China Development Financial : KGI Bank

KGI Bank Co., Ltd. and Subsidiaries

Consolidated Financial Statements for the Years Ended December 31, 2023 and 2022 and Independent Auditors' Report

INDEPENDENT AUDITORS' REPORT

KGI Bank Co., Ltd.

Opinion

We have audited the accompanying consolidated financial statements of KGI Bank Co., Ltd. (the "Bank") and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2023 and 2022, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including material accounting policy information (collectively referred to as the "consolidated financial statements").

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Bank and its subsidiaries as of December 31, 2023 and 2022, and their consolidated financial performance and their consolidated cash flows for the years then ended, in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks, guidelines issued by authority, International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission (FSC) of the Republic of China (ROC).

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Financial Statement Audit and Attestation Engagements of Certified Public Accountants and the Standards on Auditing of the ROC. Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Bank and its subsidiaries in accordance with The Norm of Professional Ethics for Certified Public Accountant of the ROC, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

The key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2023. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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The key audit matters for the consolidated financial statements of the Bank and its subsidiaries for the year ended December 31, 2023 are stated as follows:

Impairment of Discounts and Loans

The management assesses the impairment of discounts and loans according to the Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrual Loans (the "Procedures") issued by the FSC of the ROC and IFRS 9, respectively, and then recognizes the higher estimated amount as a reserve for asset impairment. Under the Procedures, impairment is based on the length of time overdue and the status of the collateral, and under IFRS 9, impairment is assessed by considering the probability of default and loss given default, estimated based on historical experience, the present market situation and forward-looking information. Since the important assumptions and input values used in revisions and adjustments involve critical judgments and estimates, the impairment of discounts and loans is deemed to be a key audit matter for the year ended December 31, 2023.

Refer to Notes 4, 5 and 45 for material accounting policy information, critical judgment, estimation uncertainty and related disclosures of the impairment of discounts and loans.

Our key audit procedures performed with respect to the above matter included the following:

We obtained an understanding of the accounting policies and internal controls related to the recognition of impairment. We verified that the impairment assessment procedures, including the classification of the credit assets, the length of time overdue and the status of the collaterals complied with the Procedures. We understood the methodology, main assumptions and parameters adopted by the management in accordance with the IFRS9 impairment model, as well as the important assumptions and input values considered in its revision and adjustment. We selected samples of discounts and loans and evaluated the reasonableness of measuring expected credit losses.

Other Matter

We have also audited the parent company only financial statements of the Bank as of and for the years ended December 31, 2023 and 2022, on which we have issued an unmodified opinion.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Public Banks, guidelines issued by authority, IFRS, IAS, IFRIC, and SIC endorsed and issued into effect by the FSC of the ROC, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the ability of the Bank and its subsidiaries to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank and its subsidiaries or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including the audit committee, are responsible for overseeing the financial reporting process of the Bank and its subsidiaries.

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Auditors' Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Standards on Auditing of the ROC will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with the Standards on Auditing of the ROC, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of the Bank and its subsidiaries.
3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
4. Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability of the Bank and its subsidiaries to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Bank and its subsidiaries to cease to continue as a going concern.
5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
6. Obtain sufficient and appropriate audit evidence regarding the financial information of entities or business activities within the Bank and its subsidiaries to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Bank and its subsidiaries audit. We remain solely responsible for our audit opinion.

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We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2023, and are therefore the key audit matters. We describe these matters in our auditors' report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partners on the audits resulting in this independent auditors' report are Yi-Chun Wu and Jr-Shian Ke.

Deloitte & Touche

Taipei, Taiwan

Republic of China

February 27, 2024

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors' report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors' report and consolidated financial statements shall prevail.

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KGI BANK CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2023 AND 2022

(In Thousands of New Taiwan Dollars)

		2023			2022
ASSETS		Amount	%		Amount	%
CASH AND CASH EQUIVALENTS (Notes 4, 6 and 41)	$	20,073,593	3	$	13,127,228	2
DUE FROM THE CENTRAL BANK AND CALL LOANS TO BANKS (Note 7)		29,682,480	4		54,451,552	7
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 4, 8 and 41)		42,955,118	5		34,166,455	5
FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (Notes 4, 9, 11, 16 and 42)		133,347,230	17		140,684,441	18
DEBT INVESTMENTS MEASURED AT AMORTIZED COST (Notes 4, 10 and 42)		68,412,429	9		58,985,476	8
FINANCIAL ASSETS FOR HEDGING (Notes 4 and 11)		598,459	-		2,025,601	-
SECURITIES PURCHASED UNDER RESELL AGREEMENTS (Notes 4 and 12)		42,097,729	5		15,467,689	2
RECEIVABLES, NET (Notes 4, 13, 41 and 42)		27,964,091	3		30,356,155	4
ASSETS HELD FOR SALE, NET (Notes 4 and 18)		286,530	-		-	-
DISCOUNTS AND LOANS, NET (Notes 4, 14 and 41)		396,926,437	50		394,572,818	51
INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD, NET (Notes 4 and 15)		8,618,704	1		5,139,359	1
OTHER FINANCIAL ASSETS, NET (Notes 4, 17 and 42)		8,746,140	1		1,102,250	-
PROPERTY AND EQUIPMENT, NET (Notes 4, 18 and 42)		5,309,179	1		5,834,074	1
RIGHT-OF-USE ASSETS, NET (Notes 4, 19 and 41)		2,966,664	-		3,337,470	-
INVESTMENT PROPERTY, NET (Notes 4, 20 and 42)		1,644,478	-		1,496,998	-
INTANGIBLE ASSETS, NET		1,155,953	-		1,072,532	-
DEFERRED TAX ASSETS (Notes 4 and 39)		514,773	-		750,316	-
OTHER ASSETS, NET (Notes 21, 41 and 42)		4,190,738	1		7,374,410	1
TOTAL	$	795,490,725	100	$	769,944,824	100
LIABILITIES AND EQUITY
LIABILITIES
Deposits from the Central Bank and banks (Note 22)	$	7,027,312	1	$	11,972,428	2
Financial liabilities at fair value through profit or loss (Notes 4, 8 and 41)		29,320,808	4		35,628,311	5
Financial liabilities for hedging (Notes 4 and 11)		610,323	-		526,268	-
Notes and bonds issued under repurchase agreements (Notes 4, 8, 9, 10 and 23)		42,580,979	5		28,360,984	4
Payables (Notes 24 and 41)		7,807,633	1		10,003,507	1
Current tax liabilities (Notes 4, 39 and 41)		928,340	-		1,051,106	-
Deposits and remittances (Notes 25 and 41)		558,443,269	70		543,685,203	71
Bank debentures payable (Notes 11 and 26)		24,747,803	3		24,753,007	3
Principal received on structured notes		40,405,562	5		39,096,143	5
Other financial liabilities (Note 27)		6,933,027	1		6,424,638	1
Provisions (Notes 4 and 28)		367,586	-		295,926	-
Lease liabilities (Notes 4, 19 and 41)		3,131,695	-		3,493,402	-
Deferred tax liabilities (Notes 4 and 39)		238,817	-		64,214	-
Other liabilities (Notes 30 and 41)		3,728,413	1		3,124,236	-
Total liabilities		726,271,567	91		708,479,373	92
EQUITY (Note 31)
Capital
Common stock		46,061,623	6		46,061,623	6
Capital surplus
Additional paid-in capital		7,245,723	1		7,245,723	1
Other capital surplus		186,355	-		128,808	-
Total capital surplus		7,432,078	1		7,374,531	1
Retained earnings
Legal reserve		10,373,364	1		8,998,877	1
Special reserve		3,417,873	-		210,736	-
Unappropriated earnings		5,498,633	1		4,581,624	1
Total retained earnings		19,289,870	2		13,791,237	2
Other equity		(3,564,413)	-		(5,761,940)	(1)
Total equity		69,219,158	9		61,465,451	8
TOTAL	$	795,490,725	100	$	769,944,824	100

The accompanying notes are an integral part of the consolidated financial statements.

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KGI BANK CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

					Percentage
					Increase
	2023		2022		(Decrease)
	Amount	%	Amount	%	%
INTEREST REVENUE (Notes 4, 32
and 41)	$ 23,369,283	172	$ 15,856,822	120	47
INTEREST EXPENSE (Notes 4, 19, 32
and 41)	(15,669,313)	(115)	(6,316,103)	(48)	148
NET INTEREST	7,699,970	57	9,540,719	72	(19)
NET REVENUE OTHER THAN
INTEREST
Service fee income, net (Notes 4, 33
and 41)	1,831,142	14	1,828,536	14	-
Gain on financial assets or liabilities
measured at fair value through profit
or loss, net (Notes 4 and 34)	1,909,265	14	2,032,279	15	(6)
Realized gain (loss) on financial assets
measured at fair value through other
comprehensive income (Notes 4
and 35)	296,584	2	(1,217,332)	(9)	124
Foreign exchange gain, net	996,059	7	815,152	6	22
Reversal of impairment loss
(impairment loss) on assets, net
(Notes 4 and 36)	(8,659)	-	(3,970)	-	118
Share of the profit of associates
accounted for using equity method
(Notes 4 and 15)	712,653	5	122,291	1	483
Other non-interest gain, net (Note 41)	127,564	1	140,929	1	(9)
Total net revenue other than
interest	5,864,608	43	3,717,885	28	58
TOTAL NET REVENUE	13,564,578	100	13,258,604	100	2
REVERSAL (PROVISION) OF
ALLOWANCE FOR BAD DEBTS
EXPENSE, COMMITMENT AND
GUARANTEE LIABILITY
PROVISION (Note 4)	(179,017)	(1)	209,186	1	(186)
					(Continued)

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KGI BANK CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

					Percentage
					Increase
	2023		2022		(Decrease)
	Amount	%	Amount	%	%
OPERATING EXPENSES (Notes 4, 19,
29, 37, 38 and 41)
Employee benefits expense	$ (4,226,079)	(31)	$ (3,989,804)	(30)	6
Depreciation and amortization expense	(899,798)	(7)	(902,375)	(7)	-
Other general and administrative
expenses	(2,079,686)	(15)	(1,923,908)	(14)	8
Total operating expenses	(7,205,563)	(53)	(6,816,087)	(51)	6
INCOME BEFORE INCOME TAX	6,179,998	46	6,651,703	50	(7)
INCOME TAX EXPENSE (Notes 4
and 39)	(784,667)	(6)	(636,692)	(5)	23
NET INCOME	5,395,331	40	6,015,011	45	(10)
OTHER COMPREHENSIVE INCOME
(LOSS) (Notes 4 and 39)
Items that will not be reclassified
subsequently to profit or loss, net of
tax
Gain (loss) on remeasurement of
defined benefit plans	(11,039)	-	124,241	1	(109)
Gain (loss) on equity instruments
measured at fair value through
other comprehensive income	323,827	2	(2,142,202)	(16)	115
Share of other comprehensive
income (loss) of associates
accounted for using equity
method	79,459	1	(141,787)	(1)	156
Income tax related to components of
other comprehensive income that
will not be reclassified to profit or
loss	8,602	-	180,358	1	(95)
					(Continued)

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KGI BANK CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

							Percentage
							Increase
		2023			2022		(Decrease)
		Amount	%		Amount	%	%
Items that will be reclassified
subsequently to profit or loss, net of
tax
Exchange differences on translation
of foreign financial statements	$	(242,314)	(2)	$	185,514	1	(231)
Share of other comprehensive
income (loss) of associates
accounted for using equity
method		(1,889)	-		89,943	1	(102)
Gain (loss) on debt instruments
measured at fair value through
other comprehensive income		2,259,643	17		(5,508,951)	(42)	141
Impairment loss (reversal of
impairment loss) on debt
instruments measured at fair
value through other
comprehensive income		8,392	-		4,059	-	107
Income tax related to components of
other comprehensive income that
will be reclassified to profit or
loss		(123,852)	(1)		197,284	2	(163)
Other comprehensive income
(loss), net of tax		2,300,829	17		(7,011,541)	(53)	133
TOTAL COMPREHENSIVE INCOME
(LOSS), NET OF TAX	$	7,696,160	57	$	(996,530)	(8)	872
NET PROFIT ATTRIBUTABLE TO:
Owners of parent	$	5,395,331	40	$	6,000,010	45	(10)
Non-controlling interests		-	-		15,001	-	(100)
	$	5,395,331	40	$	6,015,011	45	(10)
TOTAL COMPREHENSIVE INCOME
(LOSS) ATTRIBUTABLE TO:
Owners of parent	$	7,696,160	57	$	(1,013,031)	(8)	860
Non-controlling interests		-	-		16,501	-	(100)
	$	7,696,160	57	$	(996,530)	(8)	872
							(Continued)

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KGI BANK CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

					Percentage
					Increase
	2023		2022		(Decrease)
	Amount	%	Amount	%	%
EARNINGS PER SHARE (NEW
TAIWAN DOLLARS; Note 40)
Basic	$ 1.17		$ 1.30
The accompanying notes are an integral part of the consolidated financial statements.		(Concluded)

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