In 2004, the business environment for the financial industry was fraught with a slew of challenges and difficulties. The domestic economy remained stagnant throughout the year, weighed down by the continued fall-off in private consumption and facility investment. Fortunately, exports, the driving force behind the Korean economy, secured robust growth backed by recovery of the world economy.

In the face of this adversity, Kyongnam Bank has vigorously pursued innovation and change in overall operations, including marketing and organization. These efforts yielded substantial results: we laid a strong platform for sustainable growth based on enhanced efficiency in organization and administrative systems. Indeed, the bank turned in impressive performances in net income and other areas. There is no doubt that our overall performance outstrips that of the competition.

Of significant note, we addressed our organizational problems, thereby transforming our organization into an efficient customeroriented business structure. We focused on training credit and marketing officers (CMOs) and private banking professionals and placed them at branches. The realignment of our organization and management systems will undoubtedly contribute to increasing our earning power.

We successfully implemented the segmentation of more than 1,300 client companies and launched marketing activities tailored to the needs of customers through realignments of branches and sub-branches. Furthermore, we

achieved significant improvement in our loan asset portfolios and formulated efficient lending strategies based on the characteristics of clients. As a result, the proportion of the sound assets in our portfolio rose, whereas that of bad credit dipped.

Despite the unfavorable business climate, total assets in 2004 surged 11.2% over a year earlier to 12.5 trillion won, while total deposits rose 10.6% to 10.2 billion won. Total loans recorded growth of 13.1%, which aggregated to 6.9 billion won. We also turned in an impressive performance in net income, which totaled a record 109.2 billion won.

There was also an upgrade in our credit rating. We became the first regional bank to earn the credit rating of AA, attesting to our strong financial structure. The strengthened financial base enabled us to successfully issue financial bonds of 100 billion won, the first for any regional bank.

Furthermore, we became the first regional bank to engage in asset trust business. The asset trust account reached 16 billion won barely one month after it was marketed. In particular, the Premium Loan for Loyal Customers of Gyeongnam and Ulsan¡± was a big hit. It was also selected as an outstanding financial product by leading business newspapers and became a target of benchmarking by other banks. All in all, 2004 was an exceptionally strong year for Kyongnam Bank.

* Net Income 109 Won in Billions
* Shareholders¡¯Equity 609 Won in Billions

We also expanded our financial contributions to local communities. We inaugurated the Community Business Service Division and Employee Service Corps in a stepped-up effort to increase the interaction between the bank and communities in which it operates. Our financial contributions to artistic and cultural activities will remain unabated, along with continued support for young students from low-income families. We will continue to show compassion of the human spirit for the underprivileged.

The operating environment for the financial industry is unlikely to improve significantly in 2005, despite some signs of recovery in consumer sentiment and corporate investment. Exports may not record strong growth due to the appreciation of the Korean currency against the U.S. dollar. Moreover, the increasing competition among banks, domestic and foreign, will likely put increased pressure on Kyongnam Bank.

However, we will not be deterred by adversity and will continue to move forward. Based on the impressive performances achieved in 2004, we will pursue continued progress. Our management strategies will focus on bolstering cost competitiveness, continuing training of marketing professionals, upgrading various assessment and compensation systems and optimizing the business capabilities and management efficiency of all operations.

We will also vigorously push the expansion of fee-based services to enlarge our revenue sources and build a strong profit structure. For this purpose, we are determined to increase commissions and fees through development of new products and services in the PB market and cross-selling activities.

In closing, we will remain dedicated to repaying your continued support with higher corporate and shareholder value. I would like to request continued encouragement and support from our shareholders and customers.