캐피탈 2016년 3분기 검토보고서 en

HYUNDAI CAPITAL SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Interim Financial Statements

(Unaudited)

September 30, 2016

(With Independent Auditors’ Review Report Thereon)


Condensed Consolidated Interim Financial Statements

(Unaudited)

September 30, 2016

Table of Contents

Page

Independent Auditors’ Review Report 1

Condensed Consolidated Interim Statements of Financial Position 3

Condensed Consolidated Interim Statements of Comprehensive Income 5

Condensed Consolidated Interim Statements of Changes in Equity 7

Condensed Consolidated Interim Statements of Cash Flows 8

Notes to Condensed Consolidated Interim Financial Statements 9

KPMG Samjong Accounting Corp. 27th Floor, Gangnam Finance Center, 152, Teheran-ro, Gangnam-gu, 06236 Seoul, Republic of Korea

Tel: 82 2112 0100

Fax: 82 2112 0101

www.kr.kpmg.com

Independent Auditors’ Review Report

(Based on a report originally issued in Korean)

The Board of Directors and Shareholders

Hyundai Capital Services, Inc.:

We have reviewed the accompanying condensed consolidated interim financial statements of Hyundai

Capital Services, Inc. and its subsidiaries (the Group), which comprise the condensed consolidated

statement of financial position as of September 30, 2016, the condensed consolidated statements of

comprehensive income for the three-month and nine-month periods ended September 30, 2016 and

2015, the condensed consolidated statements of changes in equity and cash flows for the nine-month

periods ended September 30, 2016 and 2015, and notes, comprising a summary of significant

accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these condensed consolidated

interim financial statements in accordance with Korean International Financial Reporting Standards (K-

IFRS) No.1034, Interim Financial Reporting, and for such internal control as management determines

is necessary to enable the preparation of financial statements that are free from material misstatement,

whether due to fraud or error.

Auditors’ Responsibility

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

based on our reviews.

We conducted our reviews in accordance with the Review Standards for Quarterly and Semiannual

Financial Statements established by the Securities and Futures Commission of the Republic of Korea.

A review of interim financial information consists of making inquiries, primarily of persons responsible

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

substantially less in scope than an audit conducted in accordance with Korean Standards on Auditing

and consequently does not enable us to obtain assurance that we would become aware of all significant

matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

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

condensed consolidated interim financial statements referred to above are not prepared, in all material

respects, in accordance with K-IFRS No.1034, Interim Financial Reporting.

KPMG Samjong Accounting Corp. 27th Floor, Gangnam Finance Center, 152, Teheran-ro, Gangnam-gu, 06236 Seoul, Republic of Korea

Tel: 82 2112 0100

Fax: 82 2112 0101

www.kr.kpmg.com

2

Other matters

The procedures and practices utilized in the Republic of Korea to review such condensed consolidated

interim financial statements may differ from those generally accepted and applied in other countries.

The consolidated statement of financial position of the Group as of December 31, 2015, and the related

consolidated statements of comprehensive income, changes in equity and cash flows for the year then

ended, which are not accompanying this report, were audited by us in accordance with Korean Standards

on Auditing and our report thereon, dated February 25, 2016, expressed an unqualified opinion. The

accompanying condensed consolidated statement of financial position of the Group as of December 31,

2015, presented for comparative purposes, is consistent, in all material respects, with the audited

consolidated financial statements from which it has been derived.

Seoul, Republic of Korea

November 11, 2016

This report is effective as of November 11, 2016, the review report date. Certain subsequent events

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

could have a material impact on the accompanying condensed consolidated interim financial

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

above review report has not been updated to reflect the impact of such subsequent events or

circumstances, if any.


Condensed Consolidated Interim Statements of Financial Position (Unaudited)

As of September 30, 2016 and December 31, 2015

(In millions of Korean won)September 30, December 31,

Notes 2016 2015Assets

Cash and due from other financial institutionsCash and cash equivalents 22 W 944,794 862,864Due from banks 5,291 2,496Short-term financial investments 4 963,828 758,705

1,913,913 1,624,065Securities 5

Available-for-sale securities 88,034 77,550Investments in associates 409,421 243,449

497,455 320,999Loans receivable 6,7,25

Loans receivable 8,760,888 8,816,056Allowance for loan losses (375,427) (323,946)

8,385,461 8,492,110Installment financial assets 6,7,25

Automobile installment financing receivables 9,237,815 8,930,463Allowance for loan losses - automobile (80,779) (73,140)Durable goods installment financing receivables 263 614Allowance for loan losses - durable goods (19) (82)Mortgage installment financing receivables 2,206 3,237Allowance for loan losses - mortgage (38) (86)

9,159,448 8,861,006Lease receivables 6,7,25

Finance lease receivables 2,510,060 2,675,631Allowance for loan losses - finance lease (40,427) (46,445)Cancelled lease receivables 27,396 23,156Allowance for loan losses - cancelled lease (24,878) (21,689)

2,472,151 2,630,653Leased assets

Operating lease assets 2,314,150 2,058,300Accumulated depreciation (652,246) (594,607)Accumulated impairment losses (498) (433)Cancelled lease assets 30,257 7,645Accumulated impairment losses (4,924) (4,150)

1,686,739 1,466,755

Property and equipment, net 8 267,615 253,213

Other assetsNon-trade receivables 127,710 128,292Allowance for doubtful accounts 7 (9,749) (7,822)Accrued revenues 95,448 100,952Allowance for doubtful accounts 7 (16,964) (11,164)Advance payments 18,216 125,694Prepaid expenses 63,177 61,241Intangible assets 9 172,864 60,255Derivative assets 13,26 53,998 179,154Leasehold deposits 21,358 22,180

526,058 658,782

Total assets W 24,908,840 24,307,583

See accompanying notes to the condensed consolidated interim financial statements

3


Condensed Consolidated Interim Statements of Financial Position (Unaudited) (Continued)

As of September 30, 2016 and December 31, 2015

(In millions of Korean won)September 30, December 31,

Notes 2016 2015Liabilities

Borrowed funds 10Borrowings W 1,506,491 1,763,872Bonds issued 18,138,468 17,637,558

19,644,959 19,401,430Other liabilities

Non-trade payables 264,388 325,070Accrued expenses 152,844 175,132Unearned revenue 24,858 39,394Withholdings 70,129 60,240Derivative liabilities 13,26 368,128 140,234Current tax liabilities 47,374 43,380Employee benefit liabilities 11 55,374 30,797Deposits received 477,485 546,574Deferred income tax liabilities 19 36,312 43,353Provisions 12 34,699 7,053Other 21 40

1,531,612 1,411,267

Total liabilities 21,176,571 20,812,697Equity

Equity attributable to the owners of the CompanyIssued capital 496,537 496,537Capital surplus 407,539 407,539Accumulated other comprehensive loss 21 (90,529) (45,267)Retained earnings 14 2,908,949 2,629,079

3,722,496 3,487,888

Non-controlling interests 9,773 6,998

Total equity 3,732,269 3,494,886

Total liabilities and equity W 24,908,840 24,307,583


4


Condensed Consolidated Interim Statements of Comprehensive Income (Unaudited)

For the three-month and nine-month periods ended September 30, 2016 and 2015

(In millions of Korean won)Three-month periods Nine-month periodsended September 30, ended September 30,

Notes 2016 2015 2016 2015Operating revenue

Interest income 15 W 7,619 2,686 20,828 16,587Gain on valuation and sale of securities 276 546 1,055 1,388Income on loans 15,16 240,595 259,784 715,241 825,787Income on installment financial assets 15,16 124,901 113,204 369,023 319,944Income on leases 15,16 208,696 217,538 654,957 644,217Gain on sale of loans 14,627 3,358 97,993 43,841Gain on foreign currency transactions 295,495 20,075 345,128 61,688Dividend income 1,706 1,672 3,828 3,915Other operating income 17 570 244,973 120,492 488,200

Total operating revenue 894,485 863,836 2,328,545 2,405,567

Operating expensesInterest expense 15 144,134 155,037 449,098 491,232Lease expense 16 133,573 129,872 409,944 380,132Provision for loan losses 7 74,578 69,062 198,303 218,273Loss on foreign currency transactions (27,453) 208,042 15,451 380,015General and administrative expenses 18 182,917 179,587 524,334 539,646Other operating expenses 17 334,670 29,723 408,240 96,284

Total operating expenses 842,419 771,323 2,005,370 2,105,582

Operating income 52,066 92,513 323,175 299,985

Non-operating incomeShare in net income of associates

under the equity method 5 13,693 9,738 46,342 28,825Gain on sale of property and equipment — 32 384 1,282Reversal of impairment loss 9

on intangible assets — — 54 —Other 1,570 959 5,351 3,374

Total non-operating income 15,263 10,729 52,131 33,481

Non-operating expensesShare in net loss of associates

under the equity method 5 — (18) — —Loss on sale of investments in associates 5 299 — 299 —Loss on sale of property and equipment 111 111 135 477Donation 10 66 632 195Other 59 56 421 458

Total non-operating expenses 479 215 1,487 1,130

Profit before income taxes 66,850 103,027 373,819 332,336

Income tax expense 19 17,184 29,691 96,673 87,440

Profit for the period W 49,666 73,336 277,146 244,896


5


Condensed Consolidated Interim Statements of Comprehensive Income (Unaudited) (Continued)

For the three-month and nine-month periods ended September 30, 2016 and 2015

(In millions of Korean won)Three-month periods Nine-month periodsended September 30, ended September 30,

Notes 2016 2015 2016 2015Other comprehensive income (loss), 21

net of income taxesItems that will never be reclassified

to profit or loss:Remeasurements of defined

benefit plans W (6,045) (2,274) (8,454) (4,888)

Items that are or may be reclassifiedsubsequently to profit or loss:Net change in unrealized gains and

losses on available-for-salesecurities 210 5,007 (2,720) 11,592

Share in other comprehensive income(loss) of associates under theequity method (20,736) 10,717 (31,589) 10,405

Net change in effective portion ofcash flow hedges 8,851 5,513 (1,763) 3,365

Net change in foreign currencytranslation adjustments (2,774) 1,587 (1,153) 789

Total other comprehensiveincome (loss), net ofincome taxes (20,494) 20,550 (45,679) 21,263

Total comprehensive income for the period W 29,172 93,886 231,467 266,159

Profit attributtable to:Owners of the Company W 50,996 73,336 279,870 244,896Non-controlling interests (1,330) — (2,724) —

W 49,666 73,336 277,146 244,896Total comprehensive income

attributtable to:Owners of the Company W 31,044 93,886 234,609 266,159Non-controlling interests (1,872) — (3,142) —

W 29,172 93,886 231,467 266,159Earnings per share

Basic and diluted earnings per share 20 W 500 738 2,791 2,466(in won)


6


Condensed Consolidated Interim Statements of Changes in Equity (Unaudited)

For the nine-month periods ended September 30, 2016 and 2015

(In millions of Korean won)Equity attributable to owners of the CompanyCapital surplus Accumulated

Additional Other other com- Non-Issued paid-in capital prehensive Retained controlling TotalCapital capital surplus income earnings Total interests equity

Balances as of January 1, 2015 W 496,537 369,339 38,200 (64,595) 2,598,085 3,437,566 — 3,437,566Total comprehensive income

Profit for the period — — — — 244,896 244,896 — 244,896Other comprehensive income (loss):

Net change in unrealized gains and losses onavailable-for-sale securities — — — 11,592 — 11,592 — 11,592

Share in other comprehensive loss of associatesunder the equity method — — — 10,405 — 10,405 — 10,405

Net change in effective portion of cash flow hedges — — — 3,365 — 3,365 — 3,365Net change in foreign currency translation adjustments — — — 789 — 789 — 789Remeasurements of defined benefit plans — — — (4,888) — (4,888) — (4,888)

Total comprehensive income — — — 21,263 244,896 266,159 — 266,159

Balances as of September 30, 2015 W 496,537 369,339 38,200 (43,332) 2,842,981 3,703,725 — 3,703,725

Balances as of January 1, 2016 W 496,537 369,339 38,200 (45,267) 2,629,079 3,487,888 6,998 3,494,886Total comprehensive income

Profit for the period — — — — 279,870 279,870 (2,724) 277,146Other comprehensive income (loss):

Net change in unrealized gains and losses onavailable-for-sale securities — — — (2,720) — (2,720) — (2,720)

Share in other comprehensive loss of associatesunder the equity method — — — (31,589) — (31,589) — (31,589)

Net change in effective portion of cash flow hedges — — — (1,763) — (1,763) — (1,763)Net change in foreign currency translation adjustments — — — (736) — (736) (417) (1,153)Remeasurements of defined benefit plans — — — (8,454) — (8,454) — (8,454)

Total comprehensive income — — — (45,262) 279,870 234,608 (3,141) 231,467

Transaction with owners of the CompanyIncrease in non-controlling interests from contribution — — — — — — 5,916 5,916

Balances as of September 30, 2016 W 496,537 369,339 38,200 (90,529) 2,908,949 3,722,496 9,773 3,732,269

See accompanying notes to the condensed consolidated interim financial statements7


Condensed Consolidated Interim Statements of Cash Flows (Unaudited)

For the nine-month periods ended September 30, 2016 and 2015

(In millions of Korean won)

Notes 2016 2015Cash flows from operating activities

Cash generated from operations 22 W 375,477 350,808Interest received 20,140 18,764Interest paid (446,810) (494,422)Dividends received 3,828 3,915Income taxes paid (85,062) (93,655)

Net cash provided by (used in) operating activities (132,427) (214,590)

Cash flows from investing activitiesAcquisition of investments in associates (163,134) —Dividends received from associates 953 —Proceeds from sale of investments in associates 578 —Acquisition of property and equipment (31,055) (22,167)Proceeds from sale of property and equipment 480 1,367Acquisition of intangible assets (130,376) (6,894)Proceeds from sale of intangible assets 979 37Increase in leasehold deposits (1,331) (396)Decrease in leasehold deposits 2,598 844

Net cash used in investing activities (320,308) (27,209)

Cash flows from financing activitiesProceeds from borrowings 1,364,800 1,124,974Repayments of borrowings (1,772,333) (1,072,590)Proceeds from issue of bonds 4,280,965 4,054,599Repayments of bonds (3,344,680) (3,504,976)Increase in non-controlling interests from contribution 5,916 —

Net cash provided by financing activities 534,668 602,007

Effect of exchange rate fluctuations oncash and cash equivalents held (3) (9)

Net increase (decrease) in cash and cash equivalents 81,930 360,199

Cash and cash equivalents at beginning of the year 22 862,864 608,207

Cash and cash equivalents at end of the period 22 W 944,794 968,406


8


Notes to Condensed Consolidated Interim Financial Statements

(Unaudited)

September 30, 2016

9 (Continued)

1. Reporting Entity

Hyundai Capital Services, Inc. (the Company) was established on December 22, 1993, to engage

in installment financing, facilities leasing and new technology financing. The Company changed its

trade name from Hyundai Auto Finance Co., Ltd. to Hyundai Financial Services Co. on April 21, 1995,

and changed its trade name once again to Hyundai Capital Services, Inc. on December 30, 1998. In

accordance with the Monopoly Regulation and Fair Trade Act, the Company is incorporated into

Hyundai Motor Company Group. As of September 30, 2016, the Company’s operations are

headquartered at 3 Uisadang-daero, Yeongdeungpo-gu, Seoul, Korea. Its major shareholders are

Hyundai Motor Company, Kia Motors Corporation and IGE USA Investments with 59.67%, 20.10%

and 20.00% ownership, respectively.

IGE USA Investments entered into an agreement with Elysia the 6th Co.,Ltd and Jace C the 3rd.,Ltd

to sell its entire ownership interests equally to the two companies, each receiving 10% of ownership

interests, respectively, on July 26, 2016, which was completed on October 17, 2016.

The consolidated financial statements include the accounts of the Company and its subsidiaries,

including Autopia 45th Asset Securitization Specialty Company (ABS SPC) with trust for the

securitization, and other subsidiaries as summarized below (collectively, the Group). Investments in

Beijing Hyundai Auto Finance Co., Ltd. and four other associates are accounted for under the equity

method.

(1) The Group’s subsidiaries

Subsidiaries as of September 30, 2016 and December 31, 2015 are as follows. Asset securitization

vehicles are special purpose vehicles which are sponsored by the Group under its securitization program.

The Group is exposed to variability of returns of the vehicles through its holding of debt securities in

the vehicles and by issuing financial guarantees to the vehicles; and the Group manages key decisions

that significantly affect these vehicles’ returns. As a result, the Group has concluded that it controls

these vehicles even though its ownership interests over these securitization vehicles do not exceed 50%.

(*1) Including trusts for asset securitization

(*2) Hyundai Capital Europe GmbH holds 100% ownership interests of Hyundai Capital Services

Limited Liability Company located at Russia.

Ownership September 30, December 31,

Location (%) 2016 2015

Asset securitization vehicles:

Korea 0.9 Autopia 45th and 46

thAutopia 44

th, 45

th, 46

th,

ABS SPCs (*1) and 47th

ABS SPCs (*1)

0.5 Autopia 49th, 50

th, 51

st, 52

nd, 54

th, 55

th, 56

th, Autopia 49

th, 50

th, 51

st, 52

nd, 54

th,

57th, 58

th , 59

th, 60

th, 61

st, and 62

nd ABS SPCs (*1) 55

th, 56

th , 57

th, 58

th and 59

th ABS SPCs (*1)

0.31 HB Fourth ABS SPC HB Fourth ABS SPC

Limited liability companies:

Germany 100 Hyundai Capital Europe GmbH (*2) Hyundai Capital Europe GmbH (*2)

80 Hyundai Capital Services Deutschland GmbH Hyundai Capital Services Deutschland GmbH

India 100 Hyundai Capital India Private Ltd. Hyundai Capital India Private Ltd.

Brazil 100 Hyundai Capital Brasil LTDA Hyundai Capital Brasil LTDA

Stock company:

Australia 100 Hyundai Capital Australia Pty Limited —

Trusts:

Korea 100 Specified money trust (33 trusts) Specified money trust (20 trusts)



(Unaudited)

September 30, 2016

10 (Continued)

(2) Changes in subsidiaries

Subsidiaries that are included in or excluded from the Group’s consolidated financial statements,

except for changes in the number of specified money trust accounts in which the Group invests, during

the nine-month period ended September 30, 2016 are as follows:

(a) Subsidiaries newly included in the consolidated financial statements during the period

Autopia 60th, 61st and 62nd ABS SPCs (including trusts for asset securitization): structured

entities newly established for the Autopia asset securitization program

Hyundai Capital Australia Pty Limited: a subsidiary newly established in Australia on March 9,

2016

(b) Subsidiaries excluded from the consolidated financial statements during the period

Autopia 44th and 47th ABS SPCs (including trust for asset securitization): structured entities

dissolved

(3) Key financial information of subsidiaries

Key financial information of subsidiaries as of and for the nine-month period ended September 30,

2016 is summarized as follows:

(4) Nature of risks related to consolidated structured entities

As of September 30, 2016, the Company provides guarantees to the counterparties of currency

swaps at Autopia 49th, 52nd, 57th, 59th and 60th ABS SPCs, structured entities that the Group consolidates,

in relation to asset backed securitized notes issued. These guarantees would require the Company to

reimburse the swap counterparties for losses that they incur if these structured entities do not perform

in accordance with the contractual terms of the swaps.

(in millions of Korean won) Total

compre-

Operating Profit (loss) hensive

Assets Liabilities Equity revenue for the year income (loss)

Hyundai Capital Europe GmbH W 8,664 4,900 3,764 2,731 327 915

Hyundai Capital Services Deutschland GmbH 57,487 8,622 48,865 10,398 (13,619) (15,708)

Hyundai Capital India Private Ltd. 835 141 694 874 57 7

Hyundai Capital Brasil LTDA 5,659 110 5,549 3,764 1,487 2,003

Hyundai Capital Australia Pty Limited 803 105 698 445 40 13

Autopia ABS SPCs 3,680,323 3,688,152 (7,829) 141,957 (299) (6,650)

Autopia ABS trusts 6,731,288 6,329,341 401,947 393,372 80,812 80,812

HB ABS SPCs 637 3 634 66 24 24

Specified money trusts 981,854 — 981,854 1,754 1,754 1,754



(Unaudited)

September 30, 2016

11 (Continued)

2. Basis of Preparation

(1) Statement of compliance

The condensed consolidated interim financial statements have been prepared in accordance with

Korean International Financial Reporting Standards (K-IFRS), as prescribed in the Act on External

Audits of Corporations in the Republic of Korea.

These condensed consolidated interim financial statements were prepared in accordance with K-

IFRS No. 1034, Interim Financial Reporting, as part of the period covered by the Group’s K-IFRS

annual financial statements. Selected explanatory notes are included to explain events and transactions

that are significant to an understanding of the changes in financial position and performance of the

Group since the last annual consolidated financial statements as at and for the year ended December 31,

2015. These condensed consolidated interim financial statements do not include all of the disclosures

required for full annual financial statements.

(2) Use of estimates and judgments

The preparation of the condensed consolidated interim financial statements in conformity with K-

IFRS requires management to make judgments, estimates and assumptions that affect the application

of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual

results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognized in the period in which the estimates are revised and in any future periods

affected.

In preparing these condensed consolidated interim financial statements, the significant judgments

made by management in applying the Group’s accounting policies and the key sources of estimation

uncertainty were the same as those that applied to the consolidated financial statements as of and for

the year ended December 31, 2015.

(3) Measurement of fair value

The Group regularly reviews significant unobservable inputs and valuation adjustments. If third

party information, such as broker quotes or pricing services, is used to measure fair values, then the

Group assesses the evidence obtained from the third parties to support the conclusion that such

valuations meet the requirements of K-IFRS, including the level in the fair value hierarchy.

When measuring the fair value of an asset or a liability, the Group uses market observable data as

far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the

inputs used in the valuation techniques as follows.

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset

or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3: inputs for the asset or liability that are not based on observable market data

(unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability might be categorized in different

levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the

same level of the fair value hierarchy as the lowest level input that is significant to the entire

measurement.



(Unaudited)

September 30, 2016

12 (Continued)

The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting

period during which the change has occurred.

Further information about the assumptions made in measuring fair values is included in Note 27.



(Unaudited)

September 30, 2016

13 (Continued)

3. Significant Accounting Policies

The significant accounting policies applied by the Group in preparation of its consolidated financial

statements are included below.

(1) Changes in accounting policies

Except as described below, the accounting policies applied by the Group in these consolidated

financial statements are the same as those applied by the Group in its consolidated financial statements

as of and for the year ended December 31, 2015. The Group has applied the following amendments to

standards, with a date of initial application of January 1, 2016.

Amendments to K-IFRS No. 1001, Presentation of Financial Statements (amended by Disclosure

Initiative)

To address some of the perceived problems with current disclosure requirements, clarifications to

K-IFRS 1001, Presentation of Financial Statements, was published in May 2015. There is an emphasis

on materiality. Specific single disclosures that are not material do not have to be presented – even if

they are a minimum requirement of a standard. An entity shall also consider whether to provide

additional disclosures when compliance with the specific requirements in K-IFRS is insufficient to

enable users of financial statements to understand the impact of particular transactions, other events and

conditions on the entity's financial position and financial performance. The presentation in the statement

of comprehensive income of items of other comprehensive income arising from joint ventures and

associates accounted for using the equity method follows K-IFRS 1001’s approach of splitting items

that may, or that will never, be reclassified to profit or loss.

These narrow-scope amendments are effective for annual periods beginning on or after January 1,

2016. The adoption of the amendments had no significant impact on the Group’s consolidated financial

statements.

(2) New accounting standards issued but not yet effective

A number of new standards and amendments to standards are effective for annual periods beginning

after January 1, 2016, and earlier adoption is permitted; however the Group has not early adopted the

following new or amended standards in preparing these consolidated financial statements.

K-IFRS No. 1109, Financial Instruments

K-IFRS 1109, published in December 2015, replaces the existing guidance in K-IFRS No. 1039,

Financial Instruments: Recognition and Measurement. K-IFRS 1109 includes revised guidance on the

classification and measurement of financial instruments, a new expected credit loss model for

calculating impairment on financial assets, and new general hedge accounting requirements. It also

carries forward the guidance on recognition and derecognition of financial instruments from K-IFRS

No. 1039.

K-IFRS 1109 is effective for annual periods beginning on or after January 1, 2018, with early

adoption permitted.

The Group is assessing the potential impact on its consolidated financial statements resulting from

the application of K-IFRS 1109.



(Unaudited)

September 30, 2016

14 (Continued)

K-IFRS No. 1115, Revenue from Contracts with Customers

K-IFRS 1115, published in January 2016, establishes a comprehensive framework for determining

whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance,

including K-IFRS No. 1018, Revenue, K-IFRS No. 1011, Construction Contracts and K-IFRS No. 2113,

Customer Loyalty Programmes.

K-IFRS 1115 is effective for annual reporting periods beginning on or after January 1, 2018, with

early adoption permitted.

The Group is assessing the potential impact on its consolidated financial statements resulting from

the application of K-IFRS 1115.



(Unaudited)

September 30, 2016

15 (Continued)

4. Short-term Financial Investments

Short-term financial investments as of September 30, 2016 and December 31, 2015 are as follows:

For liquidity management, the Group holds short-term investments in excess of immediate funding

needs. These excess funds are invested in short-term, highly liquid and investment grade money market

instruments, which provide liquidity for the Group’s short-term funding needs and flexibility in the use

of other funding sources.

(1) Debt securities

Details of debt securities in short-term financial investments as of September 30, 2016 and

December 31, 2015 are as follows:

(2) Beneficiary certificates

Details of beneficiary certificates in short-term financial investments as of September 30, 2016 and


(in millions of Korean won) September 30, December 31,

2016 2015

Debt securities W 941,812 658,701

Beneficiary certificates 22,016 100,004

W 963,828 758,705

(in millions of Korean won) September 30, 2016

Interest Acquisition Carrying

Details rate (%) cost amount

Commercial paper and Kyobo Securities Co., Ltd.

repurchase agreements and 157 others 1.41 ~ 1.80 W 938,949 941,812

(in millions of Korean won) December 31, 2015

Interest Acquisition Carrying

Details rate (%) cost amount

Commercial paper and Kyobo Securities Co., Ltd.

repurchase agreements and 110 others 1.49~1.90 W 657,811 658,701


Acquisition Carrying

Details cost amount

Money market funds Dongbu Together Corporate MMF 2 C W 2,000 2,015

Money market funds BNK Corporate MMF 1 10,000 10,001

Money market funds Heungguk Safe MMF 10,000 10,000

W 22,000 22,016


Acquisition Carrying

Details cost amount

Money market funds Hana UBS Class One MMF K-5 W 100,000 100,004



(Unaudited)

September 30, 2016

16 (Continued)

5. Securities

Securities as of September 30, 2016 and December 31, 2015 are as follows:


2016 2015

Available-for-sale securities

Equity securities

Marketable equity securities W 20,088 24,694

Unlisted equity securities 13,231 11,656

33,319 36,350

Debt securities

Government and public bonds 1,148 2,296

Corporate bonds 30,834 31,397

31,982 33,693

Beneficiary certificates 22,733 7,507

88,034 77,550

Investments in associates 409,421 243,449

W 497,455 320,999



(Unaudited)

September 30, 2016

17 (Continued)

5.1. Available-for-sale Securities

Available-for-sale securities as of September 30, 2016 and December 31, 2015 are as follows:

(1) Equity securities

(*1) The fair value of Hyundai Finance Corporation (HFC) is estimated at the average of appraisal

value quoted from two independent valuation service providers, using the valuation technique based on

the net asset value approach (NAV model), and the market approach. Under the net asset value approach,

a technique generally considered to be under cost approach, the fair value of unlisted equity securities

is measured based on the investee’s assets and liabilities. Under the market approach, comparable entity

valuation multiples (one-year average price-to-book ratio) derived from quoted prices in exchange

markets is used in applying valuation technique. The Group has reviewed the underlying assumptions

and concurs with the methodology employed.

(2) Debt securities

The fair value of Seoul Metropolitan Rapid Transit Corp. and other Korean municipal bonds is

quoted from broker and dealer companies. The fair value of Autopia 53rd ABS SPC is quoted from an

independent valuation service provider, using the valuation technique based on the income approach

(DCF model).

(3) Beneficiary certificates

The fair value of the beneficiary certificate is quoted from an independent valuation service

provider, using the valuation technique based on the net asset value approach (NAV model).

(in millions of Korean won) Carrying amount

Number Ownership Acquisition September 30, December 31,

of shares (%) cost 2016 2015

Marketable equity securities

NICE Information Service Co., Ltd. 1,365,930 2.25 W 3,312 11,091 14,001

NICE Holdings Co., Ltd. 491,620 1.30 3,491 8,997 10,693

Unlisted equity securities

Hyundai Finance Corporation (*1) 1,700,000 9.29 9,888 13,065 11,487

Korean Egloan, Inc. 4,000 3.12 100 100 100

Golfclub Lich AG 14 0.59 60 66 69

W 16,851 33,319 36,350


Interest rate Acquisition September 30, December 31,

Issuer (%) cost 2016 2015

Government and Seoul Metropolitan Rapid

public bonds Transit Corp. and other

Korean municipal bonds 1.50 W 1,798 1,148 2,296

Corporate bonds Autopia 53rd

ABS SPC 3.59, 4.42 30,000 30,834 31,397

W 31,798 31,982 33,693


Acquisition September 30, December 31,

cost 2016 2015

Hyundai Ship Special Asset Investment Trust III W 4,951 5,100 5,493

Hi Ocean PCTC PF Special Asset Ship 1 967 979 1,012

Hi Ocean PCTC PF Special Asset Ship 2 1,000 1,002 1,002

Hi Ocean Tanker Prof PF SA Ship 1 9,504 9,583 —

Multi Asset KDB Ocean Value Up Private Fund Special Asset Trust 8 6,070 6,069 —

W 22,492 22,733 7,507



(Unaudited)

September 30, 2016

18 (Continued)

5.2. Investments in Associates

(1) Details of investments in associates

Details of investments in associates as of September 30, 2016 and December 31, 2015 are as

follows:

(*1) While the Group holds less than 20% of the voting rights, it has the ability to exercise

significant influence through representation on the board of directors or equivalent governing body of

the investee. Therefore, investments in these entities are accounted for using the equity method.

(*1) While the Group holds less than 20% of the voting rights, it has the ability to exercise

significant influence through representation on the board of directors or equivalent governing body of

the investee. Therefore, investments in these entities are accounted for using the equity method.

(*2) Due to the unavailability of the financial statements as of December 31, 2015, the equity

method was applied using the investee’s financial statements as of November 30, 2015. There were no

significant transactions between November 30 and December 31, 2015.

September 30, 2016

Principal Date of

Ownership place of financial

(%) business statements Industry

Korea Credit Bureau (*1) 7.00 Korea 9/30/2016 Credit information service

Hyundai Capital Germany GmbH 30.01 Germany 9/30/2016 Automobile finance brokerage

Hyundai Capital UK Ltd. 29.99 U.K. 9/30/2016 Automobile finance

Beijing Hyundai Auto Finance Co., Ltd. 46.00 China 9/30/2016 Automobile finance

December 31, 2015

Principal Date of

Ownership place of financial

(%) business statements Industry

Hi Network, Inc. (*1)(*2) 19.99 Korea 11/30/2015 Insurance brokerage

Korea Credit Bureau (*1) 7.00 Korea 12/31/2015 Credit information service

Hyundai Capital Germany GmbH 30.01 Germany 12/31/2015 Automobile finance brokerage

Hyundai Capital UK Ltd. 29.99 U.K. 12/31/2015 Automobile finance

Beijing Hyundai Auto Finance Co., Ltd. 46.00 China 12/31/2015 Automobile finance



(Unaudited)

September 30, 2016

19 (Continued)

(2) Summary of financial information of investees

Summary of financial information of investees as of September 30, 2016 and December 31, 2015,

and for the nine-month periods ended September 30, 2016 and 2015, and the reconciliation of investee’s

net assets to the carrying amount of the investments in the Group’s financial statements are as follows:


The

Group’s

Total Total Issued Total share in Carrying

assets liabilities capital equity net assets Goodwill amount

Korea Credit Bureau W 61,925 10,918 10,000 51,007 3,570 1,037 4,607

Hyundai Capital Germany GmbH 3,611 554 3,547 3,057 918 — 918

Hyundai Capital UK Ltd. 2,393,272 2,247,374 96,055 145,898 43,755 — 43,755

Beijing Hyundai Auto Finance Co., Ltd. 4,170,125 3,387,209 708,965 782,916 360,141 — 360,141

(in millions of Korean won) Nine-month period ended September 30, 2016

Other Total

compre- compre-

Net hensive hensive

Operating Interest Interest income income income

revenue income expense (loss) (loss) (loss) Dividends

Korea Credit Bureau 35,792 185 — 601 - 601 —

Hyundai Capital Germany GmbH 1,467 19 — 628 (247) 381 —

Hyundai Capital UK Ltd. 91,941 91,504 22,072 26,969 (30,292) (3,323) —

Beijing Hyundai Auto Finance Co., Ltd. 357,173 343,894 116,900 82,340 (70,687) 11,653 —


The

Group’s

Total Total Issued Total share in Carrying

assets liabilities capital equity net assets Goodwill amount

Hi Network, Inc. W 6,640 2,628 333 4,012 803 — 803

Korea Credit Bureau 63,960 13,076 10,000 50,884 3,562 1,037 4,599

Hyundai Capital Germany GmbH 6,919 1,419 3,547 5,500 1,650 — 1,650

Hyundai Capital UK Ltd. 2,418,817 2,269,597 96,055 149,220 44,751 — 44,751

Beijing Hyundai Auto Finance Co., Ltd. 3,807,059 3,390,437 354,325 416,622 191,646 — 191,646


Other Total

compre- compre-

Net hensive hensive

Operating Interest Interest income income income

revenue income expense (loss) (loss) (loss) Dividends

Hi Network, Inc. W 10,170 36 — 793 — 793 —

Korea Credit Bureau 32,869 36 — 2,846 — 2,846 —

Hyundai Capital Germany GmbH 3,698 51 — 1,691 155 1,846 —

Hyundai Capital UK Ltd. 90,949 85,595 18,282 21,062 7,850 28,912 —

Beijing Hyundai Auto Finance Co., Ltd. 245,476 237,400 92,451 47,050 24,625 71,675 —



(Unaudited)

September 30, 2016

20 (Continued)

(3) Changes in investments in associates

The following tables present changes in the carrying amounts of investments in associates for the

nine-month periods ended September 30, 2016 and 2015:

(4) Goodwill related to associates

Goodwill that forms part of the carrying amount of investment in Korea Credit Bureau amounted

to W1,037 million as of September 30, 2016 and December 31, 2015.


Share in

other

compre-

Beginning Share in hensive Ending

balance Addition net income income (loss) Disposal Dividends balance

Hi Network, Inc. W 802 — 75 - (877) — —

Korea Credit Bureau 4,599 — 113 - — (105) 4,607

Hyundai Capital Germany GmbH 1,651 — 189 (74) — (848) 918

Hyundai Capital UK Ltd. 44,751 — 8,088 (9,084) — — 43,755

Beijing Hyundai Auto Finance Co., Ltd. 191,646 163,134 37,877 (32,516) — — 360,141

W 243,449 163,134 46,342 (41,674) (877) (953) 409,421


Share in

other

Share in compre-

Beginning net income hensive Ending

balance Addition (loss) income (loss) Disposal Dividends balance

Hi Network, Inc. 539 — 158 — — — 697

Korea Credit Bureau 4,321 — 199 — — — 4,520

Hyundai Capital Germany GmbH 1,550 — 508 45 — — 2,103

Hyundai Capital UK Ltd. 34,657 — 6,318 2,354 — — 43,329

Beijing Hyundai Auto Finance Co., Ltd. 168,051 — 21,642 11,328 — — 201,021

W 209,118 — 28,825 13,727 — — 251,670



(Unaudited)

September 30, 2016

21 (Continued)

6. Financial Receivables

Financial receivables as of September 30, 2016 and December 31, 2015are as follows:


Deferred

loan costs,

net of fees

(Initial

Unpaid direct fees,

outstanding net of costs Present Allowance

principal on finance value for loan Carrying

balance leases) discounts losses amount

Loans receivable

Loans W 8,709,776 52,564 (1,452) (375,427) 8,385,461

Installment financial assets

Automobile 9,190,516 47,299 — (80,779) 9,157,036

Durable goods 263 — — (19) 244

Mortgage 2,203 3 — (38) 2,168

9,192,982 47,302 — (80,836) 9,159,448

Lease receivables

Finance lease receivables 2,510,418 (358) — (40,427) 2,469,633

Cancelled lease receivables 27,396 — — (24,878) 2,518

2,537,814 (358) — (65,305) 2,472,151

W 20,440,572 99,508 (1,452) (521,568) 20,017,060


Deferred

loan costs,

net of fees

(Initial

Unpaid direct fees,

outstanding net of costs Present Allowance

principal on finance value for loan Carrying

balance leases) discounts losses amount

Loans receivable

Loans W 8,767,452 50,380 (1,776) (323,946) 8,492,110

Installment financial assets

Automobile 8,874,379 56,084 — (73,140) 8,857,323

Durable goods 614 — — (82) 532

Mortgage 3,234 3 — (86) 3,151

8,878,227 56,087 — (73,308) 8,861,006

Lease receivables

Finance lease receivables 2,675,964 (333) — (46,445) 2,629,186

Cancelled lease receivables 23,156 — — (21,689) 1,467

2,699,120 (333) — (68,134) 2,630,653

W 20,344,799 106,134 (1,776) (465,388) 19,983,769



(Unaudited)

September 30, 2016

22 (Continued)

7. Allowances for Loan Losses

The following tables present a roll-forward of in allowance for loan losses including allowance for

doubtful accounts for other assets for the nine-month periods ended September 30, 2016 and 2015:


Installment

Loans financial Lease Other

receivable assets receivables assets Total

Beginning balance W 323,946 73,308 68,134 18,986 484,374

Allowance related to loans transferred (6,327) (676) — — (7,003)

Charge-offs (186,919) (23,348) (787) (2,208) (213,262)

Recoveries 74,202 8,841 83 6,626 89,752

Unwinding of discounts (3,547) (223) (113) — (3,883)

Provision for (reversals of) allowance 174,072 22,934 (2,012) 3,309 198,303

Ending balance W 375,427 80,836 65,305 26,713 548,281


Installment

Loans financial Lease Other

receivable assets receivables assets Total

Beginning balance W 319,323 53,267 68,255 20,098 460,943

Charge-offs (273,557) (33,910) (525) (3,688) (311,680)

Recoveries 82,632 11,335 17 9,760 103,744

Unwinding of discounts (4,706) (236) (179) — (5,121)

Provision for (reversals of) allowance 190,676 33,230 1,456 (7,089) 218,273

Others (3,956) — (530) — (4,486)

Ending balance W 310,412 63,686 68,494 19,081 461,673



(Unaudited)

September 30, 2016

23 (Continued)

8. Property and Equipment

The following tables present a roll-forward of the carrying amounts of property and equipment for

the nine-month periods ended September 30, 2016 and 2015:

(in millions of

Korean won) Nine-month period ended September 30, 2016

Beginning Translation Ending

balance Addition Transfer Disposal Depreciation differences balance

Land W 97,883 — — — — — 97,883

Buildings 91,623 — — (5) (1,933) (1) 89,684

Vehicles 4,387 808 — (17) (631) 6 4,553

Fixture and

furniture 45,870 13,988 2,814 (176) (14,115) (103) 48,278

Others 2,155 — — (33) — 1 2,123

Construction

in progress 11,295 16,892 (2,814) — — (279) 25,094

W 253,213 31,688 — (231) (16,679) (376) 267,615

(in millions of


Beginning Translation Ending

balance Addition Transfer Disposal Depreciation differences balance

Land W 97,883 — — — — — 97,883

Buildings 87,589 377 6,143 — (1,844) — 92,265

Vehicles 5,062 430 — (86) (843) (28) 4,535

Fixture and

furniture 42,538 11,010 (4,151) (476) (14,937) 36 34,020

Others 2,101 — — — — — 2,101

Construction

in progress 13,149 11,877 (10,923) — — 51 14,154

W 248,322 23,694 (8,931) (562) (17,624) 59 244,958



(Unaudited)

September 30, 2016

24 (Continued)

9. Intangible Assets

The following tables present a roll-forward of the carrying amounts of intangible assets for the

nine-month periods ended September 30, 2016 and 2015:

(in millions of


Beginning Reversal of Translation Ending

balance Addtion Transfer Disposal Amortization impairment differences balance

Development costs W 21,025 92,097 666 — (12,918) — — 100,870

Memberships 27,354 871 — (921) — 54 5 27,363

Other intangible assets 11,876 12,276 30 (5) (3,950) — (37) 20,190

Construction in progress — 25,137 (696) — — — 24,441

W 60,255 130,381 — (926) (16,868) 54 (32) 172,864

(in millions of


Beginning Reversal of Translation Ending

balance Addition Transfer Disposal Amortization impairment differences balance

Development costs 24,896 5,822 — (37) (8,518) — — 22,163

Memberships 29,545 48 — — — — (2) 29,591

Other intangible assets 2,821 355 8,931 — (1,374) — — 10,733

W 57,262 6,225 8,931 (37) (9,892) — (2) 62,487



(Unaudited)

September 30, 2016

25 (Continued)

10. Borrowed Funds

(1) Borrowings

Borrowings as of September 30, 2016 and December 31, 2015 are as follows:

(2) Bonds issued

Bonds issued as of September 30, 2016 and December 31, 2015 are as follows:

(in millions of Annual Carrying amount

Korean won) interest September 30, December 31,

Lender rate (%) Maturity 2016 2015

Short-term borrowings:

Commercial paper Shinhan Bank and 1.64 ~ October 24, 2016 through

KEB Hana Bank 1.79 December 29, 2016 W 120,000 530,000

General loans Kookmin Bank 2.36 ~ October 31, 2016 through

and 5 others 3.00 September 29, 2017 730,000 860,000

850,000 1,390,000

Current portion of

long-term borrowings:

General loans Shinhan Bank 2.32 ~ January 26, 2017 through

and 4 others 4.03 September 18, 2017 190,333 229,872

foreign currency — —

190,333 229,872

Long-term borrowings:

General loans Shinhan Bank 1.97 ~ October 2, 2017 through

and 5 others 3.10 May 27, 2019 466,158 144,000

W 1,506,491 1,763,872

(in millions of Korean won) Annual Carrying amount

interest September 30, December 31,

rate (%) Maturity 2016 2015

Short-term notes:

Asset-backed short-term bonds 1.97 ~ Novemver 25, 2016 through W 80,000 230,000

Less: discount on bonds 2.02 December 8, 2016 (13) (239)

79,987 229,761

Current portion of long-term bonds:

Bonds 0.00 ~ October 6, 2016 through 4,881,295 3,987,105

Less: discount on bonds 5.95 September 27, 2017 (7,426) (3,900)

4,873,869 3,983,205

Long-term bonds:

Bonds 1.32 ~ October 2, 2017 through 13,205,146 13,446,494

Less: discount on bonds 6.53 September 26, 2026 (20,534) (21,902)

13,184,612 13,424,592

W 18,138,468 17,637,558



(Unaudited)

September 30, 2016

26 (Continued)

11. Employee benefit liabilities

(1) Defined contribution plans

The Group recognized W159 million and W104 million in the statement of comprehensive income

for retirement benefits based on the defined contribution plan for the nine-month periods ended

September 30, 2016 and 2015, respectively.

(2) Defined benefit plans

(a) Characteristics of the defined benefit plan

The Group operates a defined benefit plan. Under the plan, eligible employees are paid severance

benefits based on average salaries of three months prior to the termination and service periods. The plan

assets are mainly comprised of interest rate guaranteed type instruments, and therefore, are exposed to

the risk of declining interest rates.

(b) Roll-forward of present value of defined benefit obligations

The following tables present a roll-forward of the present value of defined benefit obligations for

the nine-month periods ended September 30, 2016 and 2015:

(c) Roll-forward of fair value of plan assets

The following tables present a roll-forward of the fair value of plan assets for the nine-month

periods ended September 30, 2016 and 2015:

(in millions of Korean won) Nine-month period ended

September 30

2016 2015

Beginning balance W 110,044 91,189

Current service costs 13,554 12,657

Interest cost 2,008 1,823

Actuarial losses (gains):

Experience adjustments (1,221) 1,699

Changes in economic assumptions 12,046 4,581

Changes in demographic assumptions — 6

10,825 6,286

Transfer of severance benefits from (to) related parties, net (146) 132

Benefits paid (11,741) (7,352)

Ending balance W 124,544 104,735


September 30

2016 2015


Contributions — —

Expected return on plan assets 1,489 1,373

Actuarial losses - Changes in economic assumptions (327) (163)

Transfer of severance benefits from (to) related parties, net (329) (188)

Benefits paid (10,699) (5,125)




(Unaudited)

September 30, 2016

27 (Continued)

(3) Other long-term employee benefit plans

The Group grants long service payments to employees and directors with certain periods of services.

The following tables present a roll-forward of other long-term benefit liability for the nine-month

periods ended September 30, 2016 and 2015:


September 30

2016 2015


Current service costs 486 428

Interest cost 122 121

Actuarial losses (gains) 23 425

Benefits paid (420) (398)




(Unaudited)

September 30, 2016

28 (Continued)

12. Provisions

Provisions include the allowance for unused loan commitments, residual value guarantees and asset

retirement obligations and others. A similar approach to the allowance for loan losses is used for

calculating the reserve for estimated credit losses related to unused loan commitments.

The following tables present a roll-forward of the provisions for the nine-month periods ended

September 30, 2016 and 2015:

(*1) The Group facilitates credits with limits, under which the Group provides commitments to

extend credits. Provision is made for estimated losses arising from unused loan commitments.

(*2) The Group facilitates certain installment financial receivable products which the Group

guarantees residual value of used automobiles for consumers. The Group also contracts with 3rd party

guarantor to guarantee residual value of automobiles returned by consumers. Provision is made for

estimated expected losses arising from these residual value guarantees.

(*3) The Group recognizes provisions for asset retirement obligations (AROs) which represent the

estimated costs to restore the existing leased properties which are discounted to the present value using

the appropriate discount rate at the end of the reporting period. Disbursements of such costs are expected

to occur at the end of the lease contract. Such costs are reasonably estimated using the average lease

term and the average restoration expenses. The average lease term is calculated based on the past three-

year historical data of the expired leases. The average restoration expense is calculated based on the

actual costs incurred for the past three years using the five-year average inflation rate. The present value

of AROs is capitalized to the acquisition cost of leasehold improvements in fixture and furniture and

are depreciated over the useful life of the assets.


Unused Residual Asset

loan value retirement

commit- guaran- obliga-

ments (*1) tees (*2) tions (*3) Other Total

Beginning balance W 1,375 1,267 4,153 258 7,053

Provision for (release of) allowance (7) 27,130 (579) 25 26,569

Provisions made for AROs and

capitalized to related assets (*3) — — 1,041 — 1,041

Unwinding of interests — — 36 — 36

Ending balance W 1,368 28,397 4,651 283 34,699


Unused Residual Asset

loan value retirement

commit- guaran- obliga-

ments (*1) tees (*2) tions (*3) Other Total

Beginning balance W 1,431 809 5,208 — 7,448

Provision for (release of) allowance 58 404 (1,170) 255 (453)

Provisions made for AROs and

capitalized to related assets (*3) — — 664 — 664

Unwinding of interests — — 42 — 42

Ending balance W 1,489 1,213 4,744 255 7,701



(Unaudited)

September 30, 2016

29 (Continued)

13. Derivative Financial Instruments and Hedge Accounting

(1) Trading derivatives

The Group had no balance of trading derivatives as of September 30, 2016 and December 31, 2015.

(2) Derivatives designated and qualifying as hedging instruments

In the normal course of business, the Group enters into derivative contracts to manage its exposures

to changes in future cash flows arising from volatilities in interest rate and foreign currency exchange

rates related to its borrowings and bonds issued. The Group primarily uses interest rate swaps and

currency swaps to manage exposures to fluctuations in future cash flows due to interest rate risk and

foreign exchange risk. The Group also utilizes currency forward contracts to manage exposures to

fluctuation in future cash flows related to its lease contracts denominated in foreign currencies. There

was no change in overall strategy of the Group for cash flow hedges.

Derivatives that are designated and qualified as hedging instruments for cash flow hedges as of

September 30, 2016 and December 31, 2015 are as follows:

(*1) Notional principal amount represents Korean won equivalent amounts of foreign currencies

for won-to-foreign currency transactions and receiving foreign currencies for foreign currency-to-

foreign currency transactions that are translated with the benchmark foreign currency exchange rate

disclosed by the Bank of Korea as of the reporting date.


Accumulated

Notional other

principal comprehensive

amount (*1) Assets Liabilities income (loss)

Interest rate swaps W 1,560,000 13 11,729 (8,880)

Currency swaps 6,071,754 53,985 356,399 (18,583)

Foreign currency forwards — — — —

W 7,631,754 53,998 368,128 (27,463)


Accumulated

Notional other

principal comprehensive

amount (*1) Assets Liabilities income (loss)

Interest rate swaps W 950,000 109 12,492 (9,386)

Currency swaps 6,189,397 179,045 127,729 (16,316)

Foreign currency forwards 715 — 13 2

W 7,140,112 179,154 140,234 (25,700)



(Unaudited)

September 30, 2016

30 (Continued)

Changes in effective portion of cash flow hedges for the nine-month periods ended September 30,

2016 and 2015 are as follows:

The Group is expected to be exposed to the variability in future cash flows arising from hedged

items designated as cash flow hedges, until June 21, 2021. There was no cash flow hedges discontinued

during the nine-month periods ended September 30, 2016 and 2015.

There was no ineffective portion recognized in profit or loss related to cash flow hedges for the

nine-month periods ended September 30, 2016 and 2015.


Changes

in fair value

recognized

in other Reclassified

Beginning comprehensive to Ending

balance income (loss) profit or loss balance

Effective portion of cash flow hedges W (33,905) (333,820) 331,493 (36,232)

Income tax effects 8,205 8,769

Effective portion of cash flow hedges,

net of income taxes W (25,700) (27,463)


Changes

in fair value

recognized

in other Reclassified

Beginning comprehensive to Ending

balance income (loss) profit or loss balance

Effective portion of cash flow hedges W (54,292) 324,367 (319,928) (49,853)

Income tax effects 13,139 12,065

Effective portion of cash flow hedges,

net of income taxes W (41,153) (37,788)



(Unaudited)

September 30, 2016

31 (Continued)

14. Equity

(1) Regulatory reserve for loan losses

In accordance with the Article 11 of Regulation on Supervision of Specialized Credit Finance

Business mandated by the Financial Services Commission, the Group appropriates regulatory reserves

for loan losses which equal to the difference between allowance for loan losses estimated under K-IFRS

and allowance estimated based on regulatory risk grades of loans and receivables and minimum required

reserve ratio to each grade.

Details of regulatory reserve for loan losses as of September 30, 2016 and December 31, 2015 are

as follows:

(*1) Regulatory reserve for loan losses as of September 30, 2016 and December 31, 2015

represents the amount which reflects the expected release of regulatory reserve for loan losses to

appropriated regulatory reserve for loan losses at the beginning of the year.

Release of regulatory reserve for loan losses and profit for the period and earnings per share

adjusted with release of regulatory reserve for loan losses for the nine-month periods ended

September 30, 2016 and 2015 are as follows:

(*1) Release of regulatory reserve for loan losses represents excess reserves expected to be released

for the nine-month periods ended September 30, 2016 and 2015.

(*2) Profit for the period adjusted with release of regulatory reserve for losses is not prepared in

accordance with K-IFRS, but the amount reflects the expected release of regulatory reserve for loan

losses on a pre-tax basis on profit for the period.


2016 2015

Appropriated regulatory reserve for loan losses W 255,352 335,372

Expected release of regulatory reserve for loan losses (66,276) (80,020)

Regulatory reserve for loan losses (*1) W 189,076 255,352

(in millions of Korean won)

2016 2015

Profit for the period W 277,146 244,896

Add: release of regulatory reserve for loan losses (*1) 66,276 50,126

Profit for the period adjusted with release of

regulatory reserve for loan losses (*2) W 343,422 295,022

Basic and diluted earnings per share

adjusted with release of

regulatory reserve for loan losses (in won) W 3,458 2,971

Nine-month period ended

September 30



(Unaudited)

September 30, 2016

32 (Continued)

(2) Retained earnings

Details of retained earnings as of September 30, 2016 and December 31, 2015 are as follows:

(*1) Korean Commercial Act requires the Company to appropriate, as a legal reserve, an amount

equal to a minimum of 10% of annual cash dividends declared, until the reserve equals 50% of its issued

capital. The reserve is not available for the payment of cash dividends, but may be transferred to capital

stock or used to reduce accumulated deficit, if any.


2016 2015

Legal reserves:

Earned surplus reserve (*1) W 132,630 107,634

Discretionary reserves:

Regulatory reserve for loan losses 255,352 335,372

Reserve for electronic financial transactions 100 100

Reserve for business rationalization 74 74

255,526 335,546

Unappropriated retained earnings 2,520,792 2,185,899

W 2,908,948 2,629,079



(Unaudited)

September 30, 2016

33 (Continued)

15. Net Interest Income

Net interest income for the three-month and nine-month periods ended September 30, 2016 and

2015 are as follows:

(*1) Including amortization of unearned revenue for security deposits received for leases under the

effective interest method.

(*2) Including amortization of present value discounts under the effective interest method for the

security deposits paid for leased offices, amortization of present value discounts for customer deposits

received for leases and unwinding of provisions.

16. Net Fee Income

Net fee income for the three-month and nine-month periods ended September 30, 2016 and 2015

are as follows:

(in millions of Korean won) Three-month periods Nine-month periods

ended September 30, ended September 30,

2016 2015 2016 2015

Interest income:

Cash and due from other financial institutions W 7,147 2,216 19,062 14,493

Available-for-sale securities 300 300 901 901

Loans receivable 232,665 249,814 690,776 792,641

Installment financial assets 121,147 109,876 357,490 310,275

Lease receivables (*1) 42,354 50,514 134,995 153,337

Other (*2) 171 170 865 1,193

403,784 412,890 1,204,089 1,272,840

Interest expense:

Borrowings 9,395 10,578 28,692 33,524

Bonds issued 131,184 139,811 408,564 443,098

Other (*2) 3,554 4,648 11,842 14,610

144,133 155,037 449,098 491,232

Net interest income W 259,651 257,853 754,991 781,608



2016 2015 2016 2015

Fee income:

Loans receivable W 7,930 9,970 24,465 33,146

Installment financial assets 3,755 3,329 11,533 9,669

Lease receivables 49,903 38,387 130,132 116,989

61,588 51,686 166,130 159,804

Fee expenses:

Lease expenses 18,006 20,484 61,865 60,040

Net fee income W 43,582 31,202 104,265 99,764



(Unaudited)

September 30, 2016

34 (Continued)

17. Other Operating Income and Expenses

Other operating income and expenses for the three-month and nine-month periods ended


18. General and Administrative Expenses

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




2016 2015 2016 2015

Other operating income:

Gain on valuation of derivatives W (29,716) 197,270 9,431 339,405

Gain on derivatives transactions — 10,720 3,306 40,549

Gain on short-term financial investments (423) 2,198 2,879 3,048

Gain on purchased loan 9,009 12,182 32,526 38,724

Shared services income 4,288 5,382 19,961 19,734

Other fee and commission 15,326 14,434 46,498 41,607

Other 2,086 2,787 5,891 5,133

W 570 244,973 120,492 488,200

Other operating expenses:

Loss on valuation of derivatives W 262,178 18,824 307,255 34,226

Loss on derivatives transactions 33,309 164 36,975 25,799

Shared services expense 3,884 4,485 17,233 18,051

Other 35,299 6,250 46,777 18,208

W 334,670 29,723 408,240 96,284



2016 2015 2016 2015

Salaries W 55,451 57,453 156,671 175,851

Severance benefits 4,763 5,185 19,373 15,617

Employee benefits 8,696 9,060 27,655 26,754

Advertising 11,178 16,627 34,463 49,053

Sales promotion 24,044 18,470 54,554 55,029

Rents 10,605 11,739 34,657 35,289

Utilities 2,559 2,681 7,699 7,761

Communication 3,628 3,470 10,817 11,075

Travel and transportation 1,544 1,470 4,462 4,146

Professional and other service fees 23,337 17,304 64,195 49,852

Outsourcing service charges 7,622 9,243 25,514 26,291

Commissions and charges 3,255 5,959 13,423 17,640

Depreciation 5,801 4,158 16,679 17,624

Amortization 8,282 3,417 16,868 9,892

Other 12,152 13,351 37,304 37,771

W 182,917 179,587 524,334 539,645



(Unaudited)

September 30, 2016

35 (Continued)

19. Income Taxes

(1) Income tax expense

Income tax expense for the nine-month periods ended September 30, 2016 and 2015 are as follows:

(2) Deferred income taxes recognized directly to equity

Deferred income taxes recognized directly to equity for the nine-month periods ended


(3) Effective tax rate reconciliation

Income tax expense attributable to net income was W96,673 million and W87,440 million for the

nine-month periods ended September 30, 2016 and 2015, respectively, and differed from the amounts

computed by applying the statutory tax rate to profit before income taxes as a result of the following:

(in millions of Korean won) Nine-month periods ended September 30,

2016 2015

Current income tax expense W 89,498 78,229

Deferred income tax due to Changes in temporary differences (7,041) 15,747

Deferred income taxes recognized directly to equity 14,216 (6,536)

Income tax expense W 96,673 87,440


2016 2015

Beginning Ending Beginning Ending

balance balance Changes balance balance Changes

Unrealized gains and losses on

available-for-sale securities W (5,123) (4,254) 869 (2,168) (5,869) (3,701)

Share in other comprehensive

income of associates

under the equity method (687) 9,398 10,085 326 (2,996) (3,322)

Effective portion

of cash flow hedges 8,205 8,769 564 13,139 12,065 (1,074)

Remeasurements of

defined benefit plans 10,642 13,340 2,698 8,186 9,747 1,561

W 13,037 27,253 14,216 19,483 12,947 (6,536)


2016 2015

Profit before income taxes (A) W 373,820 332,336

Income taxes at statutory tax rates 90,002 79,963

Adjustments:

Non-deductible expense 106 110

Changes in estimates for tax provisions of the prior year 3,874 (139)

Others including tax credits and foreign subsidiaries 2,691 7,506

Income tax expense (B) W 96,673 87,440

Effective tax rate (B/A) 25.86% 26.31%



(Unaudited)

September 30, 2016

36 (Continued)

20. Earnings Per Share

(1) Basic earnings per share

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

periods ended September 30, 2016 and 2015 are as follows:

(2) Diluted earnings per share

There are no potential common stocks as of September 30, 2016 and 2015. Therefore, the diluted

earnings per share is equal to basic earnings per share for the three-month and nine-month periods ended

September 30, 2016 and 2015.

Three-month periods ended September 30, Nine-month periods ended September 30,

2016 2015 2016 2015

Profit for the period attributable

to common stock (in won) (A) W 49,665,942,113 73,336,362,936 277,146,110,897 244,895,446,243

Weighted average of number of

outstanding common stocks (B) 99,307,435 99,307,435 99,307,435 99,307,435

Basic earnings per share (in won) (A/B) W 500 738 2,791 2,466



(Unaudited)

September 30, 2016

37 (Continued)

21. Other Comprehensive Income

Other comprehensive income for the nine-month periods ended September 30, 2016 and 2015 are

as follows:


Changes

Reclassifi-

Beginning cation to Other Income tax Ending

balance profit or loss changes effects balance

Net change in unrealized

gains and losses on

available-for-sale securities W 16,051 (123) (3,467) 869 13,330


income (loss) of associates

under the equity method 2,152 — (41,674) 10,085 (29,437)

Net change in effective portion

of cash flow hedges (25,700) 331,493 (333,820) 564 (27,463)

Net change in foreign currency

translation adjustments (4,437) — (735) — (5,172)

Remeasurements of

defined benefit plans (33,333) — (11,152) 2,698 (41,787)

W (45,267) 331,370 (390,848) 14,216 (90,529)


Changes

Reclassifi-

Beginning cation to Other Income tax Ending

balance profit or loss changes effects balance

Net change in unrealized

gains and losses on

available-for-sale securities W 6,792 (120) 15,413 (3,701) 18,384


income (loss) of associates

under the equity method (*1) (1,021) — 13,727 (3,322) 9,384

Net change in effective portion

of cash flow hedges (41,153) (319,928) 324,367 (1,074) (37,788)

Net change in foreign currency

translation adjustments (3,573) — 789 — (2,784)

Remeasurements of

defined benefit plans (25,640) — (6,449) 1,561 (30,528)

W (64,595) (320,048) 347,847 (6,536) (43,332)



(Unaudited)

September 30, 2016

38 (Continued)

22. Supplemental Cash Flow Information

(1) Cash and cash equivalents

Details of cash and cash equivalents as of September 30, 2016 and December 31, 2015 are as

follows:

(*1) Other cash equivalents include demand deposits, certificate of deposits, time deposits,

commercial paper, repurchase agreements and other debt instruments with maturities of three months

or less from the acquisition date that are readily convertible to known amounts of cash which are subject

to an insignificant risk of changes in their fair value, and are used by the Group in the management of

its short-term commitments.

(*2) Other cash equivalents include restricted cash at reserve accounts of Autopia ABS trusts due

from other banks in the amount of W17,200 million and W13,400 million as of September 30, 2016

and December 31, 2015, respectively, for the Autopia asset securitization program.


2016 2015

Cash on hold W — 1

Ordinary deposits 215,567 267,735

Checking deposits 4,989 9,683

Other cash equivalents (*1)(*2) 724,238 585,445

W 944,794 862,864



(Unaudited)

September 30, 2016

39 (Continued)

(2) Cash generated from operations

Cash generated from operations for the nine-month periods ended September 30, 2016 and 2015

are as follows:


2016 2015

Profit for the period W 277,146 244,896

Adjustments:

Gain on sale of available-for-sale securities (1,055) (1,388)

Income on loans 49,207 41,034

Income on installment financial assets 39,188 34,362

Income on leases 32,769 33,729

Gain on foreign currency translation (307,255) (34,570)

Dividend income (3,828) (3,915)

Gain on valuation of derivatives (9,431) (339,405)

Gain on valuation of short-term financial investments (2,879) (3,048)

Net interest expenses 428,270 474,645

Lease expenses 267,139 237,067

Provision for loan losses 198,303 218,273

Loss on foreign currency translation 10,795 339,531

Severance benefits 14,232 13,210

Long-term employee benefits 631 974

Depreciation 16,679 17,624

Amortization 16,868 9,892

Loss on valuation of derivatives 307,255 34,226

Provisions (release of provisions) 26,569 717



(Unaudited)

September 30, 2016

40 (Continued)


2016 2015

Share in net income of associates under the equity method (46,342) (28,825)

Gain on sale of property and equipment (384) (1,282)

Reversal of impairment loss on intangible assets (54) —

Loss on disposal of Investment associates 299 —

Loss on sale of property and equipment 135 477

Income tax expense 96,673 87,440

1,133,784 1,130,768

Changes in operating assets and liabilities:

Decrease (increase) in due from banks (2,795) 33,709

Decrease (increase) in short-term financial investments (202,244) 466,513

Increase in available-for-sale securities (13,021) 1,192

Decrease in loans receivable (116,627) 742,356

Increase in installment financial assets (360,564) (1,619,883)

Increase in finance lease receivables (246,974) (320,616)

Decrease in cancelled lease receivables 8,255 11,200

Increase in operating lease assets (464,511) (436,857)

Decrease in cancelled lease assets 343,852 323,102

Decrease in non-trade receivables 3,639 9,078

Decrease in accrued revenues 5,336 6,588

Increase in advance payments 107,478 (21,828)

Increase in prepaid expenses (1,967) (28,054)

Decrease (increase) in derivatives, net 52,899 (139,510)

Decrease in non-trade payables (60,282) (288)

Increase (decrease) in accrued expenses (1,092) (64)

Decrease in unearned revenue (14,536) 90

Increase (decrease) in withholdings 9,890 9,039

Decrease in deposits received (80,890) (65,780)

Severance payments, net (1,042) (2,227)

Transfer of severance benefits from (to) related parties, net 183 320

Decrease in long-term employee benefits (420) (398)

Increase (decrease) in other liabilities (20) 7,462

(1,035,453) (1,024,856)

W 375,477 350,808



(Unaudited)

September 30, 2016

41 (Continued)

23. Commitments and Contingencies

(1) Line of credit commitments

As of September 30, 2016, the Group has line-of-credit commitments from Shinhan Bank and KEB

Hana Bank with aggregated limits in the amount of W48,500 million.

(2) Credit Facility Agreement

As of September 30, 2016, the Group has revolving credit facility agreements amounted to USD

250 million, JPY 60,000 million , EUR 50 million and W2,100,000 million with Kookmin Bank and 26

other financial institutions for credit lines.

(3) Guarantees

Details of guarantees provided to the Group as of September 30, 2016 and December 31, 2015 are

as follows:

(*1) The amounts represent the guaranteed unpaid principals as of September 30, 2016 and

December 31, 2015 as defined under the joint liability agreement.

The Group has residual value guarantee insurance policies with KB Insurance Co., Ltd. and two

other insurance carriers which cover losses resulting from defaults in mortgage loans where unpaid

amounts exceed the recoverable amounts from the collateral of the loans and cover losses resulting from

sales of off-lease vehicles returned where the expected residual values exceed the recoverable amounts

at the end of the lease terms. Loans and leases insured by the policies and residual value guaranteed by

the insurance policies as of September 30, 2016 and December 31, 2015 are as follows:


Guarantor Details 2016 2015

Hyundai Motor Joint liabilities on finance lease

Company receivables (*1) W — 1,568

Seoul Guarantee Guarantee for debt collection

Insurance Co., Ltd. deposit and others 61,503 80,202


2016 2015

Loans and leases insured W 928,649 967,695

Residual value guaranteed by the insurance policies 184,120 225,313



(Unaudited)

September 30, 2016

42 (Continued)

(4) Pending litigations

Pending litigations include thirteen cases with aggregated amount of W972 million where the

Group is the defendant, five cases with aggregated amount of W3,026 million where the Group is the

plaintiff, and litigations against a number of debtors to collect receivables as of September 30, 2016.

The Group recognized provisions of W283 million related to one legal suit (Note 12).

Management has reviewed legal claims against the Group with outside legal counsels and has taken

into consideration the views of such counsel as to the outcome of the claims. In management’s opinion,

the final disposition of all such claims will not have a material adverse effect on the Group’s financial

position or results of its operations.

(5) Receivables transfer agreement

The Group entered into an agreement with Hyundai Card Co., Ltd., Hyundai Commercial Co., Ltd.,

and Hyundai Life Insurance Co., Ltd., to purchase certain delinquent receivables on a regular basis at

amount agreed with the transferors.



(Unaudited)

September 30, 2016

43 (Continued)

24. Related Party Transactions

(1) Relationships between parents and subsidiaries

The parent company is Hyundai Motor Company. Related parties include associates, joint ventures,

post-employment benefit plans, members of key management personnel and entities which the Group

controls directly or indirectly, has joint control or significant influence over them.

(2) Related parties

Related parties that have transactions, and receivables and payables with the Group as of

September 30, 2016 is as follows:

Type Company

The Parent Hyundai Motor Company

Associates Korea Credit Bureau, and Hyundai Capital Germany GmbH

Others Kia Motors Corp., Hyundai Card Co., Ltd., Hyundai Commercial Inc.,

Hyundai Life Insurance Co., Ltd., Hyundai Glovis Co., Ltd., Hyundai Autoever Corp.,

Hyundai Steel co., Ltd., Hyundai Construction & Engineering Co., Ltd.,

Hyundai Capital America, and 58 others



(Unaudited)

September 30, 2016

44 (Continued)

(3) Transactions with related parties

Transactions with related parties are occurred in the normal course of business, and the terms and

conditions include normal settlement terms.

Significant transactions, which occurred in the normal course of business with related companies

for the nine-month periods ended September 30, 2016 and 2015 are as follows:

(*1) Hi Network, Inc. was excluded from the related party in the current period upon disposal, and

the transaction information was produced before the sale.

(in millions of Korean won) Nine-month periods ended September 30, 2016

Operating Operating Non-operating Other

revenue expenses income Sales Purchases

The Parent

Hyundai Motor Company W 49,030 1,018 — — 662,618

Associates

Korea Credit Bureau — 116 — — —

Hi Network, Inc. (*1) — 328 195 — —

Hyundai Capital Germany GmbH 292 — — — —

292 444 195 — —

Other related parties

Kia Motors Corp. 37,383 166 — — 204,430

Hyundai Card Co., Ltd. 29,115 15,617 1,874 — 110,275

Hyundai Commercial Inc. 957 1,932 567 — 73,805

Hyundai Autoever Corp. 226 33,091 — — 18,111

Hyundai Glovis Co., Ltd. 385 3,789 — 44,320 76

Hyundai Capital America 24,199 — — — —

Hyundai Life Insurance Co., Ltd. 127 7,922 93 — 4,018

Others 17,246 7,844 6 — 7,447

109,638 70,361 2,540 44,320 418,162

W 158,960 71,823 2,735 44,320 1,080,780


Operating Operating Non-operating Other

revenue expenses income Sales Purchases

The Parent

Hyundai Motor Company W 27,814 1,136 — — 644,640

Associates

Hi Network, Inc. — 605 — — —

Korea Credit Bureau 1 108 — — —

Hyundai Capital Germany GmbH 725 — — — —

Beijing Hyundai Auto Finance Co., Ltd. 185 — — — —

911 713 — — —


Kia Motors Corp. 24,550 277 — — 238,399

Hyundai Card Co., Ltd. 34,372 15,721 120 — 104,546

Hyundai Autoever Corp. 107 32,201 — — 24,956

Hyundai Glovis Co., Ltd. 225 2,351 — 26,361 —

Hyundai Capital America 20,131 — — — —

Hyundai Life Insurance Co., Ltd. 312 8,290 — — 2,836

Others 18,948 15,819 — — 34,506

98,645 74,659 120 26,361 405,243

W 127,370 76,508 120 26,361 1,049,883



(Unaudited)

September 30, 2016

45 (Continued)

Receivables and payables with related parties as of September 30, 2016 and December 31, 2015 are as

follows:

(*1) Other assets include plan assets of W75,583 million and W73,086 million as of September 30,

2016 and December 31, 2015, respectively, related to the Group’s defined benefit plan.


Lease Other Other

receivables assets liabilities

The Parent

Hyundai Motor Company W 117 5,900 8,437


Hyundai Card Co., Ltd. 947 1,482 85,054

Hyundai Life Insurance Co., Ltd. (*1) 302 81,645 63

Hyundai Capital America — 22,850 —

Kia Motors Corp. — 4,614 17,468

Hyundai Construction & Engineering Co., Ltd., 5,320 — —

Hyundai Glovis Co., Ltd. 749 805 —

Hyundai Steel co., Ltd., 5,130 177 —

Others 10,623 1,121 439

23,071 112,694 103,024

W 23,188 118,594 111,461

September 30, 2016


Lease Other Other

receivables assets liabilities

The Parent

Hyundai Motor Company W 360 4,767 27,845

Associates

Hi Network, Inc. — — 1,477

Beijing Hyundai Auto Finance Co., Ltd. — 133 —

Hyundai Capital Germany GmbH — 75 —

— 208 1,477

Other related partiies

Hyundai Card Co., Ltd. 866 1,286 111,830

Hyundai Life Insurance Co., Ltd. (*1) 348 81,086 361

Kia Motors Corp. — 3,840 38,439

Hyundai Capital America — 28,515 —

Hyundai Steel Company 5,703 166 —

Hyundai Glovis Co., Ltd. 514 2,199 —

Hyundai Autoever Corp. — — 1,827

Others 6,031 743 488

13,462 117,835 152,945

W 13,822 122,810 182,267

December 31, 2015



(Unaudited)

September 30, 2016

46 (Continued)

(4) Key management compensation

Compensation to key management for the nine-month periods ended September 30, 2016 and 2015

are as follows:

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

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


2016 2015

Short-term employee benefits W 7,552 7,238

Severance benefits 1,324 1,436

Other long-term employee benefits 96 10



(Unaudited)

September 30, 2016

47 (Continued)

25. Transfer of Financial Assets

The Group issued senior and subordinated asset-backed securities collateralized by loans

receivable, installment financial assets, and lease receivables; and the investors in the securitized notes

have recourse only to the cash flows from the transferred financial assets.

Details of financial assets transferred that are not derecognized as of September 30, 2016 and


(*1) Excluding derivatives for hedges. The Group enters into currency swaps contracts principally

to manage exposures to fluctuations in future cash flows due to interest rate risk and foreign exchange

risk of foreign currency denominated asset-backed securities issued.


2016 2015

Carrying amount of assets:

Loans receivable W 1,508,559 926,330

Installment financial assets 4,095,643 3,368,520

Lease receivables 163,090 230,229

5,767,292 4,525,079

Carrying amount of associated liabilities (*1): (3,570,235) (3,180,053)

For those liabilities that have recourse

only to the transferred financial assets:

Fair value of assets 5,839,693 4,544,789

Fair value of associated liabilities (*1) (3,591,183) (3,196,858)

Net position W 2,248,510 1,347,931



(Unaudited)

September 30, 2016

48 (Continued)

26. Offsetting of Financial Assets and Liabilities

The Group enters into derivative transactions under International Swaps and Derivatives

Association (ISDA) master netting agreements. In general, under such agreements the amounts owed

by each counterparty on a single day in respect of all transactions outstanding in the same currency are

aggregated into a single net amount that is payable by one party to the other. In certain circumstances –

e.g. when a credit event such as a default occurs – all outstanding transactions under the agreement are

terminated, the termination value is assessed and only a single net amount is payable in settlement of

all transactions.

The ISDA agreements do not meet the criteria for offsetting in the statement of financial position.

This is because the Group does not have any currently legally enforceable right to offset recognized

amounts, because the right to offset is enforceable only on the occurrence of future events such as a

default on the bank loans or other credit events.

The following table sets out the carrying amounts of recognized financial instruments that are

subject to the above agreements as of September 30, 2016 and December 31, 2015:


Gross

amounts of Net

recognized amounts of

financial financial

Gross assets assets

amounts of /liabilities /liabilities Related amounts not offset

recognized offset in the in the in the statement of

financial statement of statement of financial position

assets financial financial Financial Cash collateral Net

/liabilities position position instruments received amounts

Financial assets:

Derivative assets W 53,998 — 53,998 52,188 — 1,810

Financial liabilities:

Derivative liabilities 368,128 — 368,128 52,188 — 315,940


Gross

amounts of Net

recognized amounts of

financial financial

Gross assets assets

amounts of /liabilities /liabilities Related amounts not offset

recognized offset in the in the in the statement of

financial statement of statement of financial position

assets financial financial Financial Cash collateral Net

/liabilities position position instruments received amounts

Financial assets:

Derivative assets W 179,154 — 179,154 93,361 — 85,793


Derivative liabilities 140,234 — 140,234 93,361 — 46,873



(Unaudited)

September 30, 2016

49 (Continued)

27. Fair Value Measurements of Financial Instruments

(1) Fair value of financial instruments

The fair values of financial instruments, together with carrying amounts shown in the statements

of financial position, as of September 30, 2016 and December 31, 2015 are as follows:

(*1) Excluding liabilities for taxes and dues

The following methods and assumptions were used to estimate the fair value of each class of

financial instruments:

Cash and cash equivalents, and Due from banks

The carrying amount and the fair value of cash are identical. As cash, deposits, and other cash

equivalent instruments can be easily converted into cash, the carrying amount, at face value or cost plus

accrued interest, approximates the fair value due to short maturity of these instruments.

Short-term financial investments

In case that the market of a financial instrument is active, fair value is established at the close

quoted price as of the last day for the reporting period. The fair value of investments in money market

funds is determined by the sum of acquisition cost and accrued interest.

(in millions of Korean won) September 30, 2016 December 31, 2015

Carrying Fair Carrying Fair

amount value amount value

Financial assets:

Cash and due from

other financial institutions W 1,913,913 1,913,913 1,624,065 1,624,065

Available-for-sale securities 88,034 88,034 77,550 77,550

Loans receivable 8,385,461 8,579,145 8,492,110 8,410,462

Installment financial assets 9,159,448 9,366,673 8,861,006 8,869,681

Lease receivables 2,472,151 2,605,248 2,630,653 2,625,396

Derivative assets 53,998 53,998 179,154 179,154

Non-trade receivables 117,961 117,961 120,470 120,470

Accrued revenues 78,484 78,484 89,788 89,788

Leasehold deposits 21,358 21,475 22,180 21,326

W 22,290,808 22,824,931 22,096,976 22,017,892


Borrowings W 1,506,491 1,510,161 1,763,872 1,768,844

Bonds issued 18,138,468 18,309,558 17,637,558 17,952,586

Derivative liabilities 368,128 368,128 140,234 140,234

Non-trade payables (*1) 251,503 251,503 309,825 309,825

Accrued expenses 152,844 152,844 175,132 175,132

Withholdings (*1) 45,234 45,234 34,403 34,403

Deposits received 477,485 482,505 546,574 526,969

Other liabilities 21 21 40 40

W 20,940,174 21,119,954 20,607,638 20,908,033



(Unaudited)

September 30, 2016

50 (Continued)


When available, the Group measures the fair value of a security using quoted prices in an active

market. If a market for a security is not active, the Group establishes fair value by using a highly

accredited independent valuation agency. The independent valuation agency utilizes various valuation

technique, which include the discounted cash flow model, the imputed market value model, the free

cash flow to equity (FCFE) model, the dividend discount model, the risk adjusted discount rate method,

and the net asset valuation approach. Depending on the characteristic and nature of the instrument, the

fair value is measured by using at least one valuation technique.

Loans receivable, installment financial assets, and lease receivables

The fair value is determined by using the discounted cash flow model that incorporate parameter

inputs for expected maturity rate/prepayment rate, as appropriate. As the discount rate used for

determining the fair value incorporates the time value of money and credit risk, the Group’s discount

rate system is formed to consider the market risk and the credit risk.

Derivative financial instruments

The fair value of interest rate swaps and currency swaps are determined by using the discounted

cash flow model based on a current interest rate yield curve appropriate for market interest rate as of

the reporting date. The fair value of each derivative is measured by offsetting and discounting the

expected cash flows of the swap at appropriate discount rate which is based on forward interest rate and

exchange rate that is generated by using above method. The fair value of currency forward is measured

principally with the forward exchange rate which is quoted in the market at the end of reporting period

considering the maturity of the currency forward. The discount rate used in measuring the fair value of

currency forward is derived from CRS rate which is determined by using the spot exchange rate and the

forward exchange rate based on the interest rate parity theory.

Borrowings

The fair value of borrowings is determined by discounting the expected future cash flows at an

appropriate discount rate.

Bonds issued

The fair value of bonds is determined by using the discounted cash flow method. The fair value of

bonds denominated in won and bonds denominated in foreign currencies are quoted from a reliable

independent valuation service provider.

Other financial assets and liabilities

The fair value of other financial assets and other financial liabilities is determined by using the

discounted cash flow method. For certain other financial assets and liabilities, carrying amount

approximates fair value due to their short term nature and generally negligible credit risk. These

instruments include nontrade receivables, accrued interest receivable, nontrade payables, and others.



(Unaudited)

September 30, 2016

51 (Continued)

(2) Fair value hierarchy

(a) Financial assets and liabilities measured at fair value

The fair value hierarchy of financial assets and liabilities measured at fair value in the statement of

financial position as of September 30, 2016 and December 31, 2015 are as follows:

(*1) Equity securities for which quoted prices in active markets are not available and fair value of

those instruments cannot be estimated reliably are measured at cost and classified as Level 3 instruments.

These instruments are amounted to W166 million and W169 million as of September 30, 2016 and

December 31, 2015, respectively.


Carrying Fair Fair value hierarchy

amount value Level 1 Level 2 Level 3 (*1)

Financial assets measured at fair value:

Short-term financial investments W 963,828 963,828 — 963,828 —

Available-for-sale securities 88,034 88,034 20,088 31,982 35,964

Derivative assets

Designated as hedging instruments

for cash flow hedges 53,998 53,998 — 53,998 —

W 1,105,860 1,105,860 20,088 1,049,808 35,964

Financial liabilities measured at fair value:

Derivative liabilities


for cash flow hedges W 368,128 368,128 — 368,128 —



amount value Level 1 Level 2 Level 3 (*1)

Financial assets measured at fair value:

Short-term financial investments W 758,705 758,705 — 758,705 —

Available-for-sale securities 77,550 77,550 24,694 33,693 19,163

Derivative assets


for cash flow hedges 179,154 179,154 — 179,154 —

W 1,015,409 1,015,409 24,694 971,552 19,163

Financial liabilities measured at fair value:



for cash flow hedges W 140,234 140,234 — 140,234 —



(Unaudited)

September 30, 2016

52 (Continued)

The valuation techniques and inputs for measuring the fair value of financial assets and liabilities

measured at fair value in the statement of financial position and classified as Level 2 as of September 30,

2016 and December 31, 2015 are as follows:

The following tables present a roll-forward of the fair value of Level 3 instruments for the nine-

month periods ended September 30, 2016 and 2015:

The valuation techniques and quantitative information of significant unobserved inputs for

financial assets and liabilities measured at fair value in the statement of financial position and classified

as Level 3 as of September 30, 2016 and December 31, 2015 are as follows:

(in millions of Korean won) Fair value

September 30, December 31, Valuation

2016 2015 technique Inputs

Financial assets measured

at fair value:

Short-term financial

investments W 963,828 758,705 DCF Model Discount rate, short-term interest rate, volatility and others

Available-for-sale securities 31,982 33,693 DCF Model Discount rate

Derivative assets

Designated as hedging

instruments

for cash flow hedges 53,998 179,154 DCF Model Discount rate, short-term interest rate, volatility, foreign exchange rate and others

W 1,049,808 971,552

Financial liabilities measured

at fair value:


Designated as hedging

instruments

for cash flow hedges W 368,128 140,234 DCF Model Discount rate, short-term interest rate, volatility, foreign exchange rate and others

(in millions of Korean won) Available-for-sale securities

Nine-month periods ended September 30,

2016 2015


Purchase 15,574 —

Gains (losses) recognized as other comprehensive income (loss) 1,650 (1,207)

Redemption of principal (423) (318)



Estimated

range of

Valuation Unobservable unobservable

Fair value technique Inputs inputs inputs Impacts on fair value

Financial assets

measured at fair value:


Equity securities W 13,065 NAV Book value of Book value of

model net assets net assets

Market BPS, PBR BPS, PBR

approach

Beneficiary certificates 22,733 Net asset Credit rating and Credit rating BBB Fair value is likely to increase

model discount rate Discount rate 7.40% as the discount rate declines

while credit rating of loan receivables rises.

W 35,798



(Unaudited)

September 30, 2016

53 (Continued)

Sensitivity analysis of financial instruments is performed to measure favorable and unfavorable

changes in the fair value of financial instruments which are affected by the unobservable inputs, using

a statistical technique. When the fair value is affected by more than two input parameters, the amounts

represent the most favorable or most unfavorable. For fair value measurements classified as Level 3,

the sensitivity analysis on change of unobservable inputs as of September 30, 2016 and December 31,

2015 is as follows:

(*1) For equity securities, the fair value is estimated at the average of appraisal value using the

valuation technique based on the net asset value approach (NAV model) and the market approach;

sensitivity analysis is not available for the equity securities and excluded from the disclosure above.

For beneficiary certificates, the changes in fair value are calculated by increasing and decreasing

discount rate (-1%~1%).


Estimated

range of

Valuation Unobservable unobservable

Fair value technique Inputs inputs inputs Impacts on fair value

Financial assets

measured at fair value:


Equity securities W 11,487 NAV Book value of Book value of

model net assets net assets

Market BPS, PBR BPS, PBR

approach

7,507 Net asset Credit rating and Credit rating BBB Fair value is likely to increase

Beneficiary certificates model discount rate Discount rate 7.40% as the discount rate declines

while credit rating of loan receivables rises.

W 18,994

(in millions of Korean won) Other comprehensive income (loss)

September 30, 2016 December 31, 2015

Favorable Unfavorable Favorable Unfavorable

change (*1) change (*1) change (*1) change (*1)

Available-for-sale securities W 158 (160) 138 (162)



(Unaudited)

September 30, 2016

54 (Continued)

(b) Financial assets and liabilities measured at amortized cost

The fair value hierarchy of financial assets and liabilities measured at amortized cost in the

statement of financial position as of September 30, 2016 and December 31, 2015 are as follows:

(*1) Excluding liabilities for taxes and dues



amount value Level 1 Level 2 Level 3

Financial assets measured at

amortized cost:

Cash and cash equivalents W 944,794 944,794 — 944,794 —

Due from banks 5,292 5,292 — 5,292 —

Loan receivables 8,385,461 8,579,145 — — 8,579,145

Installment financial assets 9,159,448 9,366,673 — — 9,366,673

Lease receivables 2,472,151 2,605,248 — — 2,605,248

Non-trade receivables 117,961 117,961 — — 117,961

Accrued revenues 78,484 78,484 — — 78,484

Leasehold deposits 21,358 21,475 — 21,475 —

W 21,184,949 21,719,072 — 971,561 20,747,511

Financial liabilities measured at

amortized cost:

Borrowings W 1,506,491 1,510,161 — 1,510,161 —

Bonds issued 18,138,468 18,309,558 — 18,309,558 —

Non-trade payables (*1) 251,503 251,503 — — 251,503

Accrued expenses 152,844 152,844 — — 152,844

Withholdings (*1) 45,234 45,234 — — 45,234

Deposits received 477,485 482,505 — 482,505 —

Other 21 21 — — 21

W 20,572,046 20,751,826 — 20,302,224 449,602



amount value Level 1 Level 2 Level 3


amortized cost:

Cash and cash equivalents W 862,864 862,864 1 862,863 —

Due from banks 2,496 2,496 — 2,496 —

Loan receivables 8,492,110 8,410,462 — — 8,410,462

Installment financial assets 8,861,006 8,869,681 — — 8,869,681

Lease receivables 2,630,653 2,625,396 — — 2,625,396

Non-trade receivables 120,470 120,470 — — 120,470

Accrued revenues 89,788 89,788 — — 89,788

Leasehold deposits 22,180 21,326 — 21,326 —

W 21,081,567 21,002,483 1 886,685 20,115,797

Financial liabilities measured at

amortized cost:

Borrowings W 1,763,872 1,768,844 — 1,768,844 —

Bonds issued 17,637,558 17,952,586 — 17,952,586 —

Non-trade payables (*1) 309,825 309,825 — — 309,825

Accrued expenses 175,132 175,132 — — 175,132

Withholdings (*1) 34,403 34,403 — — 34,403

Deposits received 546,574 526,969 — 526,969 —

Other 40 40 — — 40

W 20,467,404 20,767,799 — 20,248,399 519,400



(Unaudited)

September 30, 2016

55 (Continued)

The valuation techniques and inputs related to cash and cash equivalents, non-trade receivables,

accrued revenues, non-trade payables, accrued expenses, withholdings and other liabilities are not

disclosed as the Group estimates the fair value of these items equal to the carrying amount as the

carrying amount is a reasonable approximation of the fair value because of short maturity of these

instruments.

The valuation techniques and inputs for the fair value measurements for financial assets and

liabilities measured at amortized cost in the statement of financial position and classified as Level 2 as

of September 30, 2016 and December 31, 2015 are as follows:

The valuation techniques and inputs for the fair value measurements of financial assets and

liabilities measured at amortized cost in the statement of financial position and classified as Level 3 as

of September 30, 2016 and December 31, 2015 are as follows:





amortized cost:

Due from banks W 5,292 2,496 DCF model Market benchmark interest rate

Leasehold deposits 21,475 21,326 DCF model Market benchmark interest rate

W 26,767 23,822


amortized cost:

Borrowings W 1,510,161 1,768,844 DCF model Market benchmark interest rate, other spreads

Bonds issued 18,309,558 17,952,586 DCF model Market benchmark discount rate

Deposits received 482,505 526,969 DCF model Market benchmark interest rate

W 20,302,224 20,248,399





amortized cost:

Loans and receivables W 8,579,145 8,410,462 DCF model Market benchmark interest rate, credit spread and other spreads

Installment financial assets 9,366,673 8,869,681 DCF model Market benchmark interest rate, credit spread and other spreads

Lease receivables 2,605,248 2,625,396 DCF model Market benchmark interest rate, credit spread and other spreads

W 20,551,066 19,905,539



(Unaudited)

September 30, 2016

56 (Continued)

28. Financial Risk Management

The Group is exposed to credit risk, liquidity risk and market risk (foreign exchange risk and

interest rate risk). In order to manage these factors, the Group operates risk management policies and

programs that monitor closely and respond to each of the risk factors. The Group primarily utilizes

derivatives to manage specific risks.

There was no material change in the Group's risk management operations and policies after

December 31, 2015.



(Unaudited)

September 30, 2016

57

29. Capital Management

The objective of the Group’s capital management is to maintain sound capital structure. The Group

uses the adjusted capital adequacy ratio under the Article 8 of Regulation on Supervision of Specialized

Credit Finance Business (the Regulation) mandated by the Financial Services Commission as a capital

management indicator. The ratio is calculated as adjusted total assets divided by adjusted equity based

on the Company’s financial position in the separate financial statements.

Adjusted capital adequacy ratios of the Company as of September 30, 2016 and December 31, 2015

are as follows:

(*1) Adjusted capital adequacy ratio is calculated in accordance with Regulations on Supervision

of Specialized Credit Finance Business and Detailed Regulations on Supervision of Specialized Credit

Finance Business. The Company should maintain the adjusted capital adequacy ratio at 7% or above in

accordance with the Regulation.


2016 2015

Adjusted total assets (A) W 24,336,117 23,559,183

Adjusted equity (B) 3,731,132 3,518,263

Adjusted capital adequacy ratio (B/A) (*1) 15.33% 14.93%