| 36. | Fair Value |
| 36.1 | Fair Value of Financial Instruments by Category |
Carrying amount and fair value of financial instruments by category as of December 31, 2016 and 2017, are as follows:
|
2016 |
2017 |
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| (In millions of Korean won) | Carrying amount |
Fair value | Carrying amount |
Fair value | ||||
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Financial assets |
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Cash and cash equivalents1 |
￦2,900,311 | ￦— | ￦1,928,182 | ￦— | ||||
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Trade and other receivables1 |
6,036,363 | — | 6,643,115 | — | ||||
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Other financial assets |
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Financial instruments at fair value through profit or loss |
6,277 | 6,277 | 5,813 | 5,813 | ||||
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Derivative financial instruments for hedging purpose |
227,318 | 227,318 | 7,389 | 7,389 | ||||
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Time deposits and others1 |
716,769 | — | 1,333,317 | — | ||||
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Held-to-maturity |
30,143 | 30,143 | 151 | 151 | ||||
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Available-for-sale financial assets2 |
299,001 | 299,001 | 319,402 | 319,402 | ||||
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| ￦10,216,182 | ￦— | ￦10,237,369 | ￦— | |||||
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Financial liabilities |
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Trade and other liabilities1 |
￦8,328,082 | ￦— | ￦8,425,503 | ￦— | ||||
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Borrowings |
8,120,791 | 8,184,195 | 6,683,662 | 6,738,326 | ||||
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Other financial liabilities |
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Financial instruments at fair value through profit or loss |
1,973 | 1,973 | 5,051 | 5,051 | ||||
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Derivative financial instruments for hedging purpose |
14,928 | 14,928 | 93,770 | 93,770 | ||||
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Other1 |
91,763 | — | 87,670 | — | ||||
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| ￦16,557,537 | ￦— | ￦15,295,656 | ￦— | |||||
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| 1 | The Group did not conduct fair value estimation since the book amount is a reasonable approximation of the fair value. |
| 2 | Equity instruments that do not have a quoted price in an active market are measured at cost because their fair value cannot be measured reliably and excluded from the fair value disclosures. |
| 36.2 | Financial Instruments Measured at Cost |
Available-for-sale financial assets measured at cost as of December 31, 2016 and 2017, are as follows:
| (In millions of Korean won) | 2016 | 2017 | ||||||
|
K-Bank |
￦ | 36,500 | ￦ | — | ||||
|
IBK-AUCTUS Green Growth Private Equity Fund |
9,506 | 8,518 | ||||||
|
WALDEN No.6 Fund |
4,710 | 4,670 | ||||||
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TRANSLINK No.2 Fund |
9,395 | 9,395 | ||||||
|
Storm IV Fund |
7,550 | 8,453 | ||||||
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CBC II Fund |
8,601 | 7,298 | ||||||
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Others |
29,511 | 23,217 | ||||||
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| ￦ | 105,773 | ￦ | 61,551 | |||||
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The range of cash flow estimates is significant and the probabilities of the various estimates cannot be reasonably assessed and therefore, these instruments are measured at cost.
The Group does not have any plans to dispose of the above-mentioned equities instruments in the near future. These instruments will be measured at fair value when the Group can develop a reliable estimate of the fair value.
| 36.3 | Fair Value Hierarchy |
Assets measured at fair value or for which the fair value is disclosed are categorized within the fair value hierarchy, and the defined levels are as follows:
| • | Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). |
| • | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, prices) or indirectly (that is, derived from prices) (Level 2). |
| • | Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3). |
Fair value hierarchy classifications of the financial assets and financial liabilities that are measured at fair value or its fair value is disclosed as of December 31, 2016 and 2017, are as follows:
| 2016 | ||||||||||||||||
| (In millions of Korean won) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
|
Recurring fair value measurements |
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Other financial assets |
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Financial assets at fair value through profit or loss |
￦ | — | ￦ | — | ￦ | 6,277 | ￦ | 6,277 | ||||||||
|
Derivative financial assets for hedging purpose |
— | 227,318 | — | 227,318 | ||||||||||||
|
Available-for-sale financial assets |
5,387 | 5,725 | 287,889 | 299,001 | ||||||||||||
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| 5,387 | 233,043 | 294,166 | 532,596 | |||||||||||||
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Disclosed fair value |
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Associates and joint ventures |
3,940 | — | — | 3,940 | ||||||||||||
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Investment properties1 |
— | — | 1,962,779 | 1,962,779 | ||||||||||||
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| 3,940 | — | 1,962,779 | 1,966,719 | |||||||||||||
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| ￦ | 9,327 | ￦ | 233,043 | ￦ | 2,256,945 | ￦ | 2,499,315 | |||||||||
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Recurring fair value measurements |
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Other financial liabilities |
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Financial liabilities at fair value through profit or loss |
￦ | — | ￦ | — | ￦ | 1,973 | ￦ | 1,973 | ||||||||
|
Derivative financial liabilities for hedging purpose |
— | 14,928 | — | 14,928 | ||||||||||||
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| — | 14,928 | 1,973 | 16,901 | |||||||||||||
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Disclosed fair value |
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Borrowings |
— | — | 8,184,195 | 8,184,195 | ||||||||||||
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| — | — | 8,184,195 | 8,184,195 | |||||||||||||
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| ￦ | — | ￦ | 14,928 | ￦ | 8,186,168 | ￦ | 8,201,096 | |||||||||
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| 2017 | ||||||||||||||||
| (In millions of Korean won) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
|
Recurring fair value measurements |
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Other financial assets |
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Financial assets at fair value through profit or loss |
￦ | — | ￦ | — | ￦ | 5,813 | ￦ | 5,813 | ||||||||
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Derivative financial assets for hedging purpose |
— | 7,389 | — | 7,389 | ||||||||||||
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Available-for-sale financial assets |
6,859 | 5,466 | 307,077 | 319,402 | ||||||||||||
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| 6,859 | 12,855 | 312,890 | 332,604 | |||||||||||||
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Disclosed fair value |
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Investment properties1 |
— | — | 1,755,600 | 1,755,600 | ||||||||||||
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| — | — | 1,755,600 | 1,755,600 | |||||||||||||
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| ￦ | 6,859 | ￦ | 12,855 | ￦ | 2,068,490 | ￦ | 2,088,204 | |||||||||
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Recurring fair value measurements |
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Other financial liabilities |
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Financial liabilities at fair value through profit or loss |
￦ | — | ￦ | — | ￦ | 5,051 | ￦ | 5,051 | ||||||||
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Derivative financial liabilities for hedging purpose |
— | 76,045 | 17,725 | 93,770 | ||||||||||||
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| — | 76,045 | 22,776 | 98,821 | |||||||||||||
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Disclosed fair value |
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Borrowings |
— | — | 6,738,326 | 6,738,326 | ||||||||||||
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| — | — | 6,738,326 | 6,738,326 | |||||||||||||
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| ￦ | — | ￦ | 76,045 | ￦ | 6,761,102 | ￦ | 6,837,147 | |||||||||
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| 1 | The highest and best use of a non-financial asset does not differ from its current use. |
| 36.4 | Transfers Between Fair Value Hierarchy Levels of Recurring Fair Value Measurements |
| (a) | Details of transfers between Level 1 and Level 2 of the fair value hierarchy for the recurring fair value measurements are as follows: |
There are no transfers between Level 1 and Level 2 of the fair value hierarchy for the recurring fair value measurements.
| (b) | Details of changes in Level 3 of the fair value hierarchy for the recurring fair value measurements are as follows: |
| 2016 | ||||||||||||
| (In millions of Korean won) |
Financial assets profit or loss |
Available-for-sale |
Other derivative financial |
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|
Beginning balance |
￦ | 18 | ￦ | 267,337 | ￦ | 2,006 | ||||||
|
Reclassification |
— | 5,723 | — | |||||||||
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Amount recognized in other comprehensive income |
— | 15,099 | — | |||||||||
|
Purchases |
13,461 | 1,561 | — | |||||||||
|
Amount recognized in profit or loss |
(7,184 | ) | (426 | ) | (33 | ) | ||||||
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Sales |
(18 | ) | (1,405 | ) | — | |||||||
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Ending balance |
￦ | 6,277 | ￦ | 287,889 | ￦ | 1,973 | ||||||
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| 2017 | ||||||||||||||||
| (In millions of Korean won) |
Financial assets at fair value through profit or loss |
Available-for-sale |
Other derivative financial liabilities |
Derivative financial liabilities for hedging purpose |
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|
Beginning balance |
￦ | 6,277 | ￦ | 287,889 | ￦ | 1,973 | ￦ | — | ||||||||
|
Reclassification |
— | (277 | ) | — | — | |||||||||||
|
Amount recognized in other comprehensive income |
— | 58,450 | — | (1,909 | ) | |||||||||||
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Purchases |
— | 85,287 | — | — | ||||||||||||
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Amount recognized in profit or loss |
(464 | ) | (113 | ) | 3,078 | 19,634 | ||||||||||
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Sales |
— | (124,159 | ) | — | — | |||||||||||
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Ending balance |
￦ | 5,813 | ￦ | 307,077 | ￦ | 5,051 | ￦ | 17,725 | ||||||||
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| 36.5 | Valuation Technique and the Inputs |
Valuation techniques and inputs used in the recurring, non-recurring fair value measurements and disclosed fair values categorized within Level 2 and Level 3 of the fair value hierarchy as of December 31, 2016 and 2017, are as follows:
| 2016 | ||||||||||||
| (In millions of Korean won) | Fair value | Level | Valuation techniques | |||||||||
|
Assets |
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Recurring fair value measurements |
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Other financial assets |
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Derivative financial assets for hedging purpose |
￦ | 227,318 | 2 | Discounted cash flow model | ||||||||
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Available-for-sale financial assets |
293,614 | 2,3 | Discounted cash flow model | |||||||||
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Others |
6,277 | 3 | Discounted cash flow model | |||||||||
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Disclosed fair value |
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Investment properties |
1,962,779 | 3 | Discounted cash flow model | |||||||||
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Liabilities |
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Recurring fair value measurements |
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Other financial liabilities |
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Derivative financial liabilities for hedging purpose |
14,928 | 2 | Discounted cash flow model | |||||||||
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Other derivative financial liabilities |
1,973 | 3 |
|
Discounted cash flow model
Comparable Company |
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Disclosed fair value |
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Borrowings |
8,184,195 | 3 | Discounted cash flow model | |||||||||
| 2017 | ||||||||||
| (In millions of Korean won) | Fair value | Level | Valuation techniques | |||||||
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Assets |
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Recurring fair value measurements |
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Other financial assets |
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Derivative financial assets for hedging purpose |
￦ | 7,389 | 2 | Discounted cash flow model | ||||||
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Available-for-sale financial assets |
312,543 | 2,3 | Discounted cash flow model | |||||||
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Others |
5,813 | 3 | Discounted cash flow model | |||||||
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Disclosed fair value |
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Investment properties |
1,755,600 | 3 | Discounted cash flow model | |||||||
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Liabilities |
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Recurring fair value measurements |
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Other financial liabilities |
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Derivative financial liabilities for hedging purpose |
93,770 | 2,3 | Hull-White Model, | |||||||
| Discounted cash flow model | ||||||||||
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Other derivative financial liabilities |
5,051 | 3 |
Discounted cash flow model Comparable Company Analysis |
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Disclosed fair value |
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Borrowings |
6,738,326 | 3 | Discounted cash flow model | |||||||
| 36.6 | Valuation Processes for Fair Value Measurements Categorized Within Level 3 |
The Group uses external experts that perform the fair value measurements required for financial reporting purposes. External experts report directly to the chief financial officer (CFO), and discusses valuation processes and results with the CFO in line with the Group’s reporting dates.
| 36.7 | Gains and losses on valuation at the transaction date |
In the case that the Group values derivative financial instruments using inputs not based on observable market data, and the fair value calculated by the said valuation technique differs from the transaction price, then the fair value of the financial instruments is recognized as the transaction price. The difference between the fair value at initial recognition and the transaction price is deferred and amortized using a straight-line method by maturity of the financial instruments. However, in the case that inputs of the valuation techniques become observable in markets, the remaining deferred difference is immediately recognized in full in profit for the year.
In relation to this, details and changes of the total deferred difference for the years ended December 31, 2016 and 2017, are as follows:
| (In millions of Korean won) | 2016 | 2017 | ||||||||||||||
|
Other derivative financial assets |
Other derivative financial liabilities |
Other derivative financial assets |
Other derivative financial liabilities |
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|
Beginning balance |
￦ | 11,293 | ￦ | — | ￦ | 8,470 | ￦ | — | ||||||||
|
New transactions |
— | — | — | 7,126 | ||||||||||||
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Disposal |
(2,823 | ) | — | (2,823 | ) | (594 | ) | |||||||||
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Ending balance |
￦ | 8,470 | ￦ | — | ￦ | 5,647 | ￦ | 6,532 | ||||||||
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