The overall economic outlook for 2005 is expected to remain clouded, despite some signs that private consumption and corporate investment are recovering. Given this circumstance, financial institutions will likely go extra miles to increase their market presence and their bottom line this year. Of particular note, large foreign-funded banks will attempt to expand their inroads into Korea's retail banking market. Consequently, banks will likely face intense competition to secure high net worth clients through individually tailored financial products. Adding to the woes, the interest rate environment will likely remain unstable with banks competing to maintain higher ground in the lending and deposit sectors.

In response to this challenging business environment, Kyongnam Bank will focus on five key strategies: sustaining sound growth, upgrading profitability structure, reinforcing cost control, bolstering customer royalty and reforming corporate culture.

Determined to spur profitability-oriented growth, the bank will push marketing based on customer segmentation, tighten risk management and enhance loan portfolios. Upgrading profitability structure will require the bank to secure efficiency in fund-raising and operations. Fee-based services, including bancassurance, will be expanded, along with the foreign currency exchange business. We also plan to increase low-cost cyber marketing.

The bank will seek to drive down costs through creation of synergies in alliance with subsidiaries of the Woori Financial Group, as well as normal cost saving programs. In an effort to maintain high customer loyalty, the bank will continue to engage in a wide array of activities benefiting the communities it serves. We will also seek to forge closer relationships with local self-governing entities in order to increase the bank's management of public funds. An innovative corporate culture is also required to secure talented personnel and boost operational efficiency. A performancebased assessment system will be put in place at an early date as well.

In response to the volatile financial service business environment, Kyongnam Bank will strive harder to expand its quality assets. Our ultimate goals are to sustain sound and robust growth, upgrade profitability structure, execute stringent cost saving programs and increase customer loyalty.

The Woori Financial Group believes that to be the best, it must have a solid code of ethics that all management and employees subscribe to. Here we outline the code of ethics that govern the holding company and all of its subsidiaries.

Through transparent and responsible management by implementing moral corporate culture, we will make the following a reality:
As a representative Korean financial group, we become an example of ethical management and corporate culture,
Realize our goal of becoming an excellent financial group.

By building an ethical management system for the whole group and in conformity with global standards, we will continue to implement realistic and continuous moral management practices.

Honesty and trust above all else
Ethical management must be firmly instituted in the corporate culture of the Woori Financial Group

By building an ethical management system for the whole group and in conformity with global standards, we will continue to implement realistic and continuous moral management practices.

Priority to customer joy and happiness
Best value to shareholders
Future and dreams of our employees
Contribution to national economy and social development Everybody must contribute to realize ethical management and a universal code of ethics in all parts of the Woori Financial Group.

Kyongnam Bank has undertaken a sweeping realignment of its organization to put a customer oriented business structure in place and to breathe vitality into its operations. This realignment is primarily aimed at providing upgraded services for customers and optimizing efficiency of branch operations.

As a result of the realignment, the Head Office now has seven business headquarters, two corps, 20 divisions and three offices. The seven business headquarters are divided into Profit Center and Cost Center. The Profit Center is responsible for corporate banking, retail banking and operations in Ulsan and Seoul. The duties of the Cost Center include support for lending activities, office operation and business management. These business headquarters are all placed under control of two senior executive vice presidents and five executive vice presidents. The newly established Community Business Service Division is responsible for projects to increase the interaction between the bank and communities that it serves. The bank also created the Fee-biz Business Division in an effort to reinforce its earning structure in commission and thus expand commission income.

The realignment resulted in closure of 13 branches and lay-off of some employees and creation of three new branches. Consequently, the number of branches decreased to 120 from 130. The branches also were remodeled into retail-based business, corporate bankingoriented business, integrated business, and management of funds of municipal and provincial governments.

* 120 Branches
The realignment of the bank¡¯s branches resulted in decreasing the number of branches to 120.

The streamlined 120-branch network comprises 58 retail banking-oriented business; 38 corporate banking-oriented business; 20 for integrated business; and four for management of public funds of municipal and provincial governments. It is necessary for bank employees to act in favor of innovation and change, while getting rid of their inertia. The branch remodeling is primarily aimed at achieving segmentation of customers and providing differentiated and upgraded services to them.

Noting that the Head Office was restructured to effectively support operations of branches, meanwhile, President & CEO Kyong-Duck Jung called on all bank employees to take a positive stance toward the realignment. He observed that any organization would be unable to grow if they fail to accommodate reform and change. He also stressed the necessity to foster competent personnel to spearhead the bank's core businesses and future growth.

The realignment resulted in a significant personnel shuffle. Personnel with a good track record were accorded preferential treatment in the shakeup. As a result, personnel who had shown outstanding performance in the past were selected as new managers of corporate banking-oriented branches or large retailoriented branches. Appointed to head the Head Office¡¯s seven business headquarters were personnel who had displayed leadership and the capability to plan ahead, as well as strategic thinking amid the rapid change occurring in the financial services industry.

The bank has completed segmentation of customers in an effort to satisfy their diverse needs and address the rapid changes in the financial industry. The bank has reclassified more than 1,300 clients whose loans exceeded the 500 million mark according to their likely behavior and potential profitability. As of the end of June 2004, the number of the bank¡¯s loan recipients totaled 34,626, of which 3,226 had loans outstanding in excess of 500 million won each. Of these clients, 1,322 had their main creditor branches changed as a result of the segmentation strategy.

* 1,322 clients
Some 1,322 clients had their main creditor branches changed as a result of the segmentation strategy.

In terms of amount, 4.82 trillion won of loans extended to corporations were outstanding at the end of June 2004, of which 3.12 trillion on were extended to clients with outstanding loans of over 500 million won each. Some 1.07 trillion won involved in the reclassification of loan recipients.

In a related development, the bank moved to shorten its process to maintain a competitive edge in lending activities. The process of the Head Office for loan requests from branches has now been shortened to two from the previous four for branches with CMOs (credit and marketing officers).

The bank also implemented initiatives to minimize bad loans, while strengthening ties with excellent customers. The bank recovered loans totaling 8.9 billion as of the end of December 2004, after terminating transactions with clients with a weak financial base. In contrast, loans to excellent clients were expanded to 66.8 billion won in December 2004 from 51.8 billion won in March of the year.

Kyongnam Bank has strengthened its private banking business with the aim of building a solid profit structure. Related to this, the bank launched marketing tailored to satisfy the specific requirements of customers. The bank sponsors a variety of programs to strengthen ties with existing customers, especially VIPs, and attract new clients.

As of October 6, 2004, the bank sponsored a ¡°Golf Clinic¡± for a select group of women clients. A a week later, the bank invited a medical doctor to deliver a lecture on cosmetic surgery and obesity in the presence of a number of clients. There will be more specific customer-targeted marketing programs in the future. For instance, the bank has plans to hold lectures on makeup, cuisine, health, tea making, asset accumulation for retirees and jewelry.

President & CEO Kyong-Duck Jung observed that competition in the PB and SME sectors is ever increasing, noting that foreign-funded banks will likely reinforce PB marketing through acquisitions of domestic banks. In this regard, Kyongnam Bank needs to commit available resources to fostering competent marketing specialists to optimize customer satisfaction and provide differentiated services to clients. The bank has trained 81 CMOs, 45 PB specialists and 48 ACMOs through its KNB Academy in 2004.

Kyongnam Bank has launched global banking in line with its strategy to diversify its marketing channels. The bank forged strategic alliances with two leading investment companies, LG Investment Trust Management (LGITM) and Samsung Investment Trust Management.



Effective February 28, 2005, the bank started selling a mixed equity-type trust fund through its branches in partnership with LGITM. The bank also commenced sales of three types of trust bonds in cooperation with Samsung ITMC.

The LG Mixed Investment Trust No. 1 provides that less than 70% of trust funds are invested in securities or bonds. The minimum investment is 1 million won. This product is guaranteed dividend profits from investment of securities and interest income from investment of bonds. As such, both profitability and safety are assured.

Meanwhile, the Samsung Wealth Plan Bond Investment Trust No. 1 is a bond-type fund in which more than 60% of the trust fund is invested in bonds. No investment in stocks is allowed. The Samsung Wealth Plan 35 Mixed Investment Trust No.1 provides that less than 35% of trust funds are invested in stocks, while up to 65% are invested in bonds. The Samsung Wealth Plan Stocks Trust Investment No. 1 is a high-yield equity-type bond that limits investment of trust funds to stocks. Investment in bonds is limited to 20% or less.

These investment trust products are ideal for persons wanting to accumulate wealth over the long-term and those who want to accumulate wealth in preparation of retirement. Kyongnam Bank plans to accelerate its global banking services to enhance its profile as a leading regional bank and to reinforce its profitability structure.