1. Analysis on Profitability (1) Funding cost(2) PD,LGD(3) Eligible guarantor(4) Profitability Analysis Table

2. Stand-by L/C (1) Limit confirmation procedures prior to acquisition as collateral(2) Stand-by L/C Documentation(3) Cautions in Acquiring & Managing Collateral(4) Others

3. LOC (Letter of Comfort)(1) What is LOC?(2) Contents(3) Supplementary Measures(4) Others

Credit Administrative Work 2

2

• Calculation Method of Funding Cost

AS-ISBorrowing Interest from Headquarter

“Libor for each Period+ KEB Premium + Liquidity Premium”

To be quoted on a daily basis after completion of IT development of Profitability Analysis

Calculation withWeighted Average

TO-BE

• Cost of Loan Borrowing Interest Rate from Headquarter (Libor for each Period + KEB Premium + Liquidity Premium) + E/LE/L

• E/L Rate

Domestic Overseas

Borrowing Interest Ratefrom Headquarter

U/L rate(to be added)+ +E/L Rate Borrowing Interest Rate

from Headquarter+ E/L Rate

1. Analysis on Profitability

(2) PD, LGD

• E/L Calculation Formula

Realization Value of Collateral = (1- LGD for each Collateral)

Expected Loss = PD × LGD

Net Exposure = {Monthly Average Balance × (LGD for each Product orCredit Conversion Factor(CCF)) – Realization Value of Collateral }×Unsecured LGD

•PD (Probability of Default)Probability of Default for each Credit Rating

Rating PD (%) Rating PD (%)

1 0.03 6(+) 3.90

2 0.10 6(0) 5.80

3 0.25 6(-) 8.55

4 0.50 7 13.00

5(+) 0.85 8 20

5(0) 1.60 9 50

5(-) 2.60 10 100

PD for each Credit Rating

(1) Funding cost

•LGD (Loss Given Default ) Loss in case of Default

○ Repayment rate (probability) varies according to type of loan and presence of Collateral○ Type of LGD

○ Off-Balance Asset : CCF to on-balance asset

Secured LGD Loss amount exceeding the realizationvalue of collateral among loan

Secured LGD = 1- Realization Value of Collateral

Secured LGD LGD for each Product Unsecured LGD

LGD for each Product Loss Rate based on Traits of Product

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Target Product LGD

Commercial Paper(24111000), Commercial Paper(24112000) 25%

D/P(25302000)Renego of D/P(25303000)

26%

D/A(25305000)Renego of D/A (25305000)

78%

Other Bills Purchased (25308000) 5%

Bank Guaranteed Bills Discounted (24113000) 5%

L/C-base bill of exchange purchased (25301000,25303000,25304000,25307000) 5%

Banker’s Usance, Shipper’s Usance, Domestic Import Usance 50%

DPL (21103000,21104000,21601000,21101000,21105000,21608000) 20%

Available for Sale Securities 10%

Other On-Balance Commercial Loan (Corporate) 100%

Unsecured LGDExcess after partial collection through subrogation & voluntary liquidation ofguarantor

○ Unsecured LGD: Indiscriminate application of 64% to corporate loan○ Unsecured portion of Loan: 36% would be collected through subrogation & voluntary liquidation of guarantor

Credit Conversion FactorRisk for default with conversion of off-balance asset to on-balance asset

Product Conversion Rate

Sight L/C 9%

Usance L/C 51%

Other Guarantee (Bond, Etc), Undeterminable Guarantees, Clean L/C

6%

Letter of Guarantee 83%

Loan commitment, Underwriting commitment, Securities Purchase Contract, Other commitment, Securities Sold under Repurchase

Agreement50%

CCF

Ex)

L/C Issuance(Sight) Off-Balance Asset No

settlement

Loss after subrogated payment: 9%

(3) Eligible Guarantor

Guarantee by creditworthy guarantorSecurity

interest

Reduction in E/L

Increase in Profit

4

•Application of Credit Rating of Guarantor in E/L Calculation

＜Credit Rating Of Debtor

Credit RatingOf Guarantor

ApplyingCredit Rating of Guarantor

＜Credit RatingOf Local Company

Credit Rating Of Parent Company

In Korea

Applying Credit Rating ofParent Company

Comparing Credit Rating of Debtor and Guarantor

Comparing Credit Rating of Local Company & Parent Company

In case of dependence on Parent Company

재무지표

○ Rating of Guarantor of 5(0) or higher

○ Rating of Guarantor > Rating of Debtor

○ Applicable when satisfying more than 3 among 5 financial indexes

Interest Coverage Ratio>1.0

Cash Coverage Ratio>1.0

Equity>0 Net Income>0

Net Working Capital>0

Financial Index Standard

○ Distortion of performance assessment results & error in decision of approval authority ○ Refer to the loan officer of Headquarter when it is difficult to grasp current status of parent company in Korea

• Qualification of Eligible Guarantor

• When not fully meeting qualification of eligible Guarantor

(4) Drawing Profitability Analysis Table

• Drawing E/L TableCalculation of expected loss for each foreign transaction

Definition of Term

1. Credit Rating of Debtor: Mandatory Item 2. Joint Collateral (realization value) Amount: If there are joint collateral, put amount 3. average loan balance (a): put average loan balance for the year during the period

4. LGD for each product or average loan balance after reflection of CCF: average loan balance (a) X LGD for each product or CCF

6. average loan balance after reflection of joint collateral (d): average loan balance after reflection of LGD for each product or CCF – joint collateral amount (b)

7. Net Exposure (e): average loan balance after reflection of joint collateral (d) – apportionment of joint collateral realization value on loan of the year X credit LGD

put the month (mandatory),

yearly E/L average loan balance (a),,

final credit rating

E/L reflection for each credit rating

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○ Select Borrower Rating for Final Credit Rating (mandatory item) → In case of applying guarantor rating as qualified guarantor, select credit rating of guarantor○ Put realization value of joint collateral for target debtor to ‘joint collateral amount (realization value)’ cell →in case of acquiring comprehensive collateral○ Selection of loan category ○ Put average balance amount (average balance estimated for next 1 year) ○ If there are special collateral, put in the category.Put separating general loan and guarantee○ Confirm on E/L Rate on bottom of table

• Drawing Profitability Analysis Table

○ Drawing Fund Operation Put Int. Rate → Put Interest rate or guaranty rate of the loan Funding Cost = Funding Cost Market Interest (libor) + KEB Premium + Fluidity Premium

※Scheduled to be registered to international loan board weekly before completion of computation (Board for personnel in charge – data room)※For the Int. Rate of Deposit, funding cost application interest shall be calculated with cost.

Sect i on ofFund

Per i od

FundingCost

Aplicationinterst

Funding CostMarketInterest

KEBPremium

Fl ui di t yPremi um

1day 5.2725 5.3025 - 0.0300 0.0000

7day 5.2998 5.3148 - 0.0150 0.0000

1month 5.3500 5.3200 0.0300 0.0000

2month 5.4200 5.3400 0.0800 0.0000

3month 5.4700 5.3600 0.1100 0.0000

6month 5.4800 5.3600 0.1100 0.0100

1year 5.4900 5.3600 0.1100 0.0200

2year 5.5400 5.3600 0.1100 0.0700

3year 5.5900 5.3600 0.1100 0.1200

5year 5.7600 5.3600 0.1100 0.2900

10year 6.1600 5.3600 0.1100 0.6900

Based on 3MLIBOR forover 3M

○ Draw same as past from Guarantee ~ Other None interest income○ Put in green cell only

* Since E/L rate may change with change in rating of debtor or increase in loan, draw E/L Table of past 1 year and next 1 year separate

After E/L Reduction

After E/L Reduction

After E/L Reduction

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○ Request for Limit Confirmation : Send official letter including the L/C Issuance Bank, Guarantee Amount, Guarantee Period, Contents of Loan for Guarantee Target, Etc.

Request for Limit Confirmation

Acquisition of Limit Confirmation Approval

2. Stand-by L/C (1) Confirmation Procedures for Limit before Collateral Acquisition

Acquisition of Stand-by L/C collateral from domestic and foreign financial institutes

Foreign Branch &

Field Corporation

Sales DepartmentOf Financial Institution

(2)Stand-by L/C • Procedures when acquiring Stand-by L/C collateral

Drawing L/C Writing In-Advance Issuance toIssuing Bank

Request for Stand-by L/C Issuance

We, Daehan Bank Myungdong Branch, hereby issue our irrevocable stand-by letter of credit No. 1234 in your favor for account of ABC Corporation America, Inc., (borrower’s name) up to an aggregate amount of USD 5,000,000 (Say U.S. Dollars Five million only) plus accrued interest and overdue interest as a security for your credits (including working capital loans, T/R Loans, L/C issuance) extended to ABC Corporation America, Inc. This stand-by letter of credit shall be available against your tested TELEX / SWIFT stating that ABC Corporation America, Inc has failed to repay any principal and/or accrued interest due to yourselves effected under this letter of credit.This stand-by letter of credit shall expire on July 20, 2000 and any claim must be received by us on or before July 31, 2000, after which date this letter of credit shall become null and void. This stand-by letter of credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce Publication No. 500.

Stand-by L/C Writing

• Ex) In case complex transaction cannot expect the guarantee effect by Stand-by L/C writing

=>Conclusion after in-advance consultation with reviewers in charge of international loan team on L/C writing

(3) Cautions in Acquiring and Managing Collateral

(A) Guarantee Amount

Loan handling same As Stand-by L/C

amount

○ Impossible to request to perform liabilities for guarantee on accrued interest and deferred interest○ Claim separating principal and interest

○ ex) “up to an aggregate amount of U$5,000,000 (principal) plus accrued interest and overdue interest”

Acquiring collateral in Stand-by L/C amount

Indicated of only loan principal

In case Stand-by L/C amount is U$5,000,000, loan is handled for U$4,800,000, Difference U$200,000 is for cushion on accrued interest and deferred interest

○ Loan handling under Stand-by L/C amount considering generation of Accrued interest and deferred interest

○ ex)

7

(B) Beneficiary

Prevent objection of issuing bank when requesting performance

of liabilities for guarantee

○ Ban sale between branch of Stand-by L/C collateral loan and field corporation○ Control transfer between branches and in-advance consultation with international loan team

(C) Document for requesting performance of liabilities for guarantee

○ Promote convenience in requesting performance of liabilities for guarantee in charge of condition notifying default of debtor by TELEX or SWIFT

○ Mandatory confirmation on acceptance of issuing bank after sending TELEX / SWIFT Message via phone

TELEX SWIFT Message

(D)L/C Expiration Date and Period for Requesting Liabilities for Guarantee

L/C Expiration Date○ Set period for requesting liabilities for guarantee after the L/C expiration date (over at least 1 week)○ Securing the period necessary in requesting the liabilities for guarantee after L/C expiration date

In case L/C expiration date isSame as period for requesting

Liabilities for guarantee

○ Set period of loan at least 1 week prior to L/C expiration date

○ Commonly 1 month before is adequate

(4) Others

In case L/C issuing bank is intentionally delaying the performance of

liabilities for guarantee

In case acquiring our bank issued Stand-by L/C as collateral

Safekeeping of Stand-by L/C

4)Management of Stand-by L/C Expiration Date

○ send official letter or swift message requesting performance of liabilities for guarantee and notify same contents to international loan team○ International loan team examines the collection through contacting bank or their A/C charge)

○ Thorough analysis on primary repayment source of debtor ○ Prevent loan determination depending on Stand-by L/C collateral○ Minimization on probabilities for performance of liabilities for guarantee of domestic branch

○ Original copy of Stand-by L/C is stored within fire-proof vault ○ Attach copy to credit file

○ Place and manage separate book

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3.LOC(Letter of Comfort) (1) What is LOC?

Guarantee type where there is no legal binding but commitment to credit or reputation of holding company or government when subsidiary or public organization gets emergency loan,

Problem of LOC No Legal Binding

○ Actually there is no legal binding since guarantee is abstract or there is no explicit agreement

○ It cannot be used in important transaction where creditor wants to secure legal right of claim

○ Means to substitute guarantee when guarantee with legal binding cannot be performed

1.Recognition on Case of Loan

•Recognition on liabilities of guarantor•Recognition on purpose of approval•Prevention on avoiding responsibility for guarantee

2,Maintenance of Ownership of Interest)

•Promise on maintenance of ownership of interest based on certain standarduntil the fulfillment of obligation•Stipulation of guarantee of debt for creditors•No claim for damages on violationof promise

3,Support for Main Debtor

•Contents on Management of Subsidiary Company “Do best so that subsidiary company can be operated based on appropriate accounting policy” “Exercise voting right so that subsidiary company can perform liabilities on date of payment.”Guarantee on Maintenance of Asset of Subsidiary Company“Do not withdraw asset from subsidiary company in scale liabilities of subsidiary company cannot be fulfilled.” “Provide means necessary for subsidiary company to fulfill the liabilities”

Issues regarding legal effect or binding of LOC differ based on the contents

Measures of bank to utilize LOC as effective means for preservation of bond

Stipulation on Submission of Guarantee

○ Stipulation of holding company to provide guarantee satisfactory to bank when requested○ Effect of stipulation : * Accusation on responsibility for claim of damage: Accusation on responsibility forclaim of damage when holding company violates guarantee submission stipulation, * Mandatory indication of one’s intentions for conclusion of guarantee contract regarding the holding company.

Governing LawCompetent Court

○ Provision of holding company within Korea to holding company* Conclude competent court for resolution of conflict based on governing law and LOC

(3)Supplementary Measures

Supplementary Letter of Comfort

Writing

○Standard : Standard supplementing the issues of LOC○ Request LOC in the direction as profitable to bank as possible.

(2) Contents of LOC

9

X X X CorporationTo : Korea Exchange Bank, X X Branch (the “Bank”)Dear Sirs,Re : Letter of ComfortWe refer to the banking facilities of up to U$ (US$ ) (the “Facilities”) extended by the Ba

nk to our subsidiary, X X X Ltd.,(the “Borrower”)having its registered office at . pursuant to the Loan Agreement dated . , (the “Agreement”) between the Bank and the Borrower.

We hereby acknowledge your granting the Loan Facility and confirm that we will not change % ownership of the Borrower without your prior written consent.

We, X X X Corporation, also agree that we will maintain control over the management of the Borrower. Further, we will exercise our influence as parent company to the end that the Borrower will observe the highest standards of professional conduct so as to be in a position to meet its obligations at all times.

Further, if and when the Bank requires parent guaranty from our party based on the Bank’s regular review of the Borrower, we hereby unconditionally and irrevocably promise to provide joint and several guarantee to fully cover the obligation of the Borrower under the Facilities maintained hereinabove substantially in the form acceptable to the Bank

This Letter of Comfort hereunder shall remain valid and effective until full payment of all sums shall have been made under the Facilities.

This Letter of Comfort shall be governed by and construed in accordance with the laws of the Republic of Korea and we hereby submit to the jurisdiction of Seoul Distric Court.

IN WITNESS WHEREOF, the undersigned has executed this Letter of Comfort on the day of . , .Sincerely yours, X X X CorporationTitleName

LOC Writing Standard

Focus○ LOC signed by unauthorized person : Of no help to preservation of bond

○ Must confirm whether or not it is signed by authorized person

○ Put corporate seal together with signature, request certificate of corporate seal and Minutes of board of directors meeting

Examination on Authority Of Signee ○ Request submission of document confirming the authority to personnel in

charge * Method to present authority differs a little for each company

(4) Others