papers and call loan (overnightborrowing). Funding by short-term borrowings sharply rose to 36.2% of the total in 2002, nearing thelevel of corporate bonds. Such increase was attributed to the fact that the funding rates of short-termborrowings were substantially lowered behind the downward stabilization of interest rates. Long-termborrowings, referring to long-term liabilities with maturities of longer than one year, mainlycomprising borrowings from banks, accounted for a minimal amount of total funding. Meanwhile,funding through ABS rose to 23.2%, up 3.0%p from 2001. Since 4th quarter of 2002, the Company hasconcentrated its funding on corporate bands and securitization.

2) Net Interest Spread

In 2002, yields for total assets decreased 2.52%p YoY to 19.79%. Yields on cash advance, accounting forthe majority of assets, reached 20.93%, maintaining a high level, but fell 3.18% YoY, from 24.11% in2001. Yields on lump-sum purchase, which present the highest yield rates comprising fees frommerchants, stood at 26.67%, down 1.24%p from 2001, with a marginal decline in the weighting to totalfunding. Card loans also slightly declined in 2002 to 18.12%. Yields on installment purchase, however,edged down 3.38%p YoY to 16.88%, recording the lowest yields, as the Company provided interest-freeinstallments as part of its strategy behind intensifying competition. Meanwhile, revolving was the onlyitem experiencing a rise in yields, up 3.68%p YoY to 19.77%. The rates of total cost of funding driftedlower by 0.98%p YoY to 7.18%. Funding through short-term borrowings was less than the averagefunding rates, but funding through corporate bonds and ABS exceeded this rate. Funding cost of ABSparticularly advanced, rising by 0.81%p YoY to 9.46% in 2002, despite a decline in interest rates, due tothe previous reasons mentioned on Analysis of Profits and Losses. This should be gradually lowered,however, to real interest rate levels.

Meanwhile, net interest spread (NIS) retreated 1.54%p to 12.61%, as declines in funding rates werelower than that in operating rates although both declined from 2001.

Management’s Discussion & Analysis

www.irkookmincard.co.kr32

Capital Operation, Funding, and NIS

FY 2002 FY 2001 FY 2000

IInntteerreesstt--eeaarrnniinngg AAsssseettssLump-sum Purchase 1,631,779 435,138 26.67% 1,254,488 350,107 27.91% 816,746 241,750 29.60%Installment Purchase 3,595,601 606,862 16.88% 2,122,233 429,929 20.26% 1,253,388 293,732 23.44%Cash Advance 6,389,230 1,337,060 20.93% 4,880,455 1,176,471 24.11% 2,492,243 604,281 24.25%Revolving 439,036 86,793 19.77% 185,749 29,896 16.09% 10,073 1,060 10.52%Card Loan 4,207,244 762,505 18.12% 1,780,424 326,716 18.35% 1,067,926 180,375 16.89%Other Financing 244,556 38,410 15.71% 237,953 20,928 8.80% 344,222 29,554 8.59%

Total (Average Earning Assets) 16,507,447 3,266,767 19.79% 10,461,303 2,334,046 22.31% 5,984,599 1,350,752 22.57%IInntteerreesstt--bbeeaarriinngg LLiiaabbiilliittiieess

Short-term Borrowings 5,357,888 291,794 5.45% 2,193,887 146,480 6.63% 1,689,190 144,743 8.57%Long-term Borrowings 545,375 35,187 6.45% 257,635 26,030 10.10% 201,488 17,388 8.63%Corporate Bonds 5,469,221 411,625 7.53% 4,737,929 405,656 8.56% 3,360,918 315,375 9.38%ABS & Loan Sale 3,429,188 324,368 9.46% 2,017,274 174,379 8.64% 111,579 28,451 25.50%

Total 14,801,673 1,062,975 7.18% 9,206,726 752,545 8.16% 5,363,174 506,045 9.44%Net Interest Spread (NIS) 12.61% 14.15% 13.13%Interest income to AEA 19.79% 22.31% 22.57%Interest expense to AEA 6.44% 7.18% 8.46%Net Interest Margin (NIM) 13.35% 15.13% 14.11%

3) ABS

The total outstanding of securitized loans stood at 7,710 billion, or 45.4% of managed loans as ofDecember 31, 2002, compared with 3,321 billion, or 26.1% as of December 31, 2001.

Asset securitization is the process whereby loan receivables are converted into securities, generallyreferred to as asset-backed securities (ABS). Securitization of loan receivables is accomplished primarilythrough the public issuance of ABS. Asset securitization removes loan receivables from the balancestatement through the sale of loan receivables, generally to a paper company named special purposecompany (SPC). As loan receivables are securitized, the Company’s on-balance-sheet funding needs arereduced by the amount of loans securitized. After a securitization, the Company continues to manage andservice the accounts that generate the loan receivables. In addition, the Company also sells the rights tonew loan receivables, including most fees generated by the accounts and payments received from theaccounts, to SPC. Then the SPC sells undivided interests to investors that entitle the investors to havespecified cash flows generated from the securitized loan receivables, while the Company retains theremaining undivided interest. The senior classes of the ABS usually receive an ‘AAA’ credit rating at thetime of issuance, and are generally achieved through the purchase-back of lower rated subordinatedclasses of ABS. The Company continues to service the accounts and receives a servicing fee for doing so.The SPC then administers the securitization, and distributes principal and interest payments toinvestors. The residual cash flow (servicing fee and excess spread) is distributed to the Company.

(Millions of Korean Won, %)

Income/Expense

AverageBalance

Yield/Cost

Income/Expense

AverageBalance

Yield/Cost

AverageBalance

Income/Expense

Yield/Cost

Long-term BorrowingsShort-term Borrowings

Corporate BondsABS & Loan Sale

FundingsNet Interest Spread

FY 2000 FY 2001 FY 2002

5%

10%

15%

20%

25%

8.169.44

22.57

13.13 14.1512.61

22.3119.79

7.18

Operating Rate

Funding Cost

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

MD&A Report ofIndependent Public

Accountants

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Management’s Discussion & Analysis

ANNUAL REPORT 2002

33

Capital Operation, Funding, and Net Interest Spread 1) Capital Operation and Funding

During 2002, the majority (38.7%) of capital was used for cash advances, which is a slight decline fromthe 46.7% posted in 2001, followed by 25.5% for card loans, which significantly increased from 17.0% in2001. Meanwhile, installment purchase accounted for 21.8% (20.3% in 2001), while lump-sumpurchase and revolving accounted for 9.9% and 2.7%, respectively. In addition, the majority of fundingwas done via corporate bond issuances in 2002, however the ratio of funding by corporate bonds tototal funding declined to 37.0% in 2002, from 51.5% in 2001. Short-term borrowings, referring toliabilities due in less than one year, largely consisted of commercial papers and call loan (overnightborrowing). Funding by short-term borrowings sharply rose to 36.2% of the total in 2002, nearing thelevel of corporate bonds. Such increase was attributed to the fact that the funding rates of short-termborrowings were substantially lowered behind the downward stabilization of interest rates. Long-termborrowings, referring to long-term liabilities with maturities of longer than one year, mainlycomprising borrowings from banks, accounted for a minimal amount of total funding. Meanwhile,funding through ABS rose to 23.2%, up 3.0%p from 2001. Since 4th quarter of 2002, the Company hasconcentrated its funding on corporate bands and securitization.

2) Net Interest Spread

In 2002, yields for total assets decreased 2.52%p YoY to 19.79%. Yields on cash advance, accounting forthe majority of assets, reached 20.93%, maintaining a high level, but fell 3.18% YoY, from 24.11% in2001. Yields on lump-sum purchase, which present the highest yield rates comprising fees frommerchants, stood at 26.67%, down 1.24%p from 2001, with a marginal decline in the weighting to totalfunding. Card loans also slightly declined in 2002 to 18.12%. Yields on installment purchase, however,edged down 3.38%p YoY to 16.88%, recording the lowest yields, as the Company provided interest-freeinstallments as part of its strategy behind intensifying competition. Meanwhile, revolving was the onlyitem experiencing a rise in yields, up 3.68%p YoY to 19.77%. The rates of total cost of funding driftedlower by 0.98%p YoY to 7.18%. Funding through short-term borrowings was less than the averagefunding rates, but funding through corporate bonds and ABS exceeded this rate. Funding cost of ABSparticularly advanced, rising by 0.81%p YoY to 9.46% in 2002, despite a decline in interest rates, due tothe previous reasons mentioned on Analysis of Profits and Losses. This should be gradually lowered,however, to real interest rate levels.

Meanwhile, net interest spread (NIS) retreated 1.54%p to 12.61%, as declines in funding rates werelower than that in operating rates although both declined from 2001.

Management’s Discussion & Analysis

www.irkookmincard.co.kr32

Capital Operation, Funding, and NIS

FY 2002 FY 2001 FY 2000

IInntteerreesstt--eeaarrnniinngg AAsssseettssLump-sum Purchase 1,631,779 435,138 26.67% 1,254,488 350,107 27.91% 816,746 241,750 29.60%Installment Purchase 3,595,601 606,862 16.88% 2,122,233 429,929 20.26% 1,253,388 293,732 23.44%Cash Advance 6,389,230 1,337,060 20.93% 4,880,455 1,176,471 24.11% 2,492,243 604,281 24.25%Revolving 439,036 86,793 19.77% 185,749 29,896 16.09% 10,073 1,060 10.52%Card Loan 4,207,244 762,505 18.12% 1,780,424 326,716 18.35% 1,067,926 180,375 16.89%Other Financing 244,556 38,410 15.71% 237,953 20,928 8.80% 344,222 29,554 8.59%

Total (Average Earning Assets) 16,507,447 3,266,767 19.79% 10,461,303 2,334,046 22.31% 5,984,599 1,350,752 22.57%IInntteerreesstt--bbeeaarriinngg LLiiaabbiilliittiieess

Short-term Borrowings 5,357,888 291,794 5.45% 2,193,887 146,480 6.63% 1,689,190 144,743 8.57%Long-term Borrowings 545,375 35,187 6.45% 257,635 26,030 10.10% 201,488 17,388 8.63%Corporate Bonds 5,469,221 411,625 7.53% 4,737,929 405,656 8.56% 3,360,918 315,375 9.38%ABS & Loan Sale 3,429,188 324,368 9.46% 2,017,274 174,379 8.64% 111,579 28,451 25.50%

Total 14,801,673 1,062,975 7.18% 9,206,726 752,545 8.16% 5,363,174 506,045 9.44%Net Interest Spread (NIS) 12.61% 14.15% 13.13%Interest income to AEA 19.79% 22.31% 22.57%Interest expense to AEA 6.44% 7.18% 8.46%Net Interest Margin (NIM) 13.35% 15.13% 14.11%

3) ABS

The total outstanding of securitized loans stood at 7,710 billion, or 45.4% of managed loans as ofDecember 31, 2002, compared with 3,321 billion, or 26.1% as of December 31, 2001.

Asset securitization is the process whereby loan receivables are converted into securities, generallyreferred to as asset-backed securities (ABS). Securitization of loan receivables is accomplished primarilythrough the public issuance of ABS. Asset securitization removes loan receivables from the balancestatement through the sale of loan receivables, generally to a paper company named special purposecompany (SPC). As loan receivables are securitized, the Company’s on-balance-sheet funding needs arereduced by the amount of loans securitized. After a securitization, the Company continues to manage andservice the accounts that generate the loan receivables. In addition, the Company also sells the rights tonew loan receivables, including most fees generated by the accounts and payments received from theaccounts, to SPC. Then the SPC sells undivided interests to investors that entitle the investors to havespecified cash flows generated from the securitized loan receivables, while the Company retains theremaining undivided interest. The senior classes of the ABS usually receive an ‘AAA’ credit rating at thetime of issuance, and are generally achieved through the purchase-back of lower rated subordinatedclasses of ABS. The Company continues to service the accounts and receives a servicing fee for doing so.The SPC then administers the securitization, and distributes principal and interest payments toinvestors. The residual cash flow (servicing fee and excess spread) is distributed to the Company.

(Millions of Korean Won, %)

Income/Expense

AverageBalance

Yield/Cost

Income/Expense

AverageBalance

Yield/Cost

AverageBalance

Income/Expense

Yield/Cost

Long-term BorrowingsShort-term Borrowings

Corporate BondsABS & Loan Sale

FundingsNet Interest Spread

FY 2000 FY 2001 FY 2002

5%

10%

15%

20%

25%

8.169.44

22.57

13.13 14.1512.61

22.3119.79

7.18

Operating Rate

Funding Cost

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

MD&A Report ofIndependent Public

Accountants

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Credit Card + Card Loan (Millions of Korean Won, %)

Loans outstanding 16,949,844 12,725,760 8,371,621Loans delinquent: Below 1 month overdue 1,918,586 11.32% 849,498 6.68% 857,534 10.24%1 ~ 3 months 1,059,549 6.25% 244,237 1.92% 187,163 2.24%3 ~ 6 months 604,610 3.57% 158,857 1.25% 80,540 0.96%Over 6 months 2,234 0.01% 50,068 0.39% 67,875 0.81%

Over 1 day overdue 3,584,979 21.15% 1,302,660 10.24% 1,193,112 14.25%

Over 1 month overdue 1,666,393 9.83% 453,162 3.56% 335,578 4.01%

2) Asset Quality

Total credits on a managed basis increased 4,363,488 million (+33.8%) YoY to 17,267,377 million at2002-end, while substandard or below loans shot up 387,664 million (+137.6%) YoY to 669,316million. Accordingly, the non-performing loan (NPL) ratio edged up 1.69%p YoY to 3.88%. In addition,loan loss reserves increased by 643,887 million to 892,745 million. Consequently, the NPLcoverage ratio, representing loan loss reserves to NPLs, surged 45.02%p YoY to 133.38%. Such sharprises were primarily due to the application of more stringent loan loss provisioning standards,following changes in guidelines by the Financial Supervisory Commission (FSC). The FSC guidelinesfor loan loss provisioning were adjusted three times during 2002 (from 15.5% for substandard &doubtful loans and 100% for estimated losses of 24 months only among estimated losses before Juneto 50% for substandard & doubtful loans and 100% for all estimated losses regardless of periodsaccording to revised guidelines in June). As for normal loans, FSC guidelines of 0.5% for notdelinquent and 1.5% for below one month were modified to the indiscriminate application of 1% andadjusted upward to 7% for precautionary loans and 60% for substandard & doubtful loans in July. InDecember, guidelines for precautionary loan provisioning were heightened to 12% (from 7%), whilerescheduled loans were reclassified to at least precautionary or below. When reclassifying assetquality according to such revamped guidelines for loan loss provisioning, the NPL coverage ratioshould be relatively higher than levels seen during previous years (as seen below). Furthermore, theCompany set aside additional 201,416 million reserves for loan losses than actually required by loanloss provisions guideline, given the 97,896 million in ABS losses reflected.

Asset Quality & Provisioning Guideline Changes

Management’s Discussion & Analysis

ANNUAL REPORT 2002

35

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Management’s Discussion & Analysis

www.irkookmincard.co.kr34

ABSFY 2002 FY 2001 FY 2000

Securitized Assets 7,710,322 3,320,623 1,188,977 Lump-sum Purchase 462,017 - - Installment Purchase 1,043,415 - - Cash Advance 3,844,578 2,597,151 845,816 Revolving 315,382 124,856 16,673 Card Loan 2,044,930 598,616 326,488

Asset Qualities and Loan Loss Provisioning 1) Delinquencies

The Company’s 1-month+ credit card delinquency ratio on a managed basis edged up 4.15%p YoY to7.29% at 2002-end, while card loans climbed 11.26%p over the year to record 16.29%. The higherdelinquency ratio of credit card loans was due to card loans included in rescheduled loans. Meanwhile,the total delinquency ratio for credit cards and card loans rose 6.27% YoY to 9.83%. Meanwhile, 6-month+ delinquencies on both credit cards and card loans accounted for no more than 0.01% of assetsthanks to active write-offs during 2002.

Delinquency Ratios (Credit Card, Card Loan, Credit Card + Card Loan)

Credit Card (Millions of Korean Won, %)

FY 2002 FY 2001 FY 2000

Loans outstanding 12,166,243 9,879,909 7,076,833 Loans delinquent: Below 1 month overdue 1,222,263 10.05% 632,495 6.40% 708,605 10.01%1 ~ 3 months 551,648 4.53% 153,804 1.56% 131,893 1.86%3 ~ 6 months 333,543 2.74% 121,692 1.23% 62,444 0.88%Over 6 months 1,823 0.01% 34,331 0.35% 43,393 0.61%

Over 1 day overdue 2,109,277 17.34% 942,322 9.54% 946,335 13.37%

Over 1 month overdue 887,014 7.29% 309,827 3.14% 237,730 3.36%

Card Loan(Millions of Korean Won, %)

Loans outstanding 4,783,601 2,845,851 1,294,788 Loans delinquent: Below 1 month overdue 696,323 14.56% 217,003 7.63% 148,929 11.50%1 ~ 3 months 507,901 10.62% 90,433 3.18% 55,270 4.27%3 ~ 6 months 271,067 5.67% 37,165 1.31% 18,096 1.40%Over 6 months 411 0.01% 15,737 0.55% 24,482 1.89%

Over 1 day overdue 1,475,702 30.85% 360,338 12.66% 246,777 19.06%

Over 1 month overdue 779,379 16.29% 143,335 5.04% 97,848 7.56%

Guidelines for Provisions on Credit Card and Credit Card Loan Assets

*Of accounts overdue 3~6 months, collectible accounts shall be classified as Substandard, applying loan loss provision of 20%,where uncollectible accounts shall be classified as Doubtful.

Lump-sum PurchaseInstallment PurchaseCash AdvanceRevolvingCard Loan

ABSDelinquency Ratios

FY 2000 FY 2001 FY 2002

5%

10%

15%

Card Loan

TotalCredit Card

Before Jun.02 From Jun.02 From Jul.02 From Dec.02

Normal Not delinquent 0.5% 0.5% 1% 1%Below 1 month 1.5% 1.5% 1% 1%

Precautionary 1 to 3 month 5.5% 5.5% 7% 12%

Substandard & Doubtful 3 to 6 month 15.5% 50.0% 60% 60%*6 to 12 month 25.4% 100.0% 100% 100%

Estimated loss 12 to 24 month 45.3% 100.0% 100% 100%Over 24 month 100.0% 100.0% 100% 100%

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Credit Card + Card Loan (Millions of Korean Won, %)

Loans outstanding 16,949,844 12,725,760 8,371,621Loans delinquent: Below 1 month overdue 1,918,586 11.32% 849,498 6.68% 857,534 10.24%1 ~ 3 months 1,059,549 6.25% 244,237 1.92% 187,163 2.24%3 ~ 6 months 604,610 3.57% 158,857 1.25% 80,540 0.96%Over 6 months 2,234 0.01% 50,068 0.39% 67,875 0.81%

Over 1 day overdue 3,584,979 21.15% 1,302,660 10.24% 1,193,112 14.25%

Over 1 month overdue 1,666,393 9.83% 453,162 3.56% 335,578 4.01%

2) Asset Quality

Total credits on a managed basis increased 4,363,488 million (+33.8%) YoY to 17,267,377 million at2002-end, while substandard or below loans shot up 387,664 million (+137.6%) YoY to 669,316million. Accordingly, the non-performing loan (NPL) ratio edged up 1.69%p YoY to 3.88%. In addition,loan loss reserves increased by 643,887 million to 892,745 million. Consequently, the NPLcoverage ratio, representing loan loss reserves to NPLs, surged 45.02%p YoY to 133.38%. Such sharprises were primarily due to the application of more stringent loan loss provisioning standards,following changes in guidelines by the Financial Supervisory Commission (FSC). The FSC guidelinesfor loan loss provisioning were adjusted three times during 2002 (from 15.5% for substandard &doubtful loans and 100% for estimated losses of 24 months only among estimated losses before Juneto 50% for substandard & doubtful loans and 100% for all estimated losses regardless of periodsaccording to revised guidelines in June). As for normal loans, FSC guidelines of 0.5% for notdelinquent and 1.5% for below one month were modified to the indiscriminate application of 1% andadjusted upward to 7% for precautionary loans and 60% for substandard & doubtful loans in July. InDecember, guidelines for precautionary loan provisioning were heightened to 12% (from 7%), whilerescheduled loans were reclassified to at least precautionary or below. When reclassifying assetquality according to such revamped guidelines for loan loss provisioning, the NPL coverage ratioshould be relatively higher than levels seen during previous years (as seen below). Furthermore, theCompany set aside additional 201,416 million reserves for loan losses than actually required by loanloss provisions guideline, given the 97,896 million in ABS losses reflected.

Asset Quality & Provisioning Guideline Changes

Management’s Discussion & Analysis

ANNUAL REPORT 2002

35

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Management’s Discussion & Analysis

www.irkookmincard.co.kr34

ABSFY 2002 FY 2001 FY 2000

Securitized Assets 7,710,322 3,320,623 1,188,977 Lump-sum Purchase 462,017 - - Installment Purchase 1,043,415 - - Cash Advance 3,844,578 2,597,151 845,816 Revolving 315,382 124,856 16,673 Card Loan 2,044,930 598,616 326,488

Asset Qualities and Loan Loss Provisioning 1) Delinquencies

The Company’s 1-month+ credit card delinquency ratio on a managed basis edged up 4.15%p YoY to7.29% at 2002-end, while card loans climbed 11.26%p over the year to record 16.29%. The higherdelinquency ratio of credit card loans was due to card loans included in rescheduled loans. Meanwhile,the total delinquency ratio for credit cards and card loans rose 6.27% YoY to 9.83%. Meanwhile, 6-month+ delinquencies on both credit cards and card loans accounted for no more than 0.01% of assetsthanks to active write-offs during 2002.

Delinquency Ratios (Credit Card, Card Loan, Credit Card + Card Loan)

Credit Card (Millions of Korean Won, %)

FY 2002 FY 2001 FY 2000

Loans outstanding 12,166,243 9,879,909 7,076,833 Loans delinquent: Below 1 month overdue 1,222,263 10.05% 632,495 6.40% 708,605 10.01%1 ~ 3 months 551,648 4.53% 153,804 1.56% 131,893 1.86%3 ~ 6 months 333,543 2.74% 121,692 1.23% 62,444 0.88%Over 6 months 1,823 0.01% 34,331 0.35% 43,393 0.61%

Over 1 day overdue 2,109,277 17.34% 942,322 9.54% 946,335 13.37%

Over 1 month overdue 887,014 7.29% 309,827 3.14% 237,730 3.36%

Card Loan(Millions of Korean Won, %)

Loans outstanding 4,783,601 2,845,851 1,294,788 Loans delinquent: Below 1 month overdue 696,323 14.56% 217,003 7.63% 148,929 11.50%1 ~ 3 months 507,901 10.62% 90,433 3.18% 55,270 4.27%3 ~ 6 months 271,067 5.67% 37,165 1.31% 18,096 1.40%Over 6 months 411 0.01% 15,737 0.55% 24,482 1.89%

Over 1 day overdue 1,475,702 30.85% 360,338 12.66% 246,777 19.06%

Over 1 month overdue 779,379 16.29% 143,335 5.04% 97,848 7.56%

Guidelines for Provisions on Credit Card and Credit Card Loan Assets

*Of accounts overdue 3~6 months, collectible accounts shall be classified as Substandard, applying loan loss provision of 20%,where uncollectible accounts shall be classified as Doubtful.

Lump-sum PurchaseInstallment PurchaseCash AdvanceRevolvingCard Loan

ABSDelinquency Ratios

FY 2000 FY 2001 FY 2002

5%

10%

15%

Card Loan

TotalCredit Card

Before Jun.02 From Jun.02 From Jul.02 From Dec.02

Normal Not delinquent 0.5% 0.5% 1% 1%Below 1 month 1.5% 1.5% 1% 1%

Precautionary 1 to 3 month 5.5% 5.5% 7% 12%

Substandard & Doubtful 3 to 6 month 15.5% 50.0% 60% 60%*6 to 12 month 25.4% 100.0% 100% 100%

Estimated loss 12 to 24 month 45.3% 100.0% 100% 100%Over 24 month 100.0% 100.0% 100% 100%

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Management’s Discussion & Analysis

ANNUAL REPORT 2002

37

Management’s Discussion & Analysis

www.irkookmincard.co.kr36

Asset Quality Classification(Managed)

Dec. 2002 Normal Pre-cautionary Sub-standard Doubtful Estimated Loss Total

Credit card 11,278,918 551,959 333,543 1,823 12,166,243 Card loan 3,080,059 1,432,064 271,067 411 4,783,601 Corporate/Installment financing 236,581 18,479 11,937 46,945 3,590 317,532

TToottaall 1144,,559955,,555588 22,,000022,,550022 1111,,993377 665511,,555555 55,,882244 1177,,226677,,337766

* NPLs (Substandard & Below) Ratio: 3.88%* NPL Coverage Ratio: 133.38%

Asset Quality When Applying Asset Quality Criteria in 4Q02 to Assets Before 3Q02 (Managed)

Dec. 2001 Normal Pre-cautionary Sub-standard Doubtful Estimated Loss Total

Credit card 9,570,082 153,804 121,692 34,331 9,879,909 Card loan 2,507,902 285,047 37,165 15,737 2,845,851 Corporate/Installment financing 102,309 3,092 27,959 38,793 5,975 178,128

TToottaall 1122,,118800,,229933 444411,,994433 2277,,995599 119977,,665500 5566,,004433 1122,,990033,,888888

* NPLs (Substandard & Below) Ratio:2.18%* NPL Coverage Ratio: 88.36%

Dec. 2000 Normal Pre-cautionary Sub-standard Doubtful Estimated Loss Total

Credit card 6,839,103 131,893 62,444 43,393 7,076,833 Card loan 1,134,557 117,653 18,096 24,482 1,294,788 Corporate/Installment financing 134,421 3,614 107,329 38,899 10,257 294,520

TToottaall 88,,110088,,008811 225533,,116600 110077,,332299 111199,,443399 7788,,113322 88,,666666,,114411

* NPLs (Substandard & Below) Ratio: 3.52%* NPL Coverage Ratio: 53.79%

3) Provision and Allowance for Loan Losses

Write-offs increased 590,507 million to 1,016,772 million in 2002, while recoveries from written-offloans amounted to 112,482 million. Accordingly, net charge-offs rose 560,896 million to 904,290million. Provisions for loan losses also jumped 1,149,540 million (+224.9%) YoY to 1,660,659million. As a result, the balance of loan loss provisions edged up 643,887 million to stand at

892,745 million, while reserves for loan losses to loans at year-end climbed 3.24%p YoY to 5.17%.Such an upturn in the balance of loan loss provisions was due to an increase in delinquencies andapplication of stricter internal guideline than that recommended by FSC. Consequently, the rise in theratio of reserves for loan losses to total loans is expected to help to prepare against future risks.

(Millions of Korean Won)

(Millions of Korean Won)

(Millions of Korean Won)

Loan Loss Provisioning and Write-offs(Millions of Korean Won)

FY 2002 FY 2001 FY 2000

RReesseerrvvee ffoorr LLooaann LLoosssseess Reserve Balance, beginning of period 248,858 164,004 213,906 Provision for Loan Losses 1,660,659 511,119 153,953 Write-offs 1,016,772 426,265 203,855 Reserve Balance, end of period 892,745 248,858 164,004

NNeett PPrroovviissiioonn Provision for Loan Losses 1,660,659 511,119 153,953 Recoveries 112,482 82,871 40,342 Net Provision 1,548,177 428,248 113,611

Capital Adequacy The Capital Adequacy Ratio (CAR), which is referred to when the Financial Supervisory Service (FSS)evaluates financial soundness of non-banking financing companies, is recommended to be maintainedat a minimum of 7% according to relevant regulatory rules. Of note, the FSS’s recommended ratio wasrevised upward to 8% in 2003. CAR is calculated by dividing adjusted equity by adjusted total assets.Total assets are computed by deducting cash, short-term deposits without collateral agreements,government and public bonds within three months of maturity, deferred corporate taxes, andintangible assets including development expenses from total assets on the balance sheet. Meanwhile,adjusted equity is classified into Tier 1 and Tier 2, supplementary capital, and deductibles. Tier Iconfirms with total shareholders’ equity on the balance sheets, while Tier 2, mainly consists of loanloss provisions for not delinquent loans, additional provisions more than required by regulatoryguidelines, and non-guaranteed subordinated bonds. Adjusted total assets amounted to 13,260,637million at 2002-end, which is a rise of 25.3% or 2,675,276 million YoY. Adjusted equity edged up

77,349 million (+6.1%) YoY to 1,356,364 million. Accordingly, the capital adequacy ratio marginallydeclined YoY to 10.23%, due to an increase in assets following expanded business volume and deficitsin 2002. Nonetheless, the ratio is still being maintained at a stable level relative to regulatoryguidelines of 8%, despite large-scale losses the Company reflected in 2002.

Capital Adequacy Ratio

FY 2002 FY 2001 FY 2000

Amount Adjusted Equity 1,356,364 1,279,015 833,485 Tier 1 918,226 1,187,704 802,528 Tier 2 438,138 91,311 30,957 Adjusted Asset 13,260,637 10,585,361 8,177,527 Ratio Tier 1 6.92% 11.22% 9.81%Tier 2 3.31% 0.86% 0.38%Total 10.23% 12.08% 10.19%

Capital Adequacy Ratio (%)

CAR

FY 2000 FY 2001 FY 2002

5.00%

10.00%

15.00%

10.23%10.19%

12.08%

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

(Millions of Korean Won)

Management’s Discussion & Analysis

ANNUAL REPORT 2002

37

Management’s Discussion & Analysis

www.irkookmincard.co.kr36

Asset Quality Classification(Managed)

Dec. 2002 Normal Pre-cautionary Sub-standard Doubtful Estimated Loss Total

Credit card 11,278,918 551,959 333,543 1,823 12,166,243 Card loan 3,080,059 1,432,064 271,067 411 4,783,601 Corporate/Installment financing 236,581 18,479 11,937 46,945 3,590 317,532

TToottaall 1144,,559955,,555588 22,,000022,,550022 1111,,993377 665511,,555555 55,,882244 1177,,226677,,337766

* NPLs (Substandard & Below) Ratio: 3.88%* NPL Coverage Ratio: 133.38%

Asset Quality When Applying Asset Quality Criteria in 4Q02 to Assets Before 3Q02 (Managed)

Dec. 2001 Normal Pre-cautionary Sub-standard Doubtful Estimated Loss Total

Credit card 9,570,082 153,804 121,692 34,331 9,879,909 Card loan 2,507,902 285,047 37,165 15,737 2,845,851 Corporate/Installment financing 102,309 3,092 27,959 38,793 5,975 178,128

TToottaall 1122,,118800,,229933 444411,,994433 2277,,995599 119977,,665500 5566,,004433 1122,,990033,,888888

* NPLs (Substandard & Below) Ratio:2.18%* NPL Coverage Ratio: 88.36%

Dec. 2000 Normal Pre-cautionary Sub-standard Doubtful Estimated Loss Total

Credit card 6,839,103 131,893 62,444 43,393 7,076,833 Card loan 1,134,557 117,653 18,096 24,482 1,294,788 Corporate/Installment financing 134,421 3,614 107,329 38,899 10,257 294,520

TToottaall 88,,110088,,008811 225533,,116600 110077,,332299 111199,,443399 7788,,113322 88,,666666,,114411

* NPLs (Substandard & Below) Ratio: 3.52%* NPL Coverage Ratio: 53.79%

3) Provision and Allowance for Loan Losses

Write-offs increased 590,507 million to 1,016,772 million in 2002, while recoveries from written-offloans amounted to 112,482 million. Accordingly, net charge-offs rose 560,896 million to 904,290million. Provisions for loan losses also jumped 1,149,540 million (+224.9%) YoY to 1,660,659million. As a result, the balance of loan loss provisions edged up 643,887 million to stand at

892,745 million, while reserves for loan losses to loans at year-end climbed 3.24%p YoY to 5.17%.Such an upturn in the balance of loan loss provisions was due to an increase in delinquencies andapplication of stricter internal guideline than that recommended by FSC. Consequently, the rise in theratio of reserves for loan losses to total loans is expected to help to prepare against future risks.

(Millions of Korean Won)

(Millions of Korean Won)

(Millions of Korean Won)

Loan Loss Provisioning and Write-offs(Millions of Korean Won)

FY 2002 FY 2001 FY 2000

RReesseerrvvee ffoorr LLooaann LLoosssseess Reserve Balance, beginning of period 248,858 164,004 213,906 Provision for Loan Losses 1,660,659 511,119 153,953 Write-offs 1,016,772 426,265 203,855 Reserve Balance, end of period 892,745 248,858 164,004

NNeett PPrroovviissiioonn Provision for Loan Losses 1,660,659 511,119 153,953 Recoveries 112,482 82,871 40,342 Net Provision 1,548,177 428,248 113,611

Capital Adequacy The Capital Adequacy Ratio (CAR), which is referred to when the Financial Supervisory Service (FSS)evaluates financial soundness of non-banking financing companies, is recommended to be maintainedat a minimum of 7% according to relevant regulatory rules. Of note, the FSS’s recommended ratio wasrevised upward to 8% in 2003. CAR is calculated by dividing adjusted equity by adjusted total assets.Total assets are computed by deducting cash, short-term deposits without collateral agreements,government and public bonds within three months of maturity, deferred corporate taxes, andintangible assets including development expenses from total assets on the balance sheet. Meanwhile,adjusted equity is classified into Tier 1 and Tier 2, supplementary capital, and deductibles. Tier Iconfirms with total shareholders’ equity on the balance sheets, while Tier 2, mainly consists of loanloss provisions for not delinquent loans, additional provisions more than required by regulatoryguidelines, and non-guaranteed subordinated bonds. Adjusted total assets amounted to 13,260,637million at 2002-end, which is a rise of 25.3% or 2,675,276 million YoY. Adjusted equity edged up

77,349 million (+6.1%) YoY to 1,356,364 million. Accordingly, the capital adequacy ratio marginallydeclined YoY to 10.23%, due to an increase in assets following expanded business volume and deficitsin 2002. Nonetheless, the ratio is still being maintained at a stable level relative to regulatoryguidelines of 8%, despite large-scale losses the Company reflected in 2002.

Capital Adequacy Ratio

FY 2002 FY 2001 FY 2000

Amount Adjusted Equity 1,356,364 1,279,015 833,485 Tier 1 918,226 1,187,704 802,528 Tier 2 438,138 91,311 30,957 Adjusted Asset 13,260,637 10,585,361 8,177,527 Ratio Tier 1 6.92% 11.22% 9.81%Tier 2 3.31% 0.86% 0.38%Total 10.23% 12.08% 10.19%

Capital Adequacy Ratio (%)

CAR

FY 2000 FY 2001 FY 2002

5.00%

10.00%

15.00%

10.23%10.19%

12.08%

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

MD&A BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

(Millions of Korean Won)

As disclosed in Note 23 to the financial statements, in 2002 and 2001, significant transactions of the Company with

Kookmin Bank included interest, fees and commissions earned of 3,698 million ($3,081 thousand) and 480

million ($ 400 thousand), respectively, and interest, fees and commissions charged to the Company by Kookmin

Bank of 175,683 million ($146,354 thousand) and 159,810 million ($133,131 thousand), respectively. As of

December 31, 2002 and 2001, intercompany receivables were 723,548 million ($602,756 thousand) and

24,125 million ($20,097 thousand), respectively, and intercompany payables were 162,449 million ($135,329

thousand) and 264,943 million ($220,712 thousand), respectively.

As explained in Note 2, in 2002, the Company had increased its minimum rates of allowance for doubtful accounts

and has provided additional allowances for credit card assets in accordance with the request of the Financial

Supervisory Service and based on the deterioration of credit card assets delinquency ratios. As a result of this change

in accounting estimates, the Company has provided an additional 397,158 million($ 330,855 thousand) of

allowance for doubtful accounts in 2002 when compared with the previous method.

Accounting principles and auditing standards and their application in practice vary among countries. The

accompanying financial statements are not intended to present the financial position, results of operations and cash

flows in accordance with accounting principles and practices generally accepted in countries other than the

Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to audit such

financial statements may differ from those generally accepted and applied in other countries. Accordingly, this

report and the accompanying financial statements are for use by those knowledgeable about Korean accounting

procedures and auditing standards and their application in practice.

Seoul, Korea, January 14, 2003

ANNUL REPORT 2002

39

This report is effective as of January 14, 2003, the auditors’ report date. Certain subsequent events or circumstances mayhave occurred between the auditors’ report date and the time the auditors’ report is read. Such events and circumstancescould significantly affect the accompanying financial statements and may result in modifications to the auditor’s report.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

www.irkookmincard.co.kr38

English Translation of a Report Originally Issued in Korean

To the Shareholders and Board of Directors of KOOKMIN CREDIT CARD CO., LTD.:

We have audited the accompanying balance sheets of KOOKMIN CREDIT CARD CO., LTD. (the “Company”) as ofDecember 31, 2002 and 2001, and the related statements of operations, disposition of accumulated deficit andcash flows for the years then ended, all expressed in Korean Won. These financial statements are the responsibilityof the Company’s management. Our responsibility is to express an opinion on these financial statements based onour audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financialposition of the Company as of December 31, 2002 and 2001, and the results of its operations, changes in itsaccumulated deficits and its cash flows for the years then ended, in conformity with financial accounting standardsin the Republic of Korea (see Note 2).

The translated amounts in the accompanying financial statements have been translated into US dollars, solely forthe convenience of the reader, on the basis set forth in Note 2 to the financial statements.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

For the Years Ended December 31, 2002 and 2001For the Years Ended December 31, 2002 and 2001

14th Floor, Hanhwa Securities Building23-5 Yoido-dong, Youngdeungpo-ku, Seoul, 150-717, KoreaTel +82 2 6676-1000 Fax +82 2 785-4753, 786-0267

Anjin & Co.

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

MD&A MD&A

As disclosed in Note 23 to the financial statements, in 2002 and 2001, significant transactions of the Company with

Kookmin Bank included interest, fees and commissions earned of 3,698 million ($3,081 thousand) and 480

million ($ 400 thousand), respectively, and interest, fees and commissions charged to the Company by Kookmin

Bank of 175,683 million ($146,354 thousand) and 159,810 million ($133,131 thousand), respectively. As of

December 31, 2002 and 2001, intercompany receivables were 723,548 million ($602,756 thousand) and

24,125 million ($20,097 thousand), respectively, and intercompany payables were 162,449 million ($135,329

thousand) and 264,943 million ($220,712 thousand), respectively.

As explained in Note 2, in 2002, the Company had increased its minimum rates of allowance for doubtful accounts

and has provided additional allowances for credit card assets in accordance with the request of the Financial

Supervisory Service and based on the deterioration of credit card assets delinquency ratios. As a result of this change

in accounting estimates, the Company has provided an additional 397,158 million($ 330,855 thousand) of

allowance for doubtful accounts in 2002 when compared with the previous method.

Accounting principles and auditing standards and their application in practice vary among countries. The

accompanying financial statements are not intended to present the financial position, results of operations and cash

flows in accordance with accounting principles and practices generally accepted in countries other than the

Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to audit such

financial statements may differ from those generally accepted and applied in other countries. Accordingly, this

report and the accompanying financial statements are for use by those knowledgeable about Korean accounting

procedures and auditing standards and their application in practice.

Seoul, Korea, January 14, 2003

ANNUL REPORT 2002

39

This report is effective as of January 14, 2003, the auditors’ report date. Certain subsequent events or circumstances mayhave occurred between the auditors’ report date and the time the auditors’ report is read. Such events and circumstancescould significantly affect the accompanying financial statements and may result in modifications to the auditor’s report.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

www.irkookmincard.co.kr38

English Translation of a Report Originally Issued in Korean

To the Shareholders and Board of Directors of KOOKMIN CREDIT CARD CO., LTD.:

We have audited the accompanying balance sheets of KOOKMIN CREDIT CARD CO., LTD. (the “Company”) as ofDecember 31, 2002 and 2001, and the related statements of operations, disposition of accumulated deficit andcash flows for the years then ended, all expressed in Korean Won. These financial statements are the responsibilityof the Company’s management. Our responsibility is to express an opinion on these financial statements based onour audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financialposition of the Company as of December 31, 2002 and 2001, and the results of its operations, changes in itsaccumulated deficits and its cash flows for the years then ended, in conformity with financial accounting standardsin the Republic of Korea (see Note 2).

The translated amounts in the accompanying financial statements have been translated into US dollars, solely forthe convenience of the reader, on the basis set forth in Note 2 to the financial statements.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

For the Years Ended December 31, 2002 and 2001For the Years Ended December 31, 2002 and 2001

14th Floor, Hanhwa Securities Building23-5 Yoido-dong, Youngdeungpo-ku, Seoul, 150-717, KoreaTel +82 2 6676-1000 Fax +82 2 785-4753, 786-0267

Anjin & Co.

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

MD&A MD&A

MD&A MD&AReport ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

22000022 2001 22000022 2001

Balance SheetsAs of December 31, 2002 and 2001

ANNUAL REPORT 2002

41

LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIES:

Call money (Note 15) - 530,000 $ - $ 441,519Short-term borrowings (Notes 15 and 23) 5,100,600 3,006,010 4,249,084 2,504,174Credit card (Notes 14 and 23) 20,783 22,526 17,313 18,766Accounts payable-other 178,232 44,719 148,477 37,253Advanced receipts 150,410 14,128 125,300 11,770Accrued expenses 482,616 424,187 402,046 353,371Income tax payable - 145,467 - 121,182Dividends payable (Note 20) - 90,870 - 75,700Current maturities of long-term borrowings

and debentures, less discount on debentures (Note 16) 2,745,600 1,974,775 2,287,237 1,645,098Interest rate swap (Note 18) 7,243 786 6,034 654Currency swap (Note 18) 3,416 - 2,846 -Other current liabilities 60,539 37,461 50,432 31,207

8,749,439 6,290,929 7,288,769 5,240,694

LONG-TERM LIABILITIES: Debentures, less current maturities and

discount on debentures (Note 16) 3,478,698 3,004,587 2,897,949 2,502,988Long-term borrowings, less current maturities (Note 16) 218,006 90,000 181,611 74,975Guarantee deposits received (Note 23) 1,817 2,079 1,514 1,732Long-term accounts payable-other 9,256 10,985 7,711 9,151Accrued severance indemnities, net of National

Pension payments for employees of 40million in 2002 and 47 million in 2001, and net of individual severance insurance deposits of 7,073 million in 2002 and 3,557 million in 2001 (Notes 2 and 23) 5,805 1,333 4,836 1,110

3,713,582 3,108,984 3,093,621 2,589,956

SHAREHOLDERS’ EQUITY (Note 17):Common stock 366,000 366,000 304,898 304,898Capital surplus 146,591 146,591 122,119 122,119

Retained earnings Legal reserve 16,049 16,049 13,369 13,369Reserve for business rationalization 294 294 245 245Voluntary reserve 391,253 652,141 325,936 543,270Undisposed accumulated deficit[net income (loss) of (260,888) million in

2002 and 458,195 million in 2001] - - - -

Capital adjustments (1,960) (3,496) (1,633) (2,912)

918,227 1,177,579 764,934 980,989

13,381,248 10,577,492 $ 11,147,324 $ 8,811,639

CURRENT ASSETS:Cash and cash equivalents (Notes 3, 23 and 26) 26,295 13,175 $ 21,905 $ 10,976Short-term financial instruments (Notes 3 and 16) 50,000 15,000 41,653 12,496Call loan (Notes 4 and 23) 600,000 - 499,833 -Marketable securities (Note 5) 5,176 8,667 4,312 7,220Accounts receivable-other, net of allowance

for doubtful accounts of 1,815 million in 2002and 5,694 million in 2001 (Notes 9 and 23) 114,141 15,558 95,086 12,960

Accrued income 262,799 166,018 218,926 138,302Prepaid income tax 81,264 - 67,697 -Interest rate swap (Note 18) 11,996 - 9,993 -Other current assets, net of allowance for doubtful

accounts of 6,481 million in 2002 and 2,384 million in 2001 (Note 9) 66,720 66,014 55,582 54,994

1,218,391 284,432 1,014,987 236,948

CREDIT CARD ASSETS (Notes 6, 8 and 9):Credit card receivables 4,130,390 3,864,673 3,440,844 3,219,488Cash advance 2,370,461 3,293,229 1,974,726 2,743,443Credit card loans 2,738,671 2,247,235 2,281,466 1,872,072Less: Allowance for doubtful accounts (850,192) (207,655) (708,257) (172,988)

8,389,330 9,197,482 6,988,779 7,662,015FINANCING ASSETS (Notes 7 and 9):

Installment financing assets 164,605 66,715 137,125 55,577General financing assets 90,885 - 75,712 -Factorings 26,503 50,436 22,078 42,016Property on leases, net of accumulated

depreciation of 766 million in 2002 and 1,729 million in 2001 93 195 78 162

Advances to customers 113 295 95 246Other financing assets 18,794 40,445 15,656 33,693Less: Allowance for doubtful accounts (34,257) (33,125) (28,538) (27,595)

266,736 124,961 222,206 104,099NON-CURRENT ASSETS:

Long-term financial instruments (Notes 3, 16 and 23) 27,211 80,768 22,668 67,284

Investment securities (Note 10) 3,106,951 639,054 2,588,263 532,367Guarantee deposits (Note 23) 95,471 65,300 79,533 54,399Other investment assets 8,006 2,144 6,669 1,786Deferred income tax assets (Note 22) 8,552 8,049 7,124 6,705Property and equipment, net of accumulated depreciation of 136,014 million in 2002 and

94,903 million in 2001 (Notes 11 and 12) 244,269 175,193 203,490 145,946Intangible assets (Note 13) 16,331 109 13,605 90

3,506,791 970,617 2,921,352 808,57713,381,248 10,577,492 $ 11,147,324 $ 8,811,639

Balance SheetsAs of December 31, 2002 and 2001

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40

22000022 2001 22000022 2001

continued

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

See accompanying notes to financial statements.

Translation intoKorean won U. S. dollars (Note 2)

(in millions) (In thousands)

Translation intoKorean won U. S. dollars (Note 2)

(in millions) (In thousands)

MD&A MD&A

MD&A MD&AReport ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

22000022 2001 22000022 2001

Balance SheetsAs of December 31, 2002 and 2001

ANNUAL REPORT 2002

41

LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIES:

Call money (Note 15) - 530,000 $ - $ 441,519Short-term borrowings (Notes 15 and 23) 5,100,600 3,006,010 4,249,084 2,504,174Credit card (Notes 14 and 23) 20,783 22,526 17,313 18,766Accounts payable-other 178,232 44,719 148,477 37,253Advanced receipts 150,410 14,128 125,300 11,770Accrued expenses 482,616 424,187 402,046 353,371Income tax payable - 145,467 - 121,182Dividends payable (Note 20) - 90,870 - 75,700Current maturities of long-term borrowings

and debentures, less discount on debentures (Note 16) 2,745,600 1,974,775 2,287,237 1,645,098Interest rate swap (Note 18) 7,243 786 6,034 654Currency swap (Note 18) 3,416 - 2,846 -Other current liabilities 60,539 37,461 50,432 31,207

8,749,439 6,290,929 7,288,769 5,240,694

LONG-TERM LIABILITIES: Debentures, less current maturities and

discount on debentures (Note 16) 3,478,698 3,004,587 2,897,949 2,502,988Long-term borrowings, less current maturities (Note 16) 218,006 90,000 181,611 74,975Guarantee deposits received (Note 23) 1,817 2,079 1,514 1,732Long-term accounts payable-other 9,256 10,985 7,711 9,151Accrued severance indemnities, net of National

Pension payments for employees of 40million in 2002 and 47 million in 2001, and net of individual severance insurance deposits of 7,073 million in 2002 and 3,557 million in 2001 (Notes 2 and 23) 5,805 1,333 4,836 1,110

3,713,582 3,108,984 3,093,621 2,589,956

SHAREHOLDERS’ EQUITY (Note 17):Common stock 366,000 366,000 304,898 304,898Capital surplus 146,591 146,591 122,119 122,119

Retained earnings Legal reserve 16,049 16,049 13,369 13,369Reserve for business rationalization 294 294 245 245Voluntary reserve 391,253 652,141 325,936 543,270Undisposed accumulated deficit[net income (loss) of (260,888) million in

2002 and 458,195 million in 2001] - - - -

Capital adjustments (1,960) (3,496) (1,633) (2,912)

918,227 1,177,579 764,934 980,989

13,381,248 10,577,492 $ 11,147,324 $ 8,811,639

CURRENT ASSETS:Cash and cash equivalents (Notes 3, 23 and 26) 26,295 13,175 $ 21,905 $ 10,976Short-term financial instruments (Notes 3 and 16) 50,000 15,000 41,653 12,496Call loan (Notes 4 and 23) 600,000 - 499,833 -Marketable securities (Note 5) 5,176 8,667 4,312 7,220Accounts receivable-other, net of allowance

for doubtful accounts of 1,815 million in 2002and 5,694 million in 2001 (Notes 9 and 23) 114,141 15,558 95,086 12,960

Accrued income 262,799 166,018 218,926 138,302Prepaid income tax 81,264 - 67,697 -Interest rate swap (Note 18) 11,996 - 9,993 -Other current assets, net of allowance for doubtful

accounts of 6,481 million in 2002 and 2,384 million in 2001 (Note 9) 66,720 66,014 55,582 54,994

1,218,391 284,432 1,014,987 236,948

CREDIT CARD ASSETS (Notes 6, 8 and 9):Credit card receivables 4,130,390 3,864,673 3,440,844 3,219,488Cash advance 2,370,461 3,293,229 1,974,726 2,743,443Credit card loans 2,738,671 2,247,235 2,281,466 1,872,072Less: Allowance for doubtful accounts (850,192) (207,655) (708,257) (172,988)

8,389,330 9,197,482 6,988,779 7,662,015FINANCING ASSETS (Notes 7 and 9):

Installment financing assets 164,605 66,715 137,125 55,577General financing assets 90,885 - 75,712 -Factorings 26,503 50,436 22,078 42,016Property on leases, net of accumulated

depreciation of 766 million in 2002 and 1,729 million in 2001 93 195 78 162

Advances to customers 113 295 95 246Other financing assets 18,794 40,445 15,656 33,693Less: Allowance for doubtful accounts (34,257) (33,125) (28,538) (27,595)

266,736 124,961 222,206 104,099NON-CURRENT ASSETS:

Long-term financial instruments (Notes 3, 16 and 23) 27,211 80,768 22,668 67,284

Investment securities (Note 10) 3,106,951 639,054 2,588,263 532,367Guarantee deposits (Note 23) 95,471 65,300 79,533 54,399Other investment assets 8,006 2,144 6,669 1,786Deferred income tax assets (Note 22) 8,552 8,049 7,124 6,705Property and equipment, net of accumulated depreciation of 136,014 million in 2002 and

94,903 million in 2001 (Notes 11 and 12) 244,269 175,193 203,490 145,946Intangible assets (Note 13) 16,331 109 13,605 90

3,506,791 970,617 2,921,352 808,57713,381,248 10,577,492 $ 11,147,324 $ 8,811,639

Balance SheetsAs of December 31, 2002 and 2001

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40

22000022 2001 22000022 2001

continued

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

See accompanying notes to financial statements.

Translation intoKorean won U. S. dollars (Note 2)

(in millions) (In thousands)

Translation intoKorean won U. S. dollars (Note 2)

(in millions) (In thousands)

MD&A MD&A

22000022 2001 22000022 2001

Translation intoKorean won U. S. dollars (Note 2)

(in millions) (In thousands)

22000022 2001 22000022 2001

Statements of Operations Statements of Disposition of Accumulated DeficitFor the years Ended December 31, 2002 and 2001 For the Years Ended December 31, 2002 and 2001

ANNUAL REPORT 2002

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42

OPERATING REVENUE:Fees and commissions (Notes 6, 7 and 23) 2,189,059 1,763,552 $ 1,823,608 $ 1,469,137Interest income (Notes 6, 7 and 23) 957,966 566,583 798,039 471,995Gain on disposal of marketable securities 1,989 863 1,657 719Gain on valuation of marketable securities 25 850 21 708Gain on valuation of currency swap 122 - 101 -Rental income 40 1,282 33 1,068Gain on disposal of property on leases 1 154 1 128Gain on foreign currency translation 121 - 101 -Gain on foreign currency transactions 6,807 6,408 5,671 5,338Other 100 198 83 165

3,156,230 2,339,890 2,629,315 1,949,258OPERATING EXPENSES:

Interest expense (Note 23) 738,607 578,166 615,301 481,645Fees and commissions (Note 23) 627,893 421,452 523,069 351,093Loss on disposal of marketable securities 806 147 672 122Loss on valuation of marketable securities 23 - 19 -Loss on foreign currency translation 12 - 10 -Loss on foreign currency transactions 323 166 269 138Depreciation of property on leases 38 396 31 330Loss on disposal of property on leases 21 281 17 234Loss on disposal of credit card assets (Note 6) 97,896 - 81,553 -Other 70,955 21,890 59,110 18,236

1,536,574 1,022,498 1,280,051 851,798GENERAL AND ADMINISTRATIVE EXPENSES

(Notes 19, 21 and 23) 1,925,803 661,051 1,604,301 550,692OPERATING INCOME (LOSS) (306,147) 656,341 (255,037) 546,768NON-OPERATING INCOME (EXPENSES):

Loss on disposal of investment assets, net (390) (1,020) (325) (850)Loss on disposal of property and equipment, net (27) (2,981) (23) (2,484)Refund of income tax, net (Note 24) 56,014 10,594 46,662 8,826Impairment loss of investment securities (Note 10) (590) - (492) -Miscellaneous, net (Note 25) (9,748) (5,132) (8,119) (4,274)

45,259 1,461 37,703 1,218ORDINARY INCOME (LOSS) (260,888) 657,802 (217,334) 547,986EXTRAORDINARY ITEMS - - - -INCOME (LOSS) BEFORE INCOME TAX EXPENSE (260,888) 657,802 (217,334) 547,986INCOME TAX EXPENSE (Note 22) - 199,607 - 166,284NET INCOME (LOSS) (260,888) 458,195 $ (217,334) $ 381,702ORDINARY INCOME (LOSS) PER COMMON

SHARE (in Currency Units) (Note 2) (3,589) 6,303 $ (2.99) $ 5.25NET INCOME (LOSS) PER COMMON SHARE

(in Currency Units) (Note 2) (3,589) 6,303 $ (2.99) $ 5.25

UNAPPROPRIATED RETAINED EARNINGS (ACCUMULATED DEFICIT) BEFORE DISPOSITION:Unappropriated retained earnings carried over from prior years - - $ - $ -Net income (loss) (260,888) 458,195 (217,334) 381,702

(260,888) 458,195 (217,334) 381,702

APPROPRIATIONS:Legal reserve - 9,100 - 7,581Business rationalization reserve - 294 - 245Dividends (Note 20) - 90,870 - 75,700Voluntary reserve - 357,931 - 298,176

- 458,195 - 381,702

DISPOSITION:Voluntary reserve (260,888) - (217,334) -

UNDISPOSED ACCUMULATED DEFICIT TO BE CARRIED FORWARD TO SUBSEQUENT YEAR: - - $ - $ -

See accompanying notes to financial statements.

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

See accompanying notes to financial statements.

Translation intoKorean won U. S. dollars (Note 2)

(in millions) (In thousands)

MD&AMD&A

22000022 2001 22000022 2001

Translation intoKorean won U. S. dollars (Note 2)

(in millions) (In thousands)

22000022 2001 22000022 2001

Statements of Operations Statements of Disposition of Accumulated DeficitFor the years Ended December 31, 2002 and 2001 For the Years Ended December 31, 2002 and 2001

ANNUAL REPORT 2002

43www.irkookmincard.co.kr

42

OPERATING REVENUE:Fees and commissions (Notes 6, 7 and 23) 2,189,059 1,763,552 $ 1,823,608 $ 1,469,137Interest income (Notes 6, 7 and 23) 957,966 566,583 798,039 471,995Gain on disposal of marketable securities 1,989 863 1,657 719Gain on valuation of marketable securities 25 850 21 708Gain on valuation of currency swap 122 - 101 -Rental income 40 1,282 33 1,068Gain on disposal of property on leases 1 154 1 128Gain on foreign currency translation 121 - 101 -Gain on foreign currency transactions 6,807 6,408 5,671 5,338Other 100 198 83 165

3,156,230 2,339,890 2,629,315 1,949,258OPERATING EXPENSES:

Interest expense (Note 23) 738,607 578,166 615,301 481,645Fees and commissions (Note 23) 627,893 421,452 523,069 351,093Loss on disposal of marketable securities 806 147 672 122Loss on valuation of marketable securities 23 - 19 -Loss on foreign currency translation 12 - 10 -Loss on foreign currency transactions 323 166 269 138Depreciation of property on leases 38 396 31 330Loss on disposal of property on leases 21 281 17 234Loss on disposal of credit card assets (Note 6) 97,896 - 81,553 -Other 70,955 21,890 59,110 18,236

1,536,574 1,022,498 1,280,051 851,798GENERAL AND ADMINISTRATIVE EXPENSES

(Notes 19, 21 and 23) 1,925,803 661,051 1,604,301 550,692OPERATING INCOME (LOSS) (306,147) 656,341 (255,037) 546,768NON-OPERATING INCOME (EXPENSES):

Loss on disposal of investment assets, net (390) (1,020) (325) (850)Loss on disposal of property and equipment, net (27) (2,981) (23) (2,484)Refund of income tax, net (Note 24) 56,014 10,594 46,662 8,826Impairment loss of investment securities (Note 10) (590) - (492) -Miscellaneous, net (Note 25) (9,748) (5,132) (8,119) (4,274)

45,259 1,461 37,703 1,218ORDINARY INCOME (LOSS) (260,888) 657,802 (217,334) 547,986EXTRAORDINARY ITEMS - - - -INCOME (LOSS) BEFORE INCOME TAX EXPENSE (260,888) 657,802 (217,334) 547,986INCOME TAX EXPENSE (Note 22) - 199,607 - 166,284NET INCOME (LOSS) (260,888) 458,195 $ (217,334) $ 381,702ORDINARY INCOME (LOSS) PER COMMON

SHARE (in Currency Units) (Note 2) (3,589) 6,303 $ (2.99) $ 5.25NET INCOME (LOSS) PER COMMON SHARE

(in Currency Units) (Note 2) (3,589) 6,303 $ (2.99) $ 5.25

UNAPPROPRIATED RETAINED EARNINGS (ACCUMULATED DEFICIT) BEFORE DISPOSITION:Unappropriated retained earnings carried over from prior years - - $ - $ -Net income (loss) (260,888) 458,195 (217,334) 381,702

(260,888) 458,195 (217,334) 381,702

APPROPRIATIONS:Legal reserve - 9,100 - 7,581Business rationalization reserve - 294 - 245Dividends (Note 20) - 90,870 - 75,700Voluntary reserve - 357,931 - 298,176

- 458,195 - 381,702

DISPOSITION:Voluntary reserve (260,888) - (217,334) -

UNDISPOSED ACCUMULATED DEFICIT TO BE CARRIED FORWARD TO SUBSEQUENT YEAR: - - $ - $ -

See accompanying notes to financial statements.

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

See accompanying notes to financial statements.

Translation intoKorean won U. S. dollars (Note 2)

(in millions) (In thousands)

MD&AMD&A

22000022 2001 22000022 2001

Translation intoKorean won (in millions) U. S. dollars (in thousands)

22000022 2001 22000022 2001

Translation intoKorean won (in millions) U. S. dollars (in thousands)

Statements of Cash Flows Statements of Cash FlowsFor the years Ended December 31, 2002 and 2001 For the Years Ended December 31, 2002 and 2001

ANNUAL REPORT 2002

45www.irkookmincard.co.kr

44

I. CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss) (260,888) 458,195 $ (217,334) $ 381,702Adjustments to reconcile net income to net cash provided by (used in) in operating activities:

Provision for severance indemnities 9,145 7,758 7,618 6,462Loss on disposal of marketable securities 806 147 672 122Loss on valuation of marketable securities 23 - 19 -Impairment loss of investment securities 590 - 492 -Loss on foreign currency translations 12 - 10 -Depreciation of property and equipment 52,118 37,297 43,417 31,071Depreciation of property on leases 38 396 31 330Loss on disposal of property and equipment, net 27 2,981 23 2,484Loss on disposal of property on leases 21 281 17 234Loss on disposal of investment assets, net 390 1,020 325 850Amortization of intangible assets 1,220 33 1,017 27Amortization of discount on debentures 1,852 1,140 1,543 950Stock option costs 535 426 445 355Gain on disposal of marketable securities (1,989) (863) (1,657) (719)Gain on valuation of marketable securities (25) (850) (21) (708)Gain on foreign currency transactions (121) - (101) -Gain on disposal of property on leases (1) (154) (1) (128)Gain on valuation of currency swap (122) - (101) -

Changes in operating assets and liabilities:(Increase) decrease in accounts receivable-other (98,583) 12,090 (82,126) 10,072Increase in accrued income (96,781) (69,192) (80,624) (57,641)Increase in prepaid income tax (81,264) - (67,697) -Increase in other current assets (706) (36,689) (588) (30,564)(Increase) decrease in credit card receivables 974,808 (863,570) 812,069 (719,402)Increase in card loans (166,657) (1,253,659) (138,833) (1,044,368)(Increase) decrease in installment financing assets (91,380) 8,478 (76,125) 7,063Increase in general financing assets (88,419) - (73,658) -Decrease in factorings 16,443 36,849 13,698 30,697Decrease in property on leases 31 3,226 26 2,687Increase in advances to customers (17) (12) (14) (10)Decrease in other financing assets 21,509 45,216 17,918 37,668Increase in deferred income tax assets (503) (5,654) (419) (4,710)Increase in accounts payable-other 133,513 28,848 111,224 24,032Increase in advanced receipts 136,282 1,525 113,530 1,271Increase in accrued expenses 58,429 185,997 48,675 154,946Increase (decrease) in income tax payable (145,467) 28,958 (121,182) 24,123Decrease in dividends payable (90,870) - (75,700) -Increase in other current liabilities 23,078 5,367 19,225 4,471Increase (decrease) in long-term accounts payable-other (1,729) 3,407 (1,440) 2,838

(continued)

Payment of severance benefits (1,164) (21,639) $ (970) $ (18,027)Decrease in National Pension payments for

employees 7 1,339 5 1,116(Increase) decrease in individual severance

insurance deposits (3,516) 8,561 (2,929) 7,132

Net cash provided by (used in) operating activities 300,675 (1,372,747) 250,479 (1,143,574)

II. CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of short-term financial instruments (35,000) (7,603) (29,157) (6,333)Purchase of call loan (600,000) - (499,833) -Collection of long-term financial instruments 53,557 9,896 44,616 8,244Proceeds from sales of marketable securities 29,136 28,768 24,272 23,965Proceeds from sales of investment securities 906,012 1,010,238 754,758 841,585Acquisition of marketable securities (24,459) (31,446) (20,376) (26,196)Acquisition of investment securities (3,376,089) (1,222,123) (2,812,470) (1,018,097)Net increase in guarantee deposits (30,171) (22,233) (25,134) (18,521)Net decrease in guarantee deposits received (262) - (218) -Net (increase) decrease in other investment assets (5,662) 44 (4,717) 37Proceeds from disposal of property and equipment 544 16,902 454 14,080Acquisition of property and equipment and equipment (121,764) (78,712) (101,437) (65,572)Additions to intangible assets (17,443) (93) (14,531) (78)Net cash used in investing activities (3,221,601) (296,362) (2,683,773) (246,886)

III. CASH FLOWS FROM FINANCING ACTIVITIES:(Repayment) proceeds from call money (530,000) 164,800 (441,520) 137,287Proceeds from short-term borrowings 2,094,590 1,681,510 1,744,910 1,400,791Repayment of credit card (1,743) (330,941) (1,452) (275,692)(Repayment) proceeds from long-term borrowings 418,022 (100,293) 348,236 (83,549)Repayment of current maturities of long-term debt (1,975,000) (2,421,354) (1,645,285) (2,017,123)Proceeds from debentures 2,928,177 2,738,203 2,439,334 2,281,076Payment of dividends - (54,522) - (45,420)Net cash provided by financing activities 2,934,046 1,677,403 2,444,223 1,397,370

IV. NET INCREASE IN CASH (I+II+III) 13,120 8,294 10,929 6,910

V. CASH, BEGINNING OF YEAR 13,175 4,881 10,976 4,066

VI. CASH, END OF YEAR 26,295 13,175 $ 21,905 $ 10,976

See accompanying notes to financial statements.

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

MD&A MD&A Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

22000022 2001 22000022 2001

Translation intoKorean won (in millions) U. S. dollars (in thousands)

22000022 2001 22000022 2001

Translation intoKorean won (in millions) U. S. dollars (in thousands)

Statements of Cash Flows Statements of Cash FlowsFor the years Ended December 31, 2002 and 2001 For the Years Ended December 31, 2002 and 2001

ANNUAL REPORT 2002

45www.irkookmincard.co.kr

44

I. CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss) (260,888) 458,195 $ (217,334) $ 381,702Adjustments to reconcile net income to net cash provided by (used in) in operating activities:

Provision for severance indemnities 9,145 7,758 7,618 6,462Loss on disposal of marketable securities 806 147 672 122Loss on valuation of marketable securities 23 - 19 -Impairment loss of investment securities 590 - 492 -Loss on foreign currency translations 12 - 10 -Depreciation of property and equipment 52,118 37,297 43,417 31,071Depreciation of property on leases 38 396 31 330Loss on disposal of property and equipment, net 27 2,981 23 2,484Loss on disposal of property on leases 21 281 17 234Loss on disposal of investment assets, net 390 1,020 325 850Amortization of intangible assets 1,220 33 1,017 27Amortization of discount on debentures 1,852 1,140 1,543 950Stock option costs 535 426 445 355Gain on disposal of marketable securities (1,989) (863) (1,657) (719)Gain on valuation of marketable securities (25) (850) (21) (708)Gain on foreign currency transactions (121) - (101) -Gain on disposal of property on leases (1) (154) (1) (128)Gain on valuation of currency swap (122) - (101) -

Changes in operating assets and liabilities:(Increase) decrease in accounts receivable-other (98,583) 12,090 (82,126) 10,072Increase in accrued income (96,781) (69,192) (80,624) (57,641)Increase in prepaid income tax (81,264) - (67,697) -Increase in other current assets (706) (36,689) (588) (30,564)(Increase) decrease in credit card receivables 974,808 (863,570) 812,069 (719,402)Increase in card loans (166,657) (1,253,659) (138,833) (1,044,368)(Increase) decrease in installment financing assets (91,380) 8,478 (76,125) 7,063Increase in general financing assets (88,419) - (73,658) -Decrease in factorings 16,443 36,849 13,698 30,697Decrease in property on leases 31 3,226 26 2,687Increase in advances to customers (17) (12) (14) (10)Decrease in other financing assets 21,509 45,216 17,918 37,668Increase in deferred income tax assets (503) (5,654) (419) (4,710)Increase in accounts payable-other 133,513 28,848 111,224 24,032Increase in advanced receipts 136,282 1,525 113,530 1,271Increase in accrued expenses 58,429 185,997 48,675 154,946Increase (decrease) in income tax payable (145,467) 28,958 (121,182) 24,123Decrease in dividends payable (90,870) - (75,700) -Increase in other current liabilities 23,078 5,367 19,225 4,471Increase (decrease) in long-term accounts payable-other (1,729) 3,407 (1,440) 2,838

(continued)

Payment of severance benefits (1,164) (21,639) $ (970) $ (18,027)Decrease in National Pension payments for

employees 7 1,339 5 1,116(Increase) decrease in individual severance

insurance deposits (3,516) 8,561 (2,929) 7,132

Net cash provided by (used in) operating activities 300,675 (1,372,747) 250,479 (1,143,574)

II. CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of short-term financial instruments (35,000) (7,603) (29,157) (6,333)Purchase of call loan (600,000) - (499,833) -Collection of long-term financial instruments 53,557 9,896 44,616 8,244Proceeds from sales of marketable securities 29,136 28,768 24,272 23,965Proceeds from sales of investment securities 906,012 1,010,238 754,758 841,585Acquisition of marketable securities (24,459) (31,446) (20,376) (26,196)Acquisition of investment securities (3,376,089) (1,222,123) (2,812,470) (1,018,097)Net increase in guarantee deposits (30,171) (22,233) (25,134) (18,521)Net decrease in guarantee deposits received (262) - (218) -Net (increase) decrease in other investment assets (5,662) 44 (4,717) 37Proceeds from disposal of property and equipment 544 16,902 454 14,080Acquisition of property and equipment and equipment (121,764) (78,712) (101,437) (65,572)Additions to intangible assets (17,443) (93) (14,531) (78)Net cash used in investing activities (3,221,601) (296,362) (2,683,773) (246,886)

III. CASH FLOWS FROM FINANCING ACTIVITIES:(Repayment) proceeds from call money (530,000) 164,800 (441,520) 137,287Proceeds from short-term borrowings 2,094,590 1,681,510 1,744,910 1,400,791Repayment of credit card (1,743) (330,941) (1,452) (275,692)(Repayment) proceeds from long-term borrowings 418,022 (100,293) 348,236 (83,549)Repayment of current maturities of long-term debt (1,975,000) (2,421,354) (1,645,285) (2,017,123)Proceeds from debentures 2,928,177 2,738,203 2,439,334 2,281,076Payment of dividends - (54,522) - (45,420)Net cash provided by financing activities 2,934,046 1,677,403 2,444,223 1,397,370

IV. NET INCREASE IN CASH (I+II+III) 13,120 8,294 10,929 6,910

V. CASH, BEGINNING OF YEAR 13,175 4,881 10,976 4,066

VI. CASH, END OF YEAR 26,295 13,175 $ 21,905 $ 10,976

See accompanying notes to financial statements.

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

MD&A MD&A Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

47www.irkookmincard.co.kr

46

1. GENERAL:Kookmin Credit Card Co., Ltd. (“the Company”) was incorporated on September 25, 1987 and subsequently acquired the credit cardbusiness of Kookmin Bank Co., Ltd. (“Kookmin Bank”). The Company merged with Kookmin Finance Co., Ltd. and KLB Credit Card Co.,Ltd. on August 22, 1998 and December 30, 1998, respectively. With a total number of 75 branch offices nationwide, the Company isengaged principally in the credit card services, factoring, installment financing and leasing. As of December 31, 2002, the Companyholds 12.8 million of total credit card holders and 1.57 million of franchise accounts. The Company was registered on the KoreaAssociation Securities Dealers’ Automated Quotation (KOSDAQ) on July 4, 2000.

As of December 31, 2002, the Company’s common stock is 366,000 million ($304,898 thousand) and 74.27 percent of the sharesissued is owned by Kookmin Bank.

In response to general unstable economic conditions, the Korean government and the private sector have been implementing structuralreforms to historical business practices. Implementation of these reforms is progressing slowly, particularly in the areas of restructuringprivate enterprises and reforming the banking industry. The Korean government continues to apply pressure to Korean companies torestructure into more efficient and profitable firms. The Company may be either directly or indirectly affected by these general unstableeconomic conditions and the reform program described above. The accompanying financial statements reflect management’s assessmentof the impact to date of the economic situation on the financial position of the Company. Actual results may differ materially frommanagement’s current assessment.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Financial Statement Presentation

The Company maintains its official accounting records in Korean won and prepares statutory financial statements in the Korean language(Hangul) in conformity with the accounting principles generally accepted in the Republic of Korea. Certain accounting principles appliedby the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conformwith generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by thosewho are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed,restructured and translated into English (with certain expanded descriptions) from the Korean language financial statements.

The US dollar amounts presented in these financial statements were computed by translating the Korean won into US dollars based onthe Bank of Korea Basic Rate of 1,200.40 to US$1.00 at December 31, 2002, solely for the convenience of the reader. Thisconvenience translation into US dollars should not be construed as a representation that the Korean won amounts have been, could havebeen, or could in the future be, converted at this or any other rate of exchange.

The significant accounting policies followed by the Company in the preparation of its financial statements are summarized below.

Recognition of Fees and Commissions and Interest Income

The Company recognizes the revenue on an accrual basis, except for fees and commissions and interest income on overdue accounts.

Allowance for Doubtful Accounts

Until 2001, the Company provided an allowance for doubtful accounts based on the Act for financing Companies Specializing in LoanBusiness. The loans have been classified as of the balance sheet date as normal, precautionary, substandard, doubtful, or loss, and anallowance was then calculated on the classified loan balances using the prescribed percentages of 0.5 percent, 1~2 percent, 20 percent,50~100 percent and 100 percent, respectively. In 2002, the Company increased its minimum rates of allowance for doubtful accounts to0.5~1 percent for normal, 1~12% for precautionary, respectively. In addition, the Company provided additional allowance for creditcard assets based on the analysis of the past charge-off ratios. As a result of the change, the Company provided an additional 397,158million ($330,855 thousand) of the allowance for possible loan losses compared to applying the old method.

Valuation of Marketable Securities

Marketable securities are recorded at purchase price plus incidental costs. However, if the fair value of marketable securities differs fromthe book value determined by the moving average method, the securities are stated at fair value and the valuation gain or loss is reflectedin current operations.

Valuation of Investment Securities

Equity securities held for investment that are not actively traded (unlisted security) are stated at acquisition cost, as determined by themoving average method. Actively quoted (listed) securities, including those traded over-the-counter, are stated at fair value, with theresulting valuation gain or loss reported as a capital adjustment within shareholders’ equity. If the fair value of a listed equity security orthe net equity value of an unlisted security held for investment declines compared to acquisition cost and is not expected to recover(impaired investment security), the carrying value of the equity security is adjusted to fair value or net equity value, with the resultingvaluation loss charged to current operations. If the net equity value or fair value subsequently recovers, in the case of an unlisted security,the increase in value is recorded in current operations, up to the amount of the previously recognized impairment loss, and in the case ofa listed security, the increase in value is recorded in current operations, up to the amount of the previously recognized impairment loss,and any excess is recorded as a capital adjustment.

Debt securities held for investment are classified as either held-to-maturity investment debt securities or available for sale investment debtsecurities at the time of purchase. Held-to-maturity debt securities are stated at acquisition cost, as determined by the specificidentification method. When the face value of a held-to-maturity investment debt security differs from its acquisition cost, the effectiveinterest method is applied to amortize the difference over the remaining term of the security. Available-for-sale investment debt securitiesare stated at fair value, resulting valuation gain or loss reported as a capital adjustment within shareholder’ equity. However, if the fairvalue of a held-to-maturity or an available-for-sale investment debt security declines compared to the acquisition cost and is not expectedto recover (impaired investment security), the carrying value of the debt security is adjusted to fair value, with the resulting valuation gainor loss charged to current operations. If the fair value of the security subsequently recovers, in the case of a held-to-maturity debt security,the increase in value is recorded in current operations, up to the amount of the previously recognized impairment loss, and in the case ofan available-for-sale debt security, the increase in value is recorded in current operations, up to the amount of the previously recognizedimpairment loss, and any excess is recorded as a capital adjustment.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Routine maintenance and repairs are expensed as incurred.Expenditures that result in the enhancement of the value or extension of the useful lives of the facilities involved are treated as additionsto property and equipment.

Depreciation is computed using the declining-balance method (straight-line method for buildings) based on the estimated useful lives ofthe assets as follows:

Useful Lives (Years)Buildings 40Vehicles 5Other property and equipment 5Property on leases 4

Intangibles

Intangible assets are stated at cost, net of amortization computed using the straight-line method over the estimated economic useful lives of therelated assets from the usable date.

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

MD&AMD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

47www.irkookmincard.co.kr

46

1. GENERAL:Kookmin Credit Card Co., Ltd. (“the Company”) was incorporated on September 25, 1987 and subsequently acquired the credit cardbusiness of Kookmin Bank Co., Ltd. (“Kookmin Bank”). The Company merged with Kookmin Finance Co., Ltd. and KLB Credit Card Co.,Ltd. on August 22, 1998 and December 30, 1998, respectively. With a total number of 75 branch offices nationwide, the Company isengaged principally in the credit card services, factoring, installment financing and leasing. As of December 31, 2002, the Companyholds 12.8 million of total credit card holders and 1.57 million of franchise accounts. The Company was registered on the KoreaAssociation Securities Dealers’ Automated Quotation (KOSDAQ) on July 4, 2000.

As of December 31, 2002, the Company’s common stock is 366,000 million ($304,898 thousand) and 74.27 percent of the sharesissued is owned by Kookmin Bank.

In response to general unstable economic conditions, the Korean government and the private sector have been implementing structuralreforms to historical business practices. Implementation of these reforms is progressing slowly, particularly in the areas of restructuringprivate enterprises and reforming the banking industry. The Korean government continues to apply pressure to Korean companies torestructure into more efficient and profitable firms. The Company may be either directly or indirectly affected by these general unstableeconomic conditions and the reform program described above. The accompanying financial statements reflect management’s assessmentof the impact to date of the economic situation on the financial position of the Company. Actual results may differ materially frommanagement’s current assessment.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Financial Statement Presentation

The Company maintains its official accounting records in Korean won and prepares statutory financial statements in the Korean language(Hangul) in conformity with the accounting principles generally accepted in the Republic of Korea. Certain accounting principles appliedby the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conformwith generally accepted accounting principles in other countries. Accordingly, these financial statements are intended for use by thosewho are informed about Korean accounting principles and practices. The accompanying financial statements have been condensed,restructured and translated into English (with certain expanded descriptions) from the Korean language financial statements.

The US dollar amounts presented in these financial statements were computed by translating the Korean won into US dollars based onthe Bank of Korea Basic Rate of 1,200.40 to US$1.00 at December 31, 2002, solely for the convenience of the reader. Thisconvenience translation into US dollars should not be construed as a representation that the Korean won amounts have been, could havebeen, or could in the future be, converted at this or any other rate of exchange.

The significant accounting policies followed by the Company in the preparation of its financial statements are summarized below.

Recognition of Fees and Commissions and Interest Income

The Company recognizes the revenue on an accrual basis, except for fees and commissions and interest income on overdue accounts.

Allowance for Doubtful Accounts

Until 2001, the Company provided an allowance for doubtful accounts based on the Act for financing Companies Specializing in LoanBusiness. The loans have been classified as of the balance sheet date as normal, precautionary, substandard, doubtful, or loss, and anallowance was then calculated on the classified loan balances using the prescribed percentages of 0.5 percent, 1~2 percent, 20 percent,50~100 percent and 100 percent, respectively. In 2002, the Company increased its minimum rates of allowance for doubtful accounts to0.5~1 percent for normal, 1~12% for precautionary, respectively. In addition, the Company provided additional allowance for creditcard assets based on the analysis of the past charge-off ratios. As a result of the change, the Company provided an additional 397,158million ($330,855 thousand) of the allowance for possible loan losses compared to applying the old method.

Valuation of Marketable Securities

Marketable securities are recorded at purchase price plus incidental costs. However, if the fair value of marketable securities differs fromthe book value determined by the moving average method, the securities are stated at fair value and the valuation gain or loss is reflectedin current operations.

Valuation of Investment Securities

Equity securities held for investment that are not actively traded (unlisted security) are stated at acquisition cost, as determined by themoving average method. Actively quoted (listed) securities, including those traded over-the-counter, are stated at fair value, with theresulting valuation gain or loss reported as a capital adjustment within shareholders’ equity. If the fair value of a listed equity security orthe net equity value of an unlisted security held for investment declines compared to acquisition cost and is not expected to recover(impaired investment security), the carrying value of the equity security is adjusted to fair value or net equity value, with the resultingvaluation loss charged to current operations. If the net equity value or fair value subsequently recovers, in the case of an unlisted security,the increase in value is recorded in current operations, up to the amount of the previously recognized impairment loss, and in the case ofa listed security, the increase in value is recorded in current operations, up to the amount of the previously recognized impairment loss,and any excess is recorded as a capital adjustment.

Debt securities held for investment are classified as either held-to-maturity investment debt securities or available for sale investment debtsecurities at the time of purchase. Held-to-maturity debt securities are stated at acquisition cost, as determined by the specificidentification method. When the face value of a held-to-maturity investment debt security differs from its acquisition cost, the effectiveinterest method is applied to amortize the difference over the remaining term of the security. Available-for-sale investment debt securitiesare stated at fair value, resulting valuation gain or loss reported as a capital adjustment within shareholder’ equity. However, if the fairvalue of a held-to-maturity or an available-for-sale investment debt security declines compared to the acquisition cost and is not expectedto recover (impaired investment security), the carrying value of the debt security is adjusted to fair value, with the resulting valuation gainor loss charged to current operations. If the fair value of the security subsequently recovers, in the case of a held-to-maturity debt security,the increase in value is recorded in current operations, up to the amount of the previously recognized impairment loss, and in the case ofan available-for-sale debt security, the increase in value is recorded in current operations, up to the amount of the previously recognizedimpairment loss, and any excess is recorded as a capital adjustment.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Routine maintenance and repairs are expensed as incurred.Expenditures that result in the enhancement of the value or extension of the useful lives of the facilities involved are treated as additionsto property and equipment.

Depreciation is computed using the declining-balance method (straight-line method for buildings) based on the estimated useful lives ofthe assets as follows:

Useful Lives (Years)Buildings 40Vehicles 5Other property and equipment 5Property on leases 4

Intangibles

Intangible assets are stated at cost, net of amortization computed using the straight-line method over the estimated economic useful lives of therelated assets from the usable date.

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

MD&AMD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

49www.irkookmincard.co.kr

48

Debenture Issuance Cost

Debenture issuance cost is added to discounts on debenture, which are amortized over maturity using the effective interest method. Theamortization amount is charged to operation as interest expense.

Accounting for Foreign Currency Transactions and Translation

The Company maintains its accounts in Korean won. Transactions in foreign currencies are recorded in Korean won based on theprevailing rates of exchange on the transaction date. Monetary accounts with balances denominated in foreign currencies are recordedand reported in the accompanying financial statements at the exchange rates prevailing at the balance sheet dates. The balances havebeen translated using the Bank of Korea Basic Rate, which was 1,200.40 and 1,326.10 to US $1.00 at December 31, 2002 and2001, respectively, and the translation gains or losses are reflected in current operations

Accrued Severance Indemnities

Employees and directors with more than one year of service are entitled to receive a lump-sum payment upon termination of their servicewith the Company, based on their length of service and rate of pay at the time of termination. The severance indemnities that would bepayable assuming all eligible employees were to resign as of December 31, 2002 and 2001 are 12,918 million ($10,761 thousand) and

4,937 million ($4,113 thousand), respectively. In 2002 and 2001, actual payment of severance indemnities amounted to 1,164million ($970 thousand) and 21,639 million ($18,027 thousand), which included interim payment paid in November 2001,respectively.

Individual severance insurance deposits, in which the beneficiary is a respective employee, are presented as a deduction from accruedseverance indemnities. As of December 31, 2002 and 2001, individual severance insurance deposits, which are actually funded throughan individual severance plan, were 7,073 million ($5,892 thousand) and 3,557 million ($2,963 thousand), respectively.

Before April 1999, the Company and its employees paid 3 percent and 6 percent, respectively, of monthly pay (as defined) to theNational Pension Fund in accordance with the National Pension Law of Korea. The Company paid half of the employees’ 6 percent andis paid back at the termination of service by netting the receivable against the severance payment. Such receivables, amounting to 40million ($33 thousand) and 47 million ($39 thousand) as of December 31, 2002 and 2001, respectively, are presented as a deductionfrom accrued severance indemnities. Since April 1999, according to a revision in the National Pension Law, the Company and itsemployees each pay 4.5 percent of monthly pay to the Fund.

Accounting for Derivative Instruments

The Company has accounted for derivative instruments pursuant to the Interpretations on Financial Accounting Standards 53-70 onaccounting for derivative instruments. Derivative instruments are classified as used for trading activities or for hedging activitiesaccording to their transaction purpose. All derivative instruments are accounted for at fair value with the valuation gain or loss recordedas an asset or liability. If the derivative instrument is not part of a transaction qualifying as a hedge, the adjustment to fair value isreflected in current operations. The accounting for derivative transactions that are part of a qualified hedge based both on the purpose ofthe transaction and on meeting the specified criteria for hedge accounting differs depending on whether the transaction is a fair valuehedge or a cash flow hedge. Fair value hedge accounting is applied to a derivative instrument designated as hedging the exposure tochanges in the fair value of an asset or a liability or a firm commitment (hedged item) that is attributable to a particular risk. The gain orloss both on the hedging derivative instruments and on the hedged item attributable to the hedged risk is reflected in current operations.Cash flow hedge accounting is applied to a derivative instrument designated as hedging the exposure to variability in expected futurecash flows of an asset or a liability or a forecasted transaction that is attributable to a particular risk. The effective portion of gain or losson a derivative instrument designated as a cash flow hedge is recorded as a capital adjustment and the ineffective portion is recorded incurrent operations. The effective portion of gain or loss recorded as a capital adjustment is reclassified to current earnings in the sameperiod during which the hedged forecasted transaction affects earnings.

Accounting for Stock Options

Stock options are valued at fair value pursuant to the Interpretations on Financial Accounting Standards 39-35 on accounting for stockoptions. The fair value of stock options is charged to current operations and credited to capital adjustments as stock option cost over thecontract term of the services provided.

Income Tax Expense

The Company recognizes deferred income taxes arising from temporary differences between pretax accounting income and taxableincome. Accordingly, income tax expense consists of the total income tax and surtaxes currently payable and the changes in deferredincome tax assets or liabilities during the period. The deferred income tax assets or liabilities will be charged or credited to income taxexpense in the period each temporary difference reverses in the future.

Reclassification of Certain Accounts

For comparative purposes, certain accounts in the 2001 financial statements were reclassified to conform to the 2002 financial statementpresentation. Such reclassification did not affect the net income and the net assets reported in the 2001 financial statements.

Ordinary Income (Loss) Per Share and Net Income (Loss) Per Share

Ordinary income (loss) per common share and net income (loss) per common share are computed by dividing ordinary income (loss)(after deduction for tax effect) and net income (loss), respectively, by the weighted average number of common shares (72,696,276 sharesin 2002 and 2001) outstanding during the year.

3. CASH AND CASH EQUIVALENTS AND FINANCIAL INSTRUMENTS:Cash and cash equivalents and financial instruments as of December 31, 2002 and 2001 consist of the following:

Account

Cash and cash equivalentsCash on hand - 772 442 $ 643 $ 369Passbook accounts 1.0 19,983 12,733 16,647 10,607Other bank deposits - 5,540 - 4,615 -

26,295 13,175 21,905 10,976Short-term financial instruments

Time deposits 5.36 - 7.07 20,000 15,000 16,661 12,496Other deposits 4.0 30,000 - 24,992 -

50,000 15,000 41,653 12,496Long-term financial instruments

Mutual savings accounts 10.0 1,118 791 $ 932 $ 659Trusts accounts 5.87 - 900 - 749Sundry deposits - - 2,854 - 2,378Time deposits 5.89 15,000 5,000 12,496 4,165Insurance savings deposits 5.04 11,093 71,223 9,240 59,333

27,211 80,768 22,668 67,284103,506 108,943 $ 86,226 $ 90,756

Annualinterest rate

(%)

Korean won (in millions)

2002 20022001 2001

U.S. dollars (Note 2)(in thousands)

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

MD&A Report ofIndependent Public

Accountants

BalanceSheets

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Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

MD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

49www.irkookmincard.co.kr

48

Debenture Issuance Cost

Debenture issuance cost is added to discounts on debenture, which are amortized over maturity using the effective interest method. Theamortization amount is charged to operation as interest expense.

Accounting for Foreign Currency Transactions and Translation

The Company maintains its accounts in Korean won. Transactions in foreign currencies are recorded in Korean won based on theprevailing rates of exchange on the transaction date. Monetary accounts with balances denominated in foreign currencies are recordedand reported in the accompanying financial statements at the exchange rates prevailing at the balance sheet dates. The balances havebeen translated using the Bank of Korea Basic Rate, which was 1,200.40 and 1,326.10 to US $1.00 at December 31, 2002 and2001, respectively, and the translation gains or losses are reflected in current operations

Accrued Severance Indemnities

Employees and directors with more than one year of service are entitled to receive a lump-sum payment upon termination of their servicewith the Company, based on their length of service and rate of pay at the time of termination. The severance indemnities that would bepayable assuming all eligible employees were to resign as of December 31, 2002 and 2001 are 12,918 million ($10,761 thousand) and

4,937 million ($4,113 thousand), respectively. In 2002 and 2001, actual payment of severance indemnities amounted to 1,164million ($970 thousand) and 21,639 million ($18,027 thousand), which included interim payment paid in November 2001,respectively.

Individual severance insurance deposits, in which the beneficiary is a respective employee, are presented as a deduction from accruedseverance indemnities. As of December 31, 2002 and 2001, individual severance insurance deposits, which are actually funded throughan individual severance plan, were 7,073 million ($5,892 thousand) and 3,557 million ($2,963 thousand), respectively.

Before April 1999, the Company and its employees paid 3 percent and 6 percent, respectively, of monthly pay (as defined) to theNational Pension Fund in accordance with the National Pension Law of Korea. The Company paid half of the employees’ 6 percent andis paid back at the termination of service by netting the receivable against the severance payment. Such receivables, amounting to 40million ($33 thousand) and 47 million ($39 thousand) as of December 31, 2002 and 2001, respectively, are presented as a deductionfrom accrued severance indemnities. Since April 1999, according to a revision in the National Pension Law, the Company and itsemployees each pay 4.5 percent of monthly pay to the Fund.

Accounting for Derivative Instruments

The Company has accounted for derivative instruments pursuant to the Interpretations on Financial Accounting Standards 53-70 onaccounting for derivative instruments. Derivative instruments are classified as used for trading activities or for hedging activitiesaccording to their transaction purpose. All derivative instruments are accounted for at fair value with the valuation gain or loss recordedas an asset or liability. If the derivative instrument is not part of a transaction qualifying as a hedge, the adjustment to fair value isreflected in current operations. The accounting for derivative transactions that are part of a qualified hedge based both on the purpose ofthe transaction and on meeting the specified criteria for hedge accounting differs depending on whether the transaction is a fair valuehedge or a cash flow hedge. Fair value hedge accounting is applied to a derivative instrument designated as hedging the exposure tochanges in the fair value of an asset or a liability or a firm commitment (hedged item) that is attributable to a particular risk. The gain orloss both on the hedging derivative instruments and on the hedged item attributable to the hedged risk is reflected in current operations.Cash flow hedge accounting is applied to a derivative instrument designated as hedging the exposure to variability in expected futurecash flows of an asset or a liability or a forecasted transaction that is attributable to a particular risk. The effective portion of gain or losson a derivative instrument designated as a cash flow hedge is recorded as a capital adjustment and the ineffective portion is recorded incurrent operations. The effective portion of gain or loss recorded as a capital adjustment is reclassified to current earnings in the sameperiod during which the hedged forecasted transaction affects earnings.

Accounting for Stock Options

Stock options are valued at fair value pursuant to the Interpretations on Financial Accounting Standards 39-35 on accounting for stockoptions. The fair value of stock options is charged to current operations and credited to capital adjustments as stock option cost over thecontract term of the services provided.

Income Tax Expense

The Company recognizes deferred income taxes arising from temporary differences between pretax accounting income and taxableincome. Accordingly, income tax expense consists of the total income tax and surtaxes currently payable and the changes in deferredincome tax assets or liabilities during the period. The deferred income tax assets or liabilities will be charged or credited to income taxexpense in the period each temporary difference reverses in the future.

Reclassification of Certain Accounts

For comparative purposes, certain accounts in the 2001 financial statements were reclassified to conform to the 2002 financial statementpresentation. Such reclassification did not affect the net income and the net assets reported in the 2001 financial statements.

Ordinary Income (Loss) Per Share and Net Income (Loss) Per Share

Ordinary income (loss) per common share and net income (loss) per common share are computed by dividing ordinary income (loss)(after deduction for tax effect) and net income (loss), respectively, by the weighted average number of common shares (72,696,276 sharesin 2002 and 2001) outstanding during the year.

3. CASH AND CASH EQUIVALENTS AND FINANCIAL INSTRUMENTS:Cash and cash equivalents and financial instruments as of December 31, 2002 and 2001 consist of the following:

Account

Cash and cash equivalentsCash on hand - 772 442 $ 643 $ 369Passbook accounts 1.0 19,983 12,733 16,647 10,607Other bank deposits - 5,540 - 4,615 -

26,295 13,175 21,905 10,976Short-term financial instruments

Time deposits 5.36 - 7.07 20,000 15,000 16,661 12,496Other deposits 4.0 30,000 - 24,992 -

50,000 15,000 41,653 12,496Long-term financial instruments

Mutual savings accounts 10.0 1,118 791 $ 932 $ 659Trusts accounts 5.87 - 900 - 749Sundry deposits - - 2,854 - 2,378Time deposits 5.89 15,000 5,000 12,496 4,165Insurance savings deposits 5.04 11,093 71,223 9,240 59,333

27,211 80,768 22,668 67,284103,506 108,943 $ 86,226 $ 90,756

Annualinterest rate

(%)

Korean won (in millions)

2002 20022001 2001

U.S. dollars (Note 2)(in thousands)

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

MD&A Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

MD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

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Short-term financial instruments of 50,000 million ($41,653 thousand) and long-term financial instruments of 16,000 ($13,329 thousand)as of December 31, 2002, and long-term financial instruments of 76,223 million ($63,498 thousand) as of December 31, 2001, respectively,are pledged as collateral for bank loans and are subject to withdrawal restrictions. In addition, long-term financial instruments includerestricted deposits amounting to 10,083 million ($8,400 thousand) and 2,838 million ($2,364 thousand) as of December 31, 2002 and2001, respectively, which are provided as guarantee for the storage in cash service machine. Also, as of December 31, 2002 and 2001, 9million ($7 thousand) and 16 million ($13 thousand) of long-term financial instruments are provided as guarantees for checking accounts,respectively.

4. CALL LOAN:As of December 31, 2002, call loan in Kookmin Bank amounts to 600,000 million ($ 499,833) with annual interest rate of 4.15%.

5. MARKETABLE SECURITIES:Marketable securities as of December 31, 2002 and 2001 consist of the following:

Beneficiary certificates 5,026 4,982 $ 4,187 $ 4,150Stocks 150 3,685 125 3,070

5,176 8,667 $ 4,312 $ 7,220

6. CREDIT CARD ASSETS:

(1) Credit card receivablesThe amount of credit card receivables from lump sum payment for services or goods previously rendered by the Company is collectedfrom card members on the contracted payment date. At the time of pre-payment to franchises, 1.5 percent to 4.5 percent service feeis charged by the Company to franchises and is recorded as revenue from commissions and fees.

Credit card receivables from installment payment are collected from card members over the contracted period of installment planfrom 2 months to 24 months. At the time of pre-payment to franchises, 1.5 percent to 4.5 percent service fee is charged by theCompany to franchises and is recognized as revenue from commissions and fees. Also, interest determined based on the credit ratingof card members ranging from 10.5 percent to 16.7 percent is charged to card members on the remaining installment payment at thetime of collection and is recorded as commissions and fees.

(2) Cash advanceCash advance is provided to card members with the limit of 10,000 thousand per month and is collected from card members on thecontracted payment date. At the time of collection from card members, 12.0 percent to 23.5 percent service fee determined based onthe credit rating of the card members is charged to card members and recognized as revenue from commissions and fees.

(3) Credit card loansCredit card loans are offered to card members with contracted term from 3 months to 5 years (10 years for special loan). Service feefrom 1.0 percent to 4.0 percent on the offered amount is charged and recognized as revenue from commissions and fees, and interest(annual interest rate from 8.5 percent to 19.2 percent) is also charged on the outstanding loan balance and recognized as interestincome.

As of December 31, 2002, the collection schedule of credit card loans is as follows:

Korean won (in millions)Year U.S. dollars (Note 2)

(in thousands)

2003 1,231,564 $ 1,025,9612004 684,378 570,1252005 441,170 367,5192006 88,539 73,759Thereafter 293,020 244,102

2,738,671 $ 2,281,466

(4) Transfer of Card AssetsUnder the Law of Asset Securitization, the Company transferred the credit card assets to special purpose companies to securitize thoseassets. Also, under the loan sale agreement with Kookmin Bank, the Company transferred card loans to Kookmin Bank. As of December31, 2002, transferred credit card assets of which the maturity or payment date is not yet due are as follows.

Asset securitization Credit card receivables 1,512,991 $ 1,260,406Credit card loans 1,797,360 1,497,301Cash advance 4,152,401 3,459,181

7,462,752 6,216,888Loan sale Credit card loans 247,570 206,239

7,710,322 $ 6,423,127

For the year ended December 31, 2002, 97,896 million ($ 81,553 thousand) of loss resulting from securitization of credit card loan wascharged to current operations.

7. FINANCING ASSETS:(1) Installment financing assets of December 31, 2002 and 2001 consist of the following:

Durables 7.5 ~ 11.5 147,563 34,075 $ 122,928 $ 28,386House 11.5 ~ 12.9 17,042 32,640 14,197 27,191

164,605 66,715 $ 137,125 $ 55,577

Under the Act for the Financial Companies Specializing in Loan Business, the Company offers installment financing on purchase of durablegoods or house to those with acceptable credit risk. Depending on the worthiness of the customer, the Company acquires certain collateral asguarantee for durable installment financing over a collection period, ranging from 3 months to 5 years and, in the case of house installmentfinancing, the Company acquires a lien on the house financed as collateral over a collection period ranging from 1 year to 30 years.

Korean won (in millions)

2002 20022001 2001

U.S. dollars (Note 2)(in thousands)

Type of transter Korean won (in millions)Card asset U.S. dollars (Note 2)(in thousands)

Annualinterest rate

(%)

Korean won (in millions)

2002 20022001 2001

U.S. dollars (Note 2)(in thousands)

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

MD&A MD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

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50

Short-term financial instruments of 50,000 million ($41,653 thousand) and long-term financial instruments of 16,000 ($13,329 thousand)as of December 31, 2002, and long-term financial instruments of 76,223 million ($63,498 thousand) as of December 31, 2001, respectively,are pledged as collateral for bank loans and are subject to withdrawal restrictions. In addition, long-term financial instruments includerestricted deposits amounting to 10,083 million ($8,400 thousand) and 2,838 million ($2,364 thousand) as of December 31, 2002 and2001, respectively, which are provided as guarantee for the storage in cash service machine. Also, as of December 31, 2002 and 2001, 9million ($7 thousand) and 16 million ($13 thousand) of long-term financial instruments are provided as guarantees for checking accounts,respectively.

4. CALL LOAN:As of December 31, 2002, call loan in Kookmin Bank amounts to 600,000 million ($ 499,833) with annual interest rate of 4.15%.

5. MARKETABLE SECURITIES:Marketable securities as of December 31, 2002 and 2001 consist of the following:

Beneficiary certificates 5,026 4,982 $ 4,187 $ 4,150Stocks 150 3,685 125 3,070

5,176 8,667 $ 4,312 $ 7,220

6. CREDIT CARD ASSETS:

(1) Credit card receivablesThe amount of credit card receivables from lump sum payment for services or goods previously rendered by the Company is collectedfrom card members on the contracted payment date. At the time of pre-payment to franchises, 1.5 percent to 4.5 percent service feeis charged by the Company to franchises and is recorded as revenue from commissions and fees.

Credit card receivables from installment payment are collected from card members over the contracted period of installment planfrom 2 months to 24 months. At the time of pre-payment to franchises, 1.5 percent to 4.5 percent service fee is charged by theCompany to franchises and is recognized as revenue from commissions and fees. Also, interest determined based on the credit ratingof card members ranging from 10.5 percent to 16.7 percent is charged to card members on the remaining installment payment at thetime of collection and is recorded as commissions and fees.

(2) Cash advanceCash advance is provided to card members with the limit of 10,000 thousand per month and is collected from card members on thecontracted payment date. At the time of collection from card members, 12.0 percent to 23.5 percent service fee determined based onthe credit rating of the card members is charged to card members and recognized as revenue from commissions and fees.

(3) Credit card loansCredit card loans are offered to card members with contracted term from 3 months to 5 years (10 years for special loan). Service feefrom 1.0 percent to 4.0 percent on the offered amount is charged and recognized as revenue from commissions and fees, and interest(annual interest rate from 8.5 percent to 19.2 percent) is also charged on the outstanding loan balance and recognized as interestincome.

As of December 31, 2002, the collection schedule of credit card loans is as follows:

Korean won (in millions)Year U.S. dollars (Note 2)

(in thousands)

2003 1,231,564 $ 1,025,9612004 684,378 570,1252005 441,170 367,5192006 88,539 73,759Thereafter 293,020 244,102

2,738,671 $ 2,281,466

(4) Transfer of Card AssetsUnder the Law of Asset Securitization, the Company transferred the credit card assets to special purpose companies to securitize thoseassets. Also, under the loan sale agreement with Kookmin Bank, the Company transferred card loans to Kookmin Bank. As of December31, 2002, transferred credit card assets of which the maturity or payment date is not yet due are as follows.

Asset securitization Credit card receivables 1,512,991 $ 1,260,406Credit card loans 1,797,360 1,497,301Cash advance 4,152,401 3,459,181

7,462,752 6,216,888Loan sale Credit card loans 247,570 206,239

7,710,322 $ 6,423,127

For the year ended December 31, 2002, 97,896 million ($ 81,553 thousand) of loss resulting from securitization of credit card loan wascharged to current operations.

7. FINANCING ASSETS:(1) Installment financing assets of December 31, 2002 and 2001 consist of the following:

Durables 7.5 ~ 11.5 147,563 34,075 $ 122,928 $ 28,386House 11.5 ~ 12.9 17,042 32,640 14,197 27,191

164,605 66,715 $ 137,125 $ 55,577

Under the Act for the Financial Companies Specializing in Loan Business, the Company offers installment financing on purchase of durablegoods or house to those with acceptable credit risk. Depending on the worthiness of the customer, the Company acquires certain collateral asguarantee for durable installment financing over a collection period, ranging from 3 months to 5 years and, in the case of house installmentfinancing, the Company acquires a lien on the house financed as collateral over a collection period ranging from 1 year to 30 years.

Korean won (in millions)

2002 20022001 2001

U.S. dollars (Note 2)(in thousands)

Type of transter Korean won (in millions)Card asset U.S. dollars (Note 2)(in thousands)

Annualinterest rate

(%)

Korean won (in millions)

2002 20022001 2001

U.S. dollars (Note 2)(in thousands)

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

MD&A MD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

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52

As of December 31, 2002, collection schedule of installment financing is as follows:

2003 29,493 $ 24,5692004 21,973 18,3052005 71,985 59,9682006 8,905 7,418Thereafter 32,249 26,865

164,605 $ 137,125

(2) Factorings as of December 31, 2002 and 2001 consist of the following:

Note factorings 8,956 19,956 $ 7,461 $ 16,624Non-note factorings 17,547 30,480 14,617 25,392

26,503 50,436 $ 22,078 $ 42,016

Under the Act for Financing Companies Specializing in Loan Business, the Company renders factoring service at an annual interest rate rangingfrom 10 percent to 15 percent and service charge of 2 percent on factoring amount rendered. Factorings as of December 31, 2002 will becollected within one year.

(3) Property on leases as of December 31, 2002 and 2001 consist of the following:

Acquisition cost 859 1,924 $ 716 $ 1,602Accumulated depreciation (766) (1,729) (638) (1,440)

Net book value 93 195 $ 78 $ 162

Property on leases is owned by the Company during the lease term, At the end of the term, the lessee either returns the assets to the Companyor may purchase them at a pre-contracted price. As of December 31, 2002, receivables from property on lease will be collected within oneyear.

(4) General financing assets are special loans extended in connection with the purchase of automobile and wedding regardless of membership,and other financing assets such as ordinary working capital loans extended only to card members. Interest ranging from 7 percent to 16 percentis charged to these loans. As of December 31, 2002, the collection schedule is as follows:

2003 20,969 10,294 $ 17,468 $ 8,5752004 5,283 - 4,401 -2005 49,569 - 41,294 -2006 4,840 5,400 4,032 4,499Thereafter 10,224 3,100 8,517 2,582

90,885 18,794 $ 75,712 $ 15,656

8. REPURCHASE AGREEMENTS:As explained in Note 6, the Company transferred card assets to the Special Purpose Company and Kookmin Bank under the Law of AssetSecuritization and the loan sale agreement. In connection with the transfer of the card assets, the Company entered into a repurchaseagreement on the accounts with overdue interest or principal. In accordance with the repurchase agreement, for the year endedDecember 31, 2002 and 2001, the Company repurchased 10,357 million ($8,628 thousand) and 5,195 million ($4,328 thousand) ofthe card assets, and 1,424 million ($1,186 thousand) and 726 million ($605 thousand) of losses resulting from the repurchase of thecard assets were charged to current operations, respectively.

Also, Allowance for possible loan losses on those transferred loans, which are subject to repurchase obligations, were provided as ofDecember 31, 2002 and 2001.

9. ALLOWANCE FOR DOUBTFUL ACCOUNT:(1) Asset classification and allowances for credit card assets, financing assets and other assets as of December 31, 2002 are as follows:

2002 20022001 2001

Year Korean won (in millions) U.S. dollars (Note 2)(in thousands)

Korean won (in millions) U.S. dollars (Note 2)(in thousands)

2002 20022001 2001

Korean won (in millions) U.S. dollars (Note 2)(in thousands)

Year endingKorean won (in millions)

General GeneralOther Otherfinancing assetsfinancing assets financing assets financing assets

U.S. dollars (Note 2) (in thousands)

Korean won (in millions)

Credit card assets Other assetsFinancing assets TotalTotal

U.S. dollars (Note 2) (in thousands)

Normal 14,358,977 230,766 2,469 14,592,212 $ 12,156,124Precautionary 1,984,024 18,428 22 2,002,474 1,668,172Substandard - 11,490 447 11,937 9,944Doubtful 604,610 38,821 8,124 651,555 542,782Loss 2,233 1,488 2,102 5,823 4,851

16,949,844 300,993 13,164 17,264,001 14,381,873

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

MD&A MD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

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As of December 31, 2002, collection schedule of installment financing is as follows:

2003 29,493 $ 24,5692004 21,973 18,3052005 71,985 59,9682006 8,905 7,418Thereafter 32,249 26,865

164,605 $ 137,125

(2) Factorings as of December 31, 2002 and 2001 consist of the following:

Note factorings 8,956 19,956 $ 7,461 $ 16,624Non-note factorings 17,547 30,480 14,617 25,392

26,503 50,436 $ 22,078 $ 42,016

Under the Act for Financing Companies Specializing in Loan Business, the Company renders factoring service at an annual interest rate rangingfrom 10 percent to 15 percent and service charge of 2 percent on factoring amount rendered. Factorings as of December 31, 2002 will becollected within one year.

(3) Property on leases as of December 31, 2002 and 2001 consist of the following:

Acquisition cost 859 1,924 $ 716 $ 1,602Accumulated depreciation (766) (1,729) (638) (1,440)

Net book value 93 195 $ 78 $ 162

Property on leases is owned by the Company during the lease term, At the end of the term, the lessee either returns the assets to the Companyor may purchase them at a pre-contracted price. As of December 31, 2002, receivables from property on lease will be collected within oneyear.

(4) General financing assets are special loans extended in connection with the purchase of automobile and wedding regardless of membership,and other financing assets such as ordinary working capital loans extended only to card members. Interest ranging from 7 percent to 16 percentis charged to these loans. As of December 31, 2002, the collection schedule is as follows:

2003 20,969 10,294 $ 17,468 $ 8,5752004 5,283 - 4,401 -2005 49,569 - 41,294 -2006 4,840 5,400 4,032 4,499Thereafter 10,224 3,100 8,517 2,582

90,885 18,794 $ 75,712 $ 15,656

8. REPURCHASE AGREEMENTS:As explained in Note 6, the Company transferred card assets to the Special Purpose Company and Kookmin Bank under the Law of AssetSecuritization and the loan sale agreement. In connection with the transfer of the card assets, the Company entered into a repurchaseagreement on the accounts with overdue interest or principal. In accordance with the repurchase agreement, for the year endedDecember 31, 2002 and 2001, the Company repurchased 10,357 million ($8,628 thousand) and 5,195 million ($4,328 thousand) ofthe card assets, and 1,424 million ($1,186 thousand) and 726 million ($605 thousand) of losses resulting from the repurchase of thecard assets were charged to current operations, respectively.

Also, Allowance for possible loan losses on those transferred loans, which are subject to repurchase obligations, were provided as ofDecember 31, 2002 and 2001.

9. ALLOWANCE FOR DOUBTFUL ACCOUNT:(1) Asset classification and allowances for credit card assets, financing assets and other assets as of December 31, 2002 are as follows:

2002 20022001 2001

Year Korean won (in millions) U.S. dollars (Note 2)(in thousands)

Korean won (in millions) U.S. dollars (Note 2)(in thousands)

2002 20022001 2001

Korean won (in millions) U.S. dollars (Note 2)(in thousands)

Year endingKorean won (in millions)

General GeneralOther Otherfinancing assetsfinancing assets financing assets financing assets

U.S. dollars (Note 2) (in thousands)

Korean won (in millions)

Credit card assets Other assetsFinancing assets TotalTotal

U.S. dollars (Note 2) (in thousands)

Normal 14,358,977 230,766 2,469 14,592,212 $ 12,156,124Precautionary 1,984,024 18,428 22 2,002,474 1,668,172Substandard - 11,490 447 11,937 9,944Doubtful 604,610 38,821 8,124 651,555 542,782Loss 2,233 1,488 2,102 5,823 4,851

16,949,844 300,993 13,164 17,264,001 14,381,873

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

MD&A MD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

55www.irkookmincard.co.kr

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As explained in Note 6, the Company acquired subordinated notes with respect to the securitization of credit cards assets. The details of theABS notes are as follows:

Marketable equity securitiesCJ39 Shopping 60,000 0.7 300 2,538 2,538 $ 2,114Nam Kwang Eng. 559,300 2.3 2,797 1,499 1,499 1,249Nice Information & Telecomm. 10,000 1.0 80 127 127 106Kwanglim 12,516 0.2 76 36 36 30Susan Heavy Industrial 1,243 0.1 7 2 2 2Kye Mong Sa Publishing 219,296 0.4 2,500 98 98 82Huneed Technologies 6,880 0.0 14 4 4 3Boohung 175,920 0.5 254 82 82 68Samick Musical Instruments 490 0.0 - - - -Samlip General Food 6,241 1.2 212 43 43 36

6,240 4,429 4,429 3,690

Korean won (in millions)

No. of shares Acquisition costOwnership (%) Carrying value Carrying valueNet equity/fair value

U.S. dollars (Note 2) (in thousands)

Unlisted equity securitiesKorea Cyber Payment 92,000 6.5 510 574 510 425Korea Credit Card

Electronic Settlement 280,426 19.5 1,402 673 812 676KM Credit Information 47,216 3.8 507 415 507 422Seoul TRS 2,000 0.1 14 2 14 12Pointpark 100,000 2.3 200 39 200 167Mondex Korea 20,000 0.7 150 28 150 125V Cash 83,000 2.8 415 309 415 346A Cash 255,000 12.7 1,275 906 1,275 1,062Virtual Payment 80,000 16.3 400 243 400 333Yal Ge Network 100,000 10.0 500 353 500 417Solomon Credit Information 10,000 0.8 50 116 50 41Yelim International 2,121 0.7 21 18 21 17Mybe 80,000 3.3 1,200 1,376 1,200 1,000Harex Info. Tech 21,000 4.0 1,365 215 1,365 1,137

8,009 5,267 7,419 6,180Other equity investments

Special Purpose Companies (SPC) 13 - 13 11

Debt securitiesGovernment bonds 1,308 1,308 1,308 1,090

Asset Backed Securities notes 3,093,782 3,093,782 3,093,782 2,577,2923,095,090 3,095,090 3,095,090 2,578,3823,109,352 3,104,786 3,106,951 $ 2,588,263

Korean won (in millions)

No. of shares Acquisition costOwnership (%) Carrying value Carrying valueNet equity/fair value

U.S. dollars (Note 2) (in thousands)

Korean won (in millions) U.S. dollars (Note 2)(in thousands)

Subordinated notes issued by 1st SPC 52,487 $ 43,725Subordinated notes issued by 2nd SPC 25,000 20,826Subordinated notes issued by 6th SPC 66,888 55,721Subordinated notes issued by 7th SPC 58,000 48,317Subordinated notes issued by 9th SPC 47,943 39,939Subordinated notes issued by 10th SPC 202,727 168,883Subordinated notes issued by 11th SPC 364,698 303,814Subordinated notes issued by 12th SPC 254,108 211,686Subordinated notes issued by 13th SPC 91,212 75,985Subordinated beneficiary certificate issued by Kookmin Bank Trust (KBT)(*) 1,930,719 1,608,396

3,093,782 $ 2,577,292

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Assets not transferred 9,553,679 9,583,265 7,477,163 $ 7,958,746 $ 7,983,393 $ 6,228,893Transferred card assets 7,710,322 3,320,622 - 6,423,127 2,766,263 -

17,264,001 12,903,887 7,477,163 14,381,873 10,749,656 6,228,893Allowance for doubtful account 892,745 248,858 164,003 743,706 207,313 136,624Allowance for doubtful account ratio 5.17% 1.93% 2.19% 5.17% 1.93% 2.19%

Korean won (in millions) U.S. dollars (Note 2) (in thousands)

As explained in Note 2, in connection with the change in the estimation of allowance for doubtful accounts, the Company provided an additional 397,158million ($330,855 thousand) of allowance for doubtful accounts compared to applying the previous method. Also, during 2002 and 2001, the Company wrote-off

1,016,772 million ($ 847,028 thousand) and 328,007 million ($ 273,248 thousand) of credit card assets and financing assets, respectively.

(2) Asset classification and allowances for credit card assets, financing assets and other assets as of December 31, 2001 are as follows:

(3) The history of allowances for doubtful account for the recent 3 years are as follows:

10. INVESTMENT SECURITIES:(1) Investment securities as of December 31, 2002 consist of the following:

Normal 12,575,221 92,637 9,587 12,677,445 $ 10,561,017Precautionary - 3,069 23 3,092 2,576Substandard - 27,546 413 27,959 23,291Doubtful - 30,767 8,110 38,877 32,387Loss 150,539 4,067 1,908 156,514 130,385

12,725,760 158,086 20,041 12,903,887 10,749,656

Korean won (in millions)

Credit card assets Other assetsFinancing assets TotalTotal

U.S. dollars (Note 2) (in thousands)

(*) To securitize the credit card assets, the Company placed the credit card assets and all of the rights associated with those assets in trust with KBT. Based on thetrusted assets, KBT issued beneficiary certificates with prior claims to SPC as underlying assets and also issued subordinated beneficiary certificate to theCompany as a residual claim for the trusted assets.

2002 2001 2000 2002 2001 2000

MD&A MD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

55www.irkookmincard.co.kr

54

As explained in Note 6, the Company acquired subordinated notes with respect to the securitization of credit cards assets. The details of theABS notes are as follows:

Marketable equity securitiesCJ39 Shopping 60,000 0.7 300 2,538 2,538 $ 2,114Nam Kwang Eng. 559,300 2.3 2,797 1,499 1,499 1,249Nice Information & Telecomm. 10,000 1.0 80 127 127 106Kwanglim 12,516 0.2 76 36 36 30Susan Heavy Industrial 1,243 0.1 7 2 2 2Kye Mong Sa Publishing 219,296 0.4 2,500 98 98 82Huneed Technologies 6,880 0.0 14 4 4 3Boohung 175,920 0.5 254 82 82 68Samick Musical Instruments 490 0.0 - - - -Samlip General Food 6,241 1.2 212 43 43 36

6,240 4,429 4,429 3,690

Korean won (in millions)

No. of shares Acquisition costOwnership (%) Carrying value Carrying valueNet equity/fair value

U.S. dollars (Note 2) (in thousands)

Unlisted equity securitiesKorea Cyber Payment 92,000 6.5 510 574 510 425Korea Credit Card

Electronic Settlement 280,426 19.5 1,402 673 812 676KM Credit Information 47,216 3.8 507 415 507 422Seoul TRS 2,000 0.1 14 2 14 12Pointpark 100,000 2.3 200 39 200 167Mondex Korea 20,000 0.7 150 28 150 125V Cash 83,000 2.8 415 309 415 346A Cash 255,000 12.7 1,275 906 1,275 1,062Virtual Payment 80,000 16.3 400 243 400 333Yal Ge Network 100,000 10.0 500 353 500 417Solomon Credit Information 10,000 0.8 50 116 50 41Yelim International 2,121 0.7 21 18 21 17Mybe 80,000 3.3 1,200 1,376 1,200 1,000Harex Info. Tech 21,000 4.0 1,365 215 1,365 1,137

8,009 5,267 7,419 6,180Other equity investments

Special Purpose Companies (SPC) 13 - 13 11

Debt securitiesGovernment bonds 1,308 1,308 1,308 1,090

Asset Backed Securities notes 3,093,782 3,093,782 3,093,782 2,577,2923,095,090 3,095,090 3,095,090 2,578,3823,109,352 3,104,786 3,106,951 $ 2,588,263

Korean won (in millions)

No. of shares Acquisition costOwnership (%) Carrying value Carrying valueNet equity/fair value

U.S. dollars (Note 2) (in thousands)

Korean won (in millions) U.S. dollars (Note 2)(in thousands)

Subordinated notes issued by 1st SPC 52,487 $ 43,725Subordinated notes issued by 2nd SPC 25,000 20,826Subordinated notes issued by 6th SPC 66,888 55,721Subordinated notes issued by 7th SPC 58,000 48,317Subordinated notes issued by 9th SPC 47,943 39,939Subordinated notes issued by 10th SPC 202,727 168,883Subordinated notes issued by 11th SPC 364,698 303,814Subordinated notes issued by 12th SPC 254,108 211,686Subordinated notes issued by 13th SPC 91,212 75,985Subordinated beneficiary certificate issued by Kookmin Bank Trust (KBT)(*) 1,930,719 1,608,396

3,093,782 $ 2,577,292

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Assets not transferred 9,553,679 9,583,265 7,477,163 $ 7,958,746 $ 7,983,393 $ 6,228,893Transferred card assets 7,710,322 3,320,622 - 6,423,127 2,766,263 -

17,264,001 12,903,887 7,477,163 14,381,873 10,749,656 6,228,893Allowance for doubtful account 892,745 248,858 164,003 743,706 207,313 136,624Allowance for doubtful account ratio 5.17% 1.93% 2.19% 5.17% 1.93% 2.19%

Korean won (in millions) U.S. dollars (Note 2) (in thousands)

As explained in Note 2, in connection with the change in the estimation of allowance for doubtful accounts, the Company provided an additional 397,158million ($330,855 thousand) of allowance for doubtful accounts compared to applying the previous method. Also, during 2002 and 2001, the Company wrote-off

1,016,772 million ($ 847,028 thousand) and 328,007 million ($ 273,248 thousand) of credit card assets and financing assets, respectively.

(2) Asset classification and allowances for credit card assets, financing assets and other assets as of December 31, 2001 are as follows:

(3) The history of allowances for doubtful account for the recent 3 years are as follows:

10. INVESTMENT SECURITIES:(1) Investment securities as of December 31, 2002 consist of the following:

Normal 12,575,221 92,637 9,587 12,677,445 $ 10,561,017Precautionary - 3,069 23 3,092 2,576Substandard - 27,546 413 27,959 23,291Doubtful - 30,767 8,110 38,877 32,387Loss 150,539 4,067 1,908 156,514 130,385

12,725,760 158,086 20,041 12,903,887 10,749,656

Korean won (in millions)

Credit card assets Other assetsFinancing assets TotalTotal

U.S. dollars (Note 2) (in thousands)

(*) To securitize the credit card assets, the Company placed the credit card assets and all of the rights associated with those assets in trust with KBT. Based on thetrusted assets, KBT issued beneficiary certificates with prior claims to SPC as underlying assets and also issued subordinated beneficiary certificate to theCompany as a residual claim for the trusted assets.

2002 2001 2000 2002 2001 2000

MD&A MD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

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56

(2) Investment securities as of December 31, 2001 consist of the following:

The fair value of marketable equity securities was based on the closing market price as of December 31, 2002 and 2001, respectively. The netequity value of unlisted equity securities was based on the recent financial statements of the investees.

With respect to the decline in the net equity value of Korea Credit Card Electronic Settlement, the Company recorded 590 million ($492thousand) of impairment loss because the decline in the net equity value of Korea Credit Card Electronic Settlement was not expected torecover. Other than Korea Credit Card Electronic Settlement, the decline in the net equity value of unlisted securities was expected to recoverand, accordingly, the decline in value of those companies was not reflected in the accompanying financial statements.

11. PROPERTY AND EQUIPMENT:Property and equipment as of December 31, 2002 and 2001 are as follows:

As of December 31, 2002, the published value of the Company-owned land is 36,373 million ($30,301 thousand), in terms of the disclosedland price pursuant to the Laws on Disclosure of Land Price and Valuation of Land.

12. INSURED ASSETS:Insured assets as of December 31, 2002 consist of the following:

In addition, the Company carries general liability and damage insurance for vehicles.

13. INTANGIBLE ASSETS:(1) Intangible assets as of December 31, 2002 and 2001 are as follows:

Korean won (in millions)

2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

Land 55,529 54,537 $ 46,259 $ 45,432Buildings 71,024 69,579 59,167 57,963Vehicles 2,260 1,422 1,883 1,185Other 251,470 144,558 209,488 120,425Less: accumulated depreciation (136,014) (94,903) (113,307) (79,059)

244,269 175,193 $ 203,490 $ 145,946

Insured asset Type Insurance company Korean won (in millions) U.S. dollars (Note 2)(in thousands)

Buildings Fire Insurance Samsung Insurance, other 61,155 $ 50,945Equipment Fire Insurance Dongbu Insurance 107,744 89,757

168,899 $ 140,702

Korean won (in millions)

2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

Development costs 16,250 - $ 13,537 $ -Other 81 109 68 90

16,331 109 $ 13,605 $ 90

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Marketable equity securitiesCJ39 Shopping 60,000 0.7 300 2,157 2,157 $ 1,797Nam Kwang Eng. 1,484,300 6.0 7,422 7,169 7,169 5,972Nice Information & Telecomm. 10,000 1.0 80 143 143 119Kwanglim 12,516 0.2 76 65 65 54Susan Heavy Industrial 6,660 0.1 53 3 3 2Ke Mong Sa Publishing 219,296 0.4 2,500 457 457 381Yungjin Pharm. Co., Ltd. 4,281 0.1 64 11 11 9NI Technology 110 - 18 - - -EZ. Com 1,407 0.3 128 4 4 3Kyunyoung Co., Ltd. 10,138 0.1 203 23 23 20

10,844 10,032 10,032 8,357

Unlisted equity securitiesKorea Cyber Payment 92,000 6.5 510 499 510 425Korea Credit Card Electronic Settlement 280,426 19.5 1,402 980 1,402 1,168KM Credit Information 188,000 4.0 94 103 94 78Seoul TRS 2,000 0.1 14 3 14 12JD Korea 100,000 2.3 200 64 200 167Mondex Korea 20,000 0.7 150 82 150 125V Cash 83,000 2.8 415 364 415 346A Cash 255,000 12.7 1,275 936 1,275 1,062Virtual Payment 80,000 16.3 400 345 400 333Yal Ge Network 100,000 10.0 500 490 500 416Solomon Credit Info. 10,000 0.8 50 103 50 42Harex Info. Tech. 21,000 4.0 1,365 130 1,365 1,137Yaelim International 2,121 0.6 21 - 21 17

6,396 4,099 6,396 5,328Other equity investments

Special Purpose Companies (SPC) 5 - 5 4Debt securitiesGovernment bonds 1,186 1,186 1,186 988Convertible bonds 337 337 337 281Asset Backed Securities notes 621,098 621,098 621,098 517,409

622,621 622,621 622,621 518,678

639,866 636,752 639,054 $ 532,367

Korean won (in millions)

No. of shares Acquisition costOwnership % Carrying value Carrying valueNet equity / fair value

U.S. dollars (Note 2) (in thousands)

MD&A MD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

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(2) Investment securities as of December 31, 2001 consist of the following:

The fair value of marketable equity securities was based on the closing market price as of December 31, 2002 and 2001, respectively. The netequity value of unlisted equity securities was based on the recent financial statements of the investees.

With respect to the decline in the net equity value of Korea Credit Card Electronic Settlement, the Company recorded 590 million ($492thousand) of impairment loss because the decline in the net equity value of Korea Credit Card Electronic Settlement was not expected torecover. Other than Korea Credit Card Electronic Settlement, the decline in the net equity value of unlisted securities was expected to recoverand, accordingly, the decline in value of those companies was not reflected in the accompanying financial statements.

11. PROPERTY AND EQUIPMENT:Property and equipment as of December 31, 2002 and 2001 are as follows:

As of December 31, 2002, the published value of the Company-owned land is 36,373 million ($30,301 thousand), in terms of the disclosedland price pursuant to the Laws on Disclosure of Land Price and Valuation of Land.

12. INSURED ASSETS:Insured assets as of December 31, 2002 consist of the following:

In addition, the Company carries general liability and damage insurance for vehicles.

13. INTANGIBLE ASSETS:(1) Intangible assets as of December 31, 2002 and 2001 are as follows:

Korean won (in millions)

2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

Land 55,529 54,537 $ 46,259 $ 45,432Buildings 71,024 69,579 59,167 57,963Vehicles 2,260 1,422 1,883 1,185Other 251,470 144,558 209,488 120,425Less: accumulated depreciation (136,014) (94,903) (113,307) (79,059)

244,269 175,193 $ 203,490 $ 145,946

Insured asset Type Insurance company Korean won (in millions) U.S. dollars (Note 2)(in thousands)

Buildings Fire Insurance Samsung Insurance, other 61,155 $ 50,945Equipment Fire Insurance Dongbu Insurance 107,744 89,757

168,899 $ 140,702

Korean won (in millions)

2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

Development costs 16,250 - $ 13,537 $ -Other 81 109 68 90

16,331 109 $ 13,605 $ 90

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Marketable equity securitiesCJ39 Shopping 60,000 0.7 300 2,157 2,157 $ 1,797Nam Kwang Eng. 1,484,300 6.0 7,422 7,169 7,169 5,972Nice Information & Telecomm. 10,000 1.0 80 143 143 119Kwanglim 12,516 0.2 76 65 65 54Susan Heavy Industrial 6,660 0.1 53 3 3 2Ke Mong Sa Publishing 219,296 0.4 2,500 457 457 381Yungjin Pharm. Co., Ltd. 4,281 0.1 64 11 11 9NI Technology 110 - 18 - - -EZ. Com 1,407 0.3 128 4 4 3Kyunyoung Co., Ltd. 10,138 0.1 203 23 23 20

10,844 10,032 10,032 8,357

Unlisted equity securitiesKorea Cyber Payment 92,000 6.5 510 499 510 425Korea Credit Card Electronic Settlement 280,426 19.5 1,402 980 1,402 1,168KM Credit Information 188,000 4.0 94 103 94 78Seoul TRS 2,000 0.1 14 3 14 12JD Korea 100,000 2.3 200 64 200 167Mondex Korea 20,000 0.7 150 82 150 125V Cash 83,000 2.8 415 364 415 346A Cash 255,000 12.7 1,275 936 1,275 1,062Virtual Payment 80,000 16.3 400 345 400 333Yal Ge Network 100,000 10.0 500 490 500 416Solomon Credit Info. 10,000 0.8 50 103 50 42Harex Info. Tech. 21,000 4.0 1,365 130 1,365 1,137Yaelim International 2,121 0.6 21 - 21 17

6,396 4,099 6,396 5,328Other equity investments

Special Purpose Companies (SPC) 5 - 5 4Debt securitiesGovernment bonds 1,186 1,186 1,186 988Convertible bonds 337 337 337 281Asset Backed Securities notes 621,098 621,098 621,098 517,409

622,621 622,621 622,621 518,678

639,866 636,752 639,054 $ 532,367

Korean won (in millions)

No. of shares Acquisition costOwnership % Carrying value Carrying valueNet equity / fair value

U.S. dollars (Note 2) (in thousands)

MD&A MD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

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58

(2) The change in development costs during 2002 is as follows:

14. CREDIT CARD:Under the Credit Card Funding agreement with Kookmin Bank, the collection and payment of credit card receivables are carried through thebranches of Kookmin Bank. The funded amount by Kookmin Bank is reported as credit card in the Company’s balance sheets and theCompany pays interest based on the prime rate of Kookmin Bank.

15. CALL MONEY AND SHORT-TERM BORROWINGS:Call money and short-term borrowings as of December 31, 2002 and 2001 consist of the following:

16. LONG-TERM BORROWINGS AND DEBENTURES:(1) Long-term borrowings as of December 31, 2002 and 2001 consist of the following:

(2) Debentures as of December 31, 2002 and 2001 consist of the following:

The Company issued subordinated debentures amounting to 110,000 million ($ 91,636 thousand) on December 18, 2002. The expirationdate is January 8, 2008 and the annual interest rate is 8 percent.

(3) Borrowings and debentures in foreign currency as of December 31, 2002 is as follows:

(4) Repayment schedule of long-term borrowings and debentures as of December 31, 2002 is as follows:

Korean won (in millions)Annualinterestrate (%)

Financialinstitution

Types2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

Korean won (in millions)Annualinterestrate (%)

Issuance2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

General loan Kyobo Life Insurance 6.75~7.0 140,000 190,000 116,627 158,281

CMS loan Shinhan Bank CD rate +spread 350,000 - 291,570 -

General borrowing in foreign currency Kookmin Bank Libor+0.6(0.7) 18,006 - 15,000 -

508,006 190,000 423,197 158,281Less: current maturities (290,000) (100,000) (241,586) (83,306)

218,006 90,000 181,611 74,975

1999 8.10~8.60 - 60,000 $ - $ 49,9842000 6.47~10.50 906,000 2,081,000 754,749 1,733,5892001 5.12~7.71 2,100,000 2,740,000 1,749,417 2,282,5722002 2.00~8.00 2,932,034 - 2,442,547 -

5,938,034 4,881,000 4,946,713 4,066,145Less: Discount on debentures (3,736) (1,638) (3,112) (1,365)

5,934,298 4,879,362 4,943,601 4,064,780Less: Current maturities (2,456,000) (1,875,000) (2,045,985) (1,561,979)Add: Current maturities of discount on debentures 400 225 333 187

3,478,698 3,004,587 $ 2,897,949 $ 2,502,988

Korean won (in millions) U.S. dollars (Note 2)(in thousands)

Long-term borrowings 18,006 $ 15,000Debentures 102,034 85,000Less: Discount on debentures 957 798

101,077 84,202

119,083 $ 99,202

Korean won (in millions)

Korean won (in millions)

Long-term borrowings Debentures

Year U.S. dollars (Note 2)(in thousands)

U.S. dollars (Note 2)(in thousands)

2003 290,000 $ 241,586 2,456,000 $ 2,045,9852004 12,004 10,000 2,159,603 1,799,0692005 206,002 171,611 1,032,431 860,072

Thereafter - - 290,000 241,587

508,006 $ 423,197 5,938,034 $ 4,946,713

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Korean won (in millions)Annualinterestrate (%)

Financialinstitution

Types2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

Call money Daehan Investment Trust Securities, others - - 530,000 - 441,519

Short-term Shinhan Bank,borrowings others 4.83~6.985 5,100,600 3,006,010 4,249,084 2,504,174

5,100,600 3,536,010 4,249,084 2,945,693

Beginning of year - $ -Addition 17,438 14,527Amortization 1,188 990End of year 16,250 $ 13,537

Korean won (in millions) U.S. dollars (Note 2)(in thousands)

MD&AMD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

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(2) The change in development costs during 2002 is as follows:

14. CREDIT CARD:Under the Credit Card Funding agreement with Kookmin Bank, the collection and payment of credit card receivables are carried through thebranches of Kookmin Bank. The funded amount by Kookmin Bank is reported as credit card in the Company’s balance sheets and theCompany pays interest based on the prime rate of Kookmin Bank.

15. CALL MONEY AND SHORT-TERM BORROWINGS:Call money and short-term borrowings as of December 31, 2002 and 2001 consist of the following:

16. LONG-TERM BORROWINGS AND DEBENTURES:(1) Long-term borrowings as of December 31, 2002 and 2001 consist of the following:

(2) Debentures as of December 31, 2002 and 2001 consist of the following:

The Company issued subordinated debentures amounting to 110,000 million ($ 91,636 thousand) on December 18, 2002. The expirationdate is January 8, 2008 and the annual interest rate is 8 percent.

(3) Borrowings and debentures in foreign currency as of December 31, 2002 is as follows:

(4) Repayment schedule of long-term borrowings and debentures as of December 31, 2002 is as follows:

Korean won (in millions)Annualinterestrate (%)

Financialinstitution

Types2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

Korean won (in millions)Annualinterestrate (%)

Issuance2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

General loan Kyobo Life Insurance 6.75~7.0 140,000 190,000 116,627 158,281

CMS loan Shinhan Bank CD rate +spread 350,000 - 291,570 -

General borrowing in foreign currency Kookmin Bank Libor+0.6(0.7) 18,006 - 15,000 -

508,006 190,000 423,197 158,281Less: current maturities (290,000) (100,000) (241,586) (83,306)

218,006 90,000 181,611 74,975

1999 8.10~8.60 - 60,000 $ - $ 49,9842000 6.47~10.50 906,000 2,081,000 754,749 1,733,5892001 5.12~7.71 2,100,000 2,740,000 1,749,417 2,282,5722002 2.00~8.00 2,932,034 - 2,442,547 -

5,938,034 4,881,000 4,946,713 4,066,145Less: Discount on debentures (3,736) (1,638) (3,112) (1,365)

5,934,298 4,879,362 4,943,601 4,064,780Less: Current maturities (2,456,000) (1,875,000) (2,045,985) (1,561,979)Add: Current maturities of discount on debentures 400 225 333 187

3,478,698 3,004,587 $ 2,897,949 $ 2,502,988

Korean won (in millions) U.S. dollars (Note 2)(in thousands)

Long-term borrowings 18,006 $ 15,000Debentures 102,034 85,000Less: Discount on debentures 957 798

101,077 84,202

119,083 $ 99,202

Korean won (in millions)

Korean won (in millions)

Long-term borrowings Debentures

Year U.S. dollars (Note 2)(in thousands)

U.S. dollars (Note 2)(in thousands)

2003 290,000 $ 241,586 2,456,000 $ 2,045,9852004 12,004 10,000 2,159,603 1,799,0692005 206,002 171,611 1,032,431 860,072

Thereafter - - 290,000 241,587

508,006 $ 423,197 5,938,034 $ 4,946,713

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Korean won (in millions)Annualinterestrate (%)

Financialinstitution

Types2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

Call money Daehan Investment Trust Securities, others - - 530,000 - 441,519

Short-term Shinhan Bank,borrowings others 4.83~6.985 5,100,600 3,006,010 4,249,084 2,504,174

5,100,600 3,536,010 4,249,084 2,945,693

Beginning of year - $ -Addition 17,438 14,527Amortization 1,188 990End of year 16,250 $ 13,537

Korean won (in millions) U.S. dollars (Note 2)(in thousands)

MD&AMD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

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60

(5) As explained in Note 3 to the financial statements, in connection with the above borrowings, short-term financial instruments of 50,000million ($41,653 thousand) and long-term financial instruments of 16,000 million ($13,329 thousand) are pledged to the financialinstitutions as collateral. Also, the Company has provided 9 blank notes and 2 blank checks as repayment guarantee.

17. EQUITY:(1) Common stockAs of December 31, 2002 and 2001, the Company has 100,000,000 authorized shares of common stock ( 5,000 par value) of which73,200,000 shares have been issued.

(2) Legal reserveUnder the Korean Commercial Code, at least 10% of the cash dividends are to be appropriated as a legal reserve until the legal reserve reaches50% of capital stock issued. The legal reserve may only be used to offset any future deficit or be transferred to capital, but not for cashdividends.

(3) Voluntary reserve offset against the accumulated deficit The Company transferred voluntary reserve amounting to 260,888 million ($ 217,334 thousand) to offset against the accumulated deficit,pursuant to the approval at the shareholders’ meeting in March 2003.

(4) Capital adjustmentsCapital adjustments as of December 31, 2002 and 2001 consist of the following:

As of December 31, 2002 and 2001, the Company had 503,724 shares held as treasury stock with a carrying value of 2,325 million ($1,937thousand), which was purchased from the dissenting shareholders in the merger with KLB Credit Card Co., Ltd. and Kookmin Finance Co., Ltd.

18. DERIVATIVE INSTRUMENTS:The Company has entered into interest rate swap contracts to hedge the exposure to variability in expected future cash flows of interestexpense from floating rate debentures. As of December 31, 2002, outstanding contracts of derivative instruments are summarized below (Wonin millions):

In connection with the contracts, as of December 31, 2002, 11,996 million ($9,993 thousand) of gain and 7,243 million ($6,034thousand) of loss on valuation in derivative instruments was recorded as a capital adjustment.

Also, the Company has entered into cross currency interest rate swap contracts with Kookmin Bank to hedge the exposure to variability inexpected future cash flows of interest expense from floating rate and foreign currency exchange rate of long-term borrowings and debentures inforeign currency. As of December 31, 2002, outstanding contracts of derivative instruments are summarized below (US$ in thousands).

In connection with the contract, as of December 31, 2002, 3,538 million ($ 2,947 thousand) of loss and 122 million ($ 101 thousand) ofgain on valuation of the above derivative instruments was recorded as a capital adjustment and as operating income, respectively.

19. STOCK OPTIONS:At the shareholders’ meeting held in 2001 and 2002, the Company granted stock options, which have rights to buy 50,000 and 236,000 sharesof the Company at the exercise price of 31,690 ($26.40) and 57,160 ($47.62) per share, respectively, to the members of the board ofdirectors. As of December 31, 2002, the total value of the stock options is 1,965 million ($1,637 thousand) of which 961 million ($800thousand) of stock option cost calculated based on the contract term of the services provided was charged to current operations and credited tocapital adjustments.

Debentures (underlying assets)

Par value Annual interest rate Counterparts Type Period

60,000 CD (91) + 0.7% Kookmin Bank IRS 01.2.14 ~ 03.2.14100,000 {CMT (3yrs)-CD(91)}+5.41% HSBC Basis swap 02.2.21 ~ 05.2.2190,000 12%-CD (91) Kookmin Bank IRS 02.3.04 ~ 05.3.0450,000 11.3%-CD (91) Kookmin Bank IRS 02.3.05 ~ 04.3.05100,000 {(CMT(5yrs)-CD(91)) 2}+2.9% Citi Bank Basis swap 02.3.06 ~ 05.3.0650,000 {(IRS(3yrs) 2)-CD(91)}-2.75% HSBC Basis swap 02.3.08 ~ 05.3.0860,000 {(IRS(3yrs) 2)-CD(91)}-2.8% HSBC Basis swap 02.3.13 ~ 05.3.1380,000 7.52% ~ 8.2% CSFS Swaption 02.4.10 ~ 08.4.10100,000 7.75%(91 days CD) Citibank Option swap 02.5.23 ~ 05.5.2350,000 7.75%(91 days CD) Citibank Option swap 02.5.24 ~ 05.5.24

Long-term borrowings & Debentures (underlying assets)

Par value Annual interest rate Counterparts Type Period

18,000 Libor (6M)+0.6% Kookmin Bank CCIRS 02.12.23 ~ 04.12.2382,000 Libor (6M)+0.7% Kookmin Bank CCIRS 02.12.23 ~ 05.12.23

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Korean won (in millions)

2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

Treasury stock (2,325) (2,325) $ (1,937) $ (1,937)Loss on valuation of marketable investment

equity securities (Note 10) (1,811) (812) (1,509) (676)Gain on valuation of interest rate swap (Note18) 11,996 - 9,993 -Loss on valuation of interest rate swap (Note18) (7,243) (785) (6,034) (654)Loss on valuation of currency swap (Note 18) (3,538) - (2,947) -Stock option costs (Note 19) 961 426 801 355

(1,960) (3,496) $ (1,633) $ (2,912)

MD&A MD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

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(5) As explained in Note 3 to the financial statements, in connection with the above borrowings, short-term financial instruments of 50,000million ($41,653 thousand) and long-term financial instruments of 16,000 million ($13,329 thousand) are pledged to the financialinstitutions as collateral. Also, the Company has provided 9 blank notes and 2 blank checks as repayment guarantee.

17. EQUITY:(1) Common stockAs of December 31, 2002 and 2001, the Company has 100,000,000 authorized shares of common stock ( 5,000 par value) of which73,200,000 shares have been issued.

(2) Legal reserveUnder the Korean Commercial Code, at least 10% of the cash dividends are to be appropriated as a legal reserve until the legal reserve reaches50% of capital stock issued. The legal reserve may only be used to offset any future deficit or be transferred to capital, but not for cashdividends.

(3) Voluntary reserve offset against the accumulated deficit The Company transferred voluntary reserve amounting to 260,888 million ($ 217,334 thousand) to offset against the accumulated deficit,pursuant to the approval at the shareholders’ meeting in March 2003.

(4) Capital adjustmentsCapital adjustments as of December 31, 2002 and 2001 consist of the following:

As of December 31, 2002 and 2001, the Company had 503,724 shares held as treasury stock with a carrying value of 2,325 million ($1,937thousand), which was purchased from the dissenting shareholders in the merger with KLB Credit Card Co., Ltd. and Kookmin Finance Co., Ltd.

18. DERIVATIVE INSTRUMENTS:The Company has entered into interest rate swap contracts to hedge the exposure to variability in expected future cash flows of interestexpense from floating rate debentures. As of December 31, 2002, outstanding contracts of derivative instruments are summarized below (Wonin millions):

In connection with the contracts, as of December 31, 2002, 11,996 million ($9,993 thousand) of gain and 7,243 million ($6,034thousand) of loss on valuation in derivative instruments was recorded as a capital adjustment.

Also, the Company has entered into cross currency interest rate swap contracts with Kookmin Bank to hedge the exposure to variability inexpected future cash flows of interest expense from floating rate and foreign currency exchange rate of long-term borrowings and debentures inforeign currency. As of December 31, 2002, outstanding contracts of derivative instruments are summarized below (US$ in thousands).

In connection with the contract, as of December 31, 2002, 3,538 million ($ 2,947 thousand) of loss and 122 million ($ 101 thousand) ofgain on valuation of the above derivative instruments was recorded as a capital adjustment and as operating income, respectively.

19. STOCK OPTIONS:At the shareholders’ meeting held in 2001 and 2002, the Company granted stock options, which have rights to buy 50,000 and 236,000 sharesof the Company at the exercise price of 31,690 ($26.40) and 57,160 ($47.62) per share, respectively, to the members of the board ofdirectors. As of December 31, 2002, the total value of the stock options is 1,965 million ($1,637 thousand) of which 961 million ($800thousand) of stock option cost calculated based on the contract term of the services provided was charged to current operations and credited tocapital adjustments.

Debentures (underlying assets)

Par value Annual interest rate Counterparts Type Period

60,000 CD (91) + 0.7% Kookmin Bank IRS 01.2.14 ~ 03.2.14100,000 {CMT (3yrs)-CD(91)}+5.41% HSBC Basis swap 02.2.21 ~ 05.2.2190,000 12%-CD (91) Kookmin Bank IRS 02.3.04 ~ 05.3.0450,000 11.3%-CD (91) Kookmin Bank IRS 02.3.05 ~ 04.3.05100,000 {(CMT(5yrs)-CD(91)) 2}+2.9% Citi Bank Basis swap 02.3.06 ~ 05.3.0650,000 {(IRS(3yrs) 2)-CD(91)}-2.75% HSBC Basis swap 02.3.08 ~ 05.3.0860,000 {(IRS(3yrs) 2)-CD(91)}-2.8% HSBC Basis swap 02.3.13 ~ 05.3.1380,000 7.52% ~ 8.2% CSFS Swaption 02.4.10 ~ 08.4.10100,000 7.75%(91 days CD) Citibank Option swap 02.5.23 ~ 05.5.2350,000 7.75%(91 days CD) Citibank Option swap 02.5.24 ~ 05.5.24

Long-term borrowings & Debentures (underlying assets)

Par value Annual interest rate Counterparts Type Period

18,000 Libor (6M)+0.6% Kookmin Bank CCIRS 02.12.23 ~ 04.12.2382,000 Libor (6M)+0.7% Kookmin Bank CCIRS 02.12.23 ~ 05.12.23

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Korean won (in millions)

2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

Treasury stock (2,325) (2,325) $ (1,937) $ (1,937)Loss on valuation of marketable investment

equity securities (Note 10) (1,811) (812) (1,509) (676)Gain on valuation of interest rate swap (Note18) 11,996 - 9,993 -Loss on valuation of interest rate swap (Note18) (7,243) (785) (6,034) (654)Loss on valuation of currency swap (Note 18) (3,538) - (2,947) -Stock option costs (Note 19) 961 426 801 355

(1,960) (3,496) $ (1,633) $ (2,912)

MD&A MD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

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20. DIVIDENDS:The dividends for the year ended December 31, 2001 was 90,870 million ($68,524 thousand). The computation of dividends for 2001 is asfollows:

21. SELLING AND ADMINISTRATIVE EXPENSES:Selling and administrative expenses for the years ended December 31, 2002 and 2001 are as follows:

22. INCOME TAX EXPENSE:(1) The basic Korean corporate income tax rate is progressive, 15 percent of the first 100 million of taxable income and 27 percent of the

excess, plus residual surtax of 10 percent of the corporate income tax due. However, the Company did not incur any tax liabilities in 2002due to current net losses.

Korean won (in millions) U.S. dollars (Note 2)(in thousands)

Addition:Permanent differences

Additional payment of income tax 173 $ 144Other 7,890 6,573

8,063 6,717Temporary differencesGain on valuation of marketable securities 850 708Loss on valuation of marketable securities 23 19Accrued expense 13,182 10,981Accrued income 12,687 10,569Stock options 535 446Impairment loss of investment securities 590 492

27,867 23,21535,930 $ 29,932

Deduction:Permanent differences

Refund of income tax 56,187 $ 46,807Temporary differences

Bad debt expense 300 250Depreciation 500 417Allowance for doubtful account 29,252 24,368Accrued severance indemnities 121 101Accrued expense 9,133 7,608Gain on valuation of marketable securities 25 21Gain on valuation of currency swap 122 102Accrued income 70,123 58,416

109,576 91,283165,763 $ 138,090

Korean won (in millions)

Beginning of year Addition Deduction End of year End of year

U.S. dollars (Note 2) (in thousands)Korean won (in millions)

Beginning of year Addition Deduction End of year End of year

U.S. dollars (Note 2) (in thousands)

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Bad debt expense 598 - 300 298 $ 248Allowance for doubtful accounts 29,252 - 29,252 - -Accrued expenses 9,133 13,182 9,133 13,182 10,981Loss on valuation of investment securities 3,000 - - 3,000 2,499Accrued severance indemnities 121 - 121 - -Accumulated depreciation 2,138 - 500 1,637 1,364Account receivable-other 1,209 - - 1,209 1,007Investment securities impairment loss - 590 - 590 492Stock options 425 535 - 961 801Loss on valuation of marketable securities - 23 - 23 19

45,876 14,330 39,306 20,900 17,411

Dividends

Number ofcommon shares issued

(in thousands)

Number of treasury shares

(in thousands) Par value

Dividend rate of par value

Korean won(in millions)

U.S. Dollars(Note 2)

(in thousands)

73,200 (504) 5,000 25% 90,870 $ 75,700

Korean won (in millions)

2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

Salaries and wages 78,561 61,568 $ 65,446 $ 51,290Provision for severance benefits 9,145 7,758 7,618 6,462Employee welfare 33,197 21,912 27,655 18,254Communications 38,984 21,496 32,476 17,907Taxes and dues 13,424 7,174 11,183 5,976Publication 11,225 7,507 9,351 6,254Rent 10,198 4,361 8,496 3,633Depreciation and amortization 53,338 37,330 44,434 31,098Service fees 6,414 5,864 5,343 4,885Advertising 85,955 36,589 71,605 30,481Ordinary development cost 21,983 11,812 18,313 9,840Bad debt 1,548,177 428,248 1,289,718 356,754Other 15,202 9,432 12,663 7,858

1,925,803 661,051 $ 1,604,301 $ 550,692

(2) Tax reconciliation items between financial accounting income and taxable income for the year ended December 31, 2002 consist of:

(3) Changes in cumulative temporary differences during 2002 are as follows:

MD&AMD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

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20. DIVIDENDS:The dividends for the year ended December 31, 2001 was 90,870 million ($68,524 thousand). The computation of dividends for 2001 is asfollows:

21. SELLING AND ADMINISTRATIVE EXPENSES:Selling and administrative expenses for the years ended December 31, 2002 and 2001 are as follows:

22. INCOME TAX EXPENSE:(1) The basic Korean corporate income tax rate is progressive, 15 percent of the first 100 million of taxable income and 27 percent of the

excess, plus residual surtax of 10 percent of the corporate income tax due. However, the Company did not incur any tax liabilities in 2002due to current net losses.

Korean won (in millions) U.S. dollars (Note 2)(in thousands)

Addition:Permanent differences

Additional payment of income tax 173 $ 144Other 7,890 6,573

8,063 6,717Temporary differencesGain on valuation of marketable securities 850 708Loss on valuation of marketable securities 23 19Accrued expense 13,182 10,981Accrued income 12,687 10,569Stock options 535 446Impairment loss of investment securities 590 492

27,867 23,21535,930 $ 29,932

Deduction:Permanent differences

Refund of income tax 56,187 $ 46,807Temporary differences

Bad debt expense 300 250Depreciation 500 417Allowance for doubtful account 29,252 24,368Accrued severance indemnities 121 101Accrued expense 9,133 7,608Gain on valuation of marketable securities 25 21Gain on valuation of currency swap 122 102Accrued income 70,123 58,416

109,576 91,283165,763 $ 138,090

Korean won (in millions)

Beginning of year Addition Deduction End of year End of year

U.S. dollars (Note 2) (in thousands)Korean won (in millions)

Beginning of year Addition Deduction End of year End of year

U.S. dollars (Note 2) (in thousands)

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Bad debt expense 598 - 300 298 $ 248Allowance for doubtful accounts 29,252 - 29,252 - -Accrued expenses 9,133 13,182 9,133 13,182 10,981Loss on valuation of investment securities 3,000 - - 3,000 2,499Accrued severance indemnities 121 - 121 - -Accumulated depreciation 2,138 - 500 1,637 1,364Account receivable-other 1,209 - - 1,209 1,007Investment securities impairment loss - 590 - 590 492Stock options 425 535 - 961 801Loss on valuation of marketable securities - 23 - 23 19

45,876 14,330 39,306 20,900 17,411

Dividends

Number ofcommon shares issued

(in thousands)

Number of treasury shares

(in thousands) Par value

Dividend rate of par value

Korean won(in millions)

U.S. Dollars(Note 2)

(in thousands)

73,200 (504) 5,000 25% 90,870 $ 75,700

Korean won (in millions)

2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

Salaries and wages 78,561 61,568 $ 65,446 $ 51,290Provision for severance benefits 9,145 7,758 7,618 6,462Employee welfare 33,197 21,912 27,655 18,254Communications 38,984 21,496 32,476 17,907Taxes and dues 13,424 7,174 11,183 5,976Publication 11,225 7,507 9,351 6,254Rent 10,198 4,361 8,496 3,633Depreciation and amortization 53,338 37,330 44,434 31,098Service fees 6,414 5,864 5,343 4,885Advertising 85,955 36,589 71,605 30,481Ordinary development cost 21,983 11,812 18,313 9,840Bad debt 1,548,177 428,248 1,289,718 356,754Other 15,202 9,432 12,663 7,858

1,925,803 661,051 $ 1,604,301 $ 550,692

(2) Tax reconciliation items between financial accounting income and taxable income for the year ended December 31, 2002 consist of:

(3) Changes in cumulative temporary differences during 2002 are as follows:

MD&AMD&A

MD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

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Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

(2) Significant balances with related parties as of December 31, 2002 and 2001 are as follows:

Korean won (in millions)

Description Related party 2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

RevenueFees and commissions Kookmin Bank 229 320 $ 191 $ 267Currency swap Kookmin Bank 122 - 101 -Interest income Kookmin Bank 3,347 160 2,789 133

3,698 480 $ 3,081 $ 400Expenses

Fees and commissions Kookmin Bank 155,747 142,729 $ 129,746 $ 118,901Interest expense Kookmin Bank 19,568 16,967 16,301 14,135Rent Kookmin Bank 368 114 307 95

175,683 159,810 $ 146,354 $ 133,131

Deferred income tax assets resulting from tax loss carry forward are recognized only to the extent to which the future tax benefits arerealizable.

23. TRANSACTIONS WITH RELATED PARTIES:(1) Transactions with related parties for the years ended December 31, 2002 and 2001 are summarized below:

Korean won (in millions)

Beginning of year Addition Deduction End of year End of year

U.S. dollars (Note 2) (in thousands)

Accrued income 12,687 70,123 12,687 70,123 $ 58,416Accumulated depreciation 3,119 - - 3,119 2,598Gain on valuation of marketable

securities 850 25 850 25 21Gain on valuation of derivative

instruments - 122 - 122 10216,656 70,270 13,537 73,389 61,13729,220 (55,940) 25,769 (52,489) $ (43,726)

Tax loss carry forward - 390,721 - 390,721 $ 325,492

Description Related party

AssetsCash and cash equivalents Kookmin Bank 10,934 3,893 $ 9,109 $ 3,243Call loan Kookmin Bank 600,000 - 499,833 -Accounts receivable-other Kookmin Bank 107,712 13,331 89,730 11,105Long-term financial instruments Kookmin Bank 1,122 1,899 935 1,582

Severance insurance deposits[slm2] Kookmin Bank 202 - 168 -Guarantee deposits Kookmin Bank 3,578 5,002 2,981 4,167

723,548 24,125 $ 602,756 $ 20,097

LiabilitiesCredit card Kookmin Bank 20,783 22,526 $ 17,313 $ 18,765Guarantee deposits received Kookmin Bank 1,817 1,817 1,514 1,514Short-term borrowings Kookmin Bank 100,000 240,600 83,306 200,433Accounts payable-other Kookmin Bank 39,849 - 33,196 -

162,449 264,943 $ 135,329 $ 220,712

Korean won (in millions)

2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

MD&A

MD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

ANNUAL REPORT 2002

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Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

Accountants

BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

(2) Significant balances with related parties as of December 31, 2002 and 2001 are as follows:

Korean won (in millions)

Description Related party 2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

RevenueFees and commissions Kookmin Bank 229 320 $ 191 $ 267Currency swap Kookmin Bank 122 - 101 -Interest income Kookmin Bank 3,347 160 2,789 133

3,698 480 $ 3,081 $ 400Expenses

Fees and commissions Kookmin Bank 155,747 142,729 $ 129,746 $ 118,901Interest expense Kookmin Bank 19,568 16,967 16,301 14,135Rent Kookmin Bank 368 114 307 95

175,683 159,810 $ 146,354 $ 133,131

Deferred income tax assets resulting from tax loss carry forward are recognized only to the extent to which the future tax benefits arerealizable.

23. TRANSACTIONS WITH RELATED PARTIES:(1) Transactions with related parties for the years ended December 31, 2002 and 2001 are summarized below:

Korean won (in millions)

Beginning of year Addition Deduction End of year End of year

U.S. dollars (Note 2) (in thousands)

Accrued income 12,687 70,123 12,687 70,123 $ 58,416Accumulated depreciation 3,119 - - 3,119 2,598Gain on valuation of marketable

securities 850 25 850 25 21Gain on valuation of derivative

instruments - 122 - 122 10216,656 70,270 13,537 73,389 61,13729,220 (55,940) 25,769 (52,489) $ (43,726)

Tax loss carry forward - 390,721 - 390,721 $ 325,492

Description Related party

AssetsCash and cash equivalents Kookmin Bank 10,934 3,893 $ 9,109 $ 3,243Call loan Kookmin Bank 600,000 - 499,833 -Accounts receivable-other Kookmin Bank 107,712 13,331 89,730 11,105Long-term financial instruments Kookmin Bank 1,122 1,899 935 1,582

Severance insurance deposits[slm2] Kookmin Bank 202 - 168 -Guarantee deposits Kookmin Bank 3,578 5,002 2,981 4,167

723,548 24,125 $ 602,756 $ 20,097

LiabilitiesCredit card Kookmin Bank 20,783 22,526 $ 17,313 $ 18,765Guarantee deposits received Kookmin Bank 1,817 1,817 1,514 1,514Short-term borrowings Kookmin Bank 100,000 240,600 83,306 200,433Accounts payable-other Kookmin Bank 39,849 - 33,196 -

162,449 264,943 $ 135,329 $ 220,712

Korean won (in millions)

2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

MD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

Report ofIndependent Public

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BalanceSheets

Statements ofOperations

Statements ofCash Flows

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Statements

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Accumulated Deficit

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Accumulated Deficit

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27. CASH FLOWS:Cash flows from operating activities are presented by the indirect method. Significant transaction not involving cash inflows and outflows forthe years ended December 31, 2002 and 2001 are as follows:

28. VALUE-ADDED INFORMATION:The accounts and amounts for the computation of value added in 2002 and 2001 are as follows:

Korean won (in millions)Description

2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

Loss on valuation of interest rate swap 6,458 785 $ 5,380 $ 654Gain on valuation of interest rate swap 11,996 - 9,993 -Loss on valuation of currency swap 3,538 - 2,947 -Stock option costs 535 426 446 355Transfer of retained earnings to dividends payable - 90,870 - 75,700Voluntary reserve offset against accumulated deficit 260,888 - 217,334 -Write-offs of loans 1,016,772 328,007 847,028 273,248

1,300,187 420,088 $ 1,083,128 $ 349,957

Ordinary income (loss) (260,888) 657,802 $ (217,334) $ 547,986Salaries and wages 87,706 69,326 73,064 57,752Net interest expense (219,359) 11,583 (182,738) 9,650Rent 10,198 4,361 8,496 3,633Taxes and dues 13,424 7,174 11,183 5,976Depreciation 53,376 37,726 44,465 31,428

(315,543) 787,972 $ (262,864) $ 656,425

Korean won (in millions)

2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

24. REFUND OF TAX:With respect to the tax losses incurred from KLB Credit Card Co., Ltd., which was merged into the Company in 1998, the Company filed taxappeal for the refund of income tax of 48,702 million ($40,571 thousand) paid in 2000 and 2001, respectively, pursuant to the article 45 ofCorporate Income Tax Law, which allows tax losses of the merged entity to be deducted from income of the merging entity. The National TaxAdministration accepted the Company’s tax appeal and the Company collected tax refund of 56,187 ($46,807 thousand) including surtaxand interest, and recorded the refund as non operating income.

25. PENDING LITIGATION:As of December 31, 2002, the Company is involved with several pending lawsuits as a defendant, claiming remuneration for unfaithful gainfrom issuing credits cards to unqualified users. The outcome of the lawsuits cannot presently be determined. In addition, the Korean FairTrade Commission ordered the Company to pay penalties of 7,599 million ($6,330 thousand) pertaining to its unlawful actions in connectionservice charges. The Company has filed for the cancellation of the order.

26. CONTINGENCIES AND COMMITMENTS:(1) Under the Credit Card Business Authorization Agreement with Kookmin Bank, significant business of the Company is carried out by the

branches of Kookmin Bank and the Company pays service fee as defined in the Agreement.

(2) The Company entered into a license agreement with Master Card International Incorporated and Visa International Service Association in1987 and 1989, respectively. In connection with the agreement, the Company issues Kookmin Master Card and Kookmin Visa Card andpays service fees based on revenue earned by those cards.

(3) The Company entered into a credit card business alliance agreement with Koram Bank, Woori Credit Card, Citibank, National Federation ofFishery Co-operatives and National Agricultural Co-operative Federation. In accordance with the agreement, the Company issuesassociated credit cards and shares the revenue earned by the credit card with those allied companies.

(4) Based on the agreement with Hankook Computer and NICE e-Banking Services, the Company operates a 24-hour cash service machine. Inconnection with the operation of the cash service machine, the Company pays service fees to Korea Computer Inc. and NICE e-BankingServices and as of December 31, 2002, the Company has provided 10,083 million ($8,400 thousand) of deposits as collateral.

(5) The Company has agreements with Kookmin Bank and 2 other banks for current accounts and with Koram Bank for an overdraft facilitywith a 30,000 million ($24,992 thousand) limit. Also, in connection with an agreement for borrowings and debentures, as explained inNote 16, the Company has provided two blank checks and nine blank notes as collateral.

(6) The Company has entered into an insurance agreement with Dongbu Insurance Co., Ltd. covering the overseas travel accident ofinternational credit card holders. The maximum limit and minimum limit of the insurance are 200 million ($167 thousand) and 50million ($42 thousand), respectively.

MD&A MD&A

NOTES TO FINANCIAL STATEMENTS NOTES TO FINANCIAL STATEMENTSDecember 31, 2002 and 2001 December 31, 2002 and 2001

Report ofIndependent Public

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BalanceSheets

Statements ofOperations

Statements ofCash Flows

Notes to Financial

Statements

Statements of Disposition of

Accumulated Deficit

Report ofIndependent Public

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Statements ofCash Flows

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Accumulated Deficit

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27. CASH FLOWS:Cash flows from operating activities are presented by the indirect method. Significant transaction not involving cash inflows and outflows forthe years ended December 31, 2002 and 2001 are as follows:

28. VALUE-ADDED INFORMATION:The accounts and amounts for the computation of value added in 2002 and 2001 are as follows:

Korean won (in millions)Description

2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

Loss on valuation of interest rate swap 6,458 785 $ 5,380 $ 654Gain on valuation of interest rate swap 11,996 - 9,993 -Loss on valuation of currency swap 3,538 - 2,947 -Stock option costs 535 426 446 355Transfer of retained earnings to dividends payable - 90,870 - 75,700Voluntary reserve offset against accumulated deficit 260,888 - 217,334 -Write-offs of loans 1,016,772 328,007 847,028 273,248

1,300,187 420,088 $ 1,083,128 $ 349,957

Ordinary income (loss) (260,888) 657,802 $ (217,334) $ 547,986Salaries and wages 87,706 69,326 73,064 57,752Net interest expense (219,359) 11,583 (182,738) 9,650Rent 10,198 4,361 8,496 3,633Taxes and dues 13,424 7,174 11,183 5,976Depreciation 53,376 37,726 44,465 31,428

(315,543) 787,972 $ (262,864) $ 656,425

Korean won (in millions)

2002 2001 2002 2001

U.S. dollars (Note 2)(in thousands)

24. REFUND OF TAX:With respect to the tax losses incurred from KLB Credit Card Co., Ltd., which was merged into the Company in 1998, the Company filed taxappeal for the refund of income tax of 48,702 million ($40,571 thousand) paid in 2000 and 2001, respectively, pursuant to the article 45 ofCorporate Income Tax Law, which allows tax losses of the merged entity to be deducted from income of the merging entity. The National TaxAdministration accepted the Company’s tax appeal and the Company collected tax refund of 56,187 ($46,807 thousand) including surtaxand interest, and recorded the refund as non operating income.

25. PENDING LITIGATION:As of December 31, 2002, the Company is involved with several pending lawsuits as a defendant, claiming remuneration for unfaithful gainfrom issuing credits cards to unqualified users. The outcome of the lawsuits cannot presently be determined. In addition, the Korean FairTrade Commission ordered the Company to pay penalties of 7,599 million ($6,330 thousand) pertaining to its unlawful actions in connectionservice charges. The Company has filed for the cancellation of the order.

26. CONTINGENCIES AND COMMITMENTS:(1) Under the Credit Card Business Authorization Agreement with Kookmin Bank, significant business of the Company is carried out by the

branches of Kookmin Bank and the Company pays service fee as defined in the Agreement.

(2) The Company entered into a license agreement with Master Card International Incorporated and Visa International Service Association in1987 and 1989, respectively. In connection with the agreement, the Company issues Kookmin Master Card and Kookmin Visa Card andpays service fees based on revenue earned by those cards.

(3) The Company entered into a credit card business alliance agreement with Koram Bank, Woori Credit Card, Citibank, National Federation ofFishery Co-operatives and National Agricultural Co-operative Federation. In accordance with the agreement, the Company issuesassociated credit cards and shares the revenue earned by the credit card with those allied companies.

(4) Based on the agreement with Hankook Computer and NICE e-Banking Services, the Company operates a 24-hour cash service machine. Inconnection with the operation of the cash service machine, the Company pays service fees to Korea Computer Inc. and NICE e-BankingServices and as of December 31, 2002, the Company has provided 10,083 million ($8,400 thousand) of deposits as collateral.

(5) The Company has agreements with Kookmin Bank and 2 other banks for current accounts and with Koram Bank for an overdraft facilitywith a 30,000 million ($24,992 thousand) limit. Also, in connection with an agreement for borrowings and debentures, as explained inNote 16, the Company has provided two blank checks and nine blank notes as collateral.

(6) The Company has entered into an insurance agreement with Dongbu Insurance Co., Ltd. covering the overseas travel accident ofinternational credit card holders. The maximum limit and minimum limit of the insurance are 200 million ($167 thousand) and 50million ($42 thousand), respectively.

MD&A MD&A

ANNUAL REPORT 2002

69www.irkookmincard.co.kr

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Organization Chart

OrganizationChart

Board of Directorsand Executive Vice

Presidents

CorporateEthics

Policies

Corporate Data

Board of Directors and Executive Vice Presidents

OrganizationChart

Board of Directorsand Executive Vice

Presidents

CorporateEthics

Policies

Corporate Data

Standing Member ofAudit Committee

Planning

&

Coordination

Group

IT Group

Collection

Management

Group

Marketing

Group

Card Business

Group

InspectorsCompliance Officer

1. CHO, BONG HWANCEO & President, Chairman of the Board ofDirectors

2. SONG, JOON CHAIExecutive Director, Standing Member of AuditCommittee, Member of Board of Directors

3. PARK, DONG SOONExecutive Vice President, Head of Planning &Coordination Group, Member of Board of Directors

4. KANG, EUNG GUExecutive Vice President, Head of IT Group

5. JANG, SEONG TAEExecutive Vice President, Head of CollectionManagement Group

6. LEE, HYEON HEEExecutive Vice President, Head of Marketing Group

7. LEE, SANG JINExecutive Vice President, Head of Card BusinessGroup

KIM, BYUNG HAKOutside Director, Member of Audit Committee,Member of Board of Directors

LEE, SEONOutside Director, Member of Board of Directors

KIM, JANG OKOutside Director, Member of Audit Committee,Member of Board of Directors

KWON, JAE JUNGOutside Director, Member of Board of Directors

3 1 2

7 6 4 5

Outside Directors

CEO & President

ANNUAL REPORT 2002

69www.irkookmincard.co.kr

68

Organization Chart

OrganizationChart

Board of Directorsand Executive Vice

Presidents

CorporateEthics

Policies

Corporate Data

Board of Directors and Executive Vice Presidents

OrganizationChart

Board of Directorsand Executive Vice

Presidents

CorporateEthics

Policies

Corporate Data

Standing Member ofAudit Committee

Planning

&

Coordination

Group

IT Group

Collection

Management

Group

Marketing

Group

Card Business

Group

InspectorsCompliance Officer

1. CHO, BONG HWANCEO & President, Chairman of the Board ofDirectors

2. SONG, JOON CHAIExecutive Director, Standing Member of AuditCommittee, Member of Board of Directors

3. PARK, DONG SOONExecutive Vice President, Head of Planning &Coordination Group, Member of Board of Directors

4. KANG, EUNG GUExecutive Vice President, Head of IT Group

5. JANG, SEONG TAEExecutive Vice President, Head of CollectionManagement Group

6. LEE, HYEON HEEExecutive Vice President, Head of Marketing Group

7. LEE, SANG JINExecutive Vice President, Head of Card BusinessGroup

KIM, BYUNG HAKOutside Director, Member of Audit Committee,Member of Board of Directors

LEE, SEONOutside Director, Member of Board of Directors

KIM, JANG OKOutside Director, Member of Audit Committee,Member of Board of Directors

KWON, JAE JUNGOutside Director, Member of Board of Directors

3 1 2

7 6 4 5

Outside Directors

CEO & President

ANNUAL REPORT 2002

71www.irkookmincard.co.kr

70

Corporate Ethics Policies

OrganizationChart

Board of Directorsand Executive Vice

Presidents

CorporateEthics

Policies

Corporate Data

Corporate Data

OrganizationChart

Board of Directorsand Executive Vice

Presidents

CorporateEthics

Policies

Corporate Data

CORPORATE ETHICS POLICIES

We continuously pursue co-development with our customers and businesses by creatingthe best products and services. Based on our corporate philosophy and spirit we attachgreat importance to customer satisfaction, innovation and human resource development.

To accomplish this we are developing into an established world-class financial institutionmanaged with openness and beliefs of high ethical standards.

Kookmin Card’s standards from the foundation for our pledge of ethical practices:

We always think and act in “the customers” shoes-respecting their opinions and placingtop priority on customer satisfaction

We protect investor’s interests with reliable investments and the pursuit of appropriateprofit.

We establish solid financial orders by abiding by the law and engaging in faircompetition.

We keep Kookmin Card Company’s values rooted in honesty and sincerity, andaccomplish our mission by developing ourselves endlessly and doing official dutiesfairly.

We respect the self-discipline and creativity of each member of our company

We contribute to the development of our nation by working toward environmentalpreservation and social welfare

CORPORATE DATA

Paid-in Capital : 366 Billion Won

Number of Shares : 73,200,000

Major Shareholder : KB (74.3%)

Stock Listing : Kosdaq

General Shareholders’ Meeting : March 28, 2003

Transfer Agent and Registrar : Securities Agency Business Dept. of KB

15-22 Yoido-dong, Youngdeungpo-gu, Seoul 150-757, Korea

Tel : 82-2-3779-8097

Independent public Accountants : Anjin & Co

Head Office : 167 Naesu-dong, Jongno-gu, Seoul 110-070, Korea

Tel : 82-2-3700-3068

http://www.irkookmincard.co.kr

Date of Establishment : September 25, 1987

ANNUAL REPORT 2002

71www.irkookmincard.co.kr

70

Corporate Ethics Policies

OrganizationChart

Board of Directorsand Executive Vice

Presidents

CorporateEthics

Policies

Corporate Data

Corporate Data

OrganizationChart

Board of Directorsand Executive Vice

Presidents

CorporateEthics

Policies

Corporate Data

CORPORATE ETHICS POLICIES

We continuously pursue co-development with our customers and businesses by creatingthe best products and services. Based on our corporate philosophy and spirit we attachgreat importance to customer satisfaction, innovation and human resource development.

To accomplish this we are developing into an established world-class financial institutionmanaged with openness and beliefs of high ethical standards.

Kookmin Card’s standards from the foundation for our pledge of ethical practices:

We always think and act in “the customers” shoes-respecting their opinions and placingtop priority on customer satisfaction

We protect investor’s interests with reliable investments and the pursuit of appropriateprofit.

We establish solid financial orders by abiding by the law and engaging in faircompetition.

We keep Kookmin Card Company’s values rooted in honesty and sincerity, andaccomplish our mission by developing ourselves endlessly and doing official dutiesfairly.

We respect the self-discipline and creativity of each member of our company

We contribute to the development of our nation by working toward environmentalpreservation and social welfare

CORPORATE DATA

Paid-in Capital : 366 Billion Won

Number of Shares : 73,200,000

Major Shareholder : KB (74.3%)

Stock Listing : Kosdaq

General Shareholders’ Meeting : March 28, 2003

Transfer Agent and Registrar : Securities Agency Business Dept. of KB

15-22 Yoido-dong, Youngdeungpo-gu, Seoul 150-757, Korea

Tel : 82-2-3779-8097

Independent public Accountants : Anjin & Co

Head Office : 167 Naesu-dong, Jongno-gu, Seoul 110-070, Korea

Tel : 82-2-3700-3068

http://www.irkookmincard.co.kr

Date of Establishment : September 25, 1987