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Risk Management | 12 Months Ended
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Dec. 31, 2018
Risk Management [Abstract] |
Risk Management |
48. | Risk Management
(1) | Capital risk management
The Company manages its capital to ensure that entities in the Company will be able to continue while maximizing the return to shareholder through the optimization of the debt and equity balance. The capital structure of the Company consists of net debt (offset by cash and cash equivalents) and equity. The Company’s overall capital risk management strategy remains consistent with the prior year. Details of the Company’s capital management accounts as of December 31, 2017 and 2018 are as follows:
|  |  |  |  | 2017 |  |  | 2018 |
|  |  |  |  | In millions of won |
Total borrowings and debt securities |  | ￦ |  |  |  |  | 54,747,392 |  |  |  | 61,034,627 |
Cash and cash equivalents |  |  |  |  |  |  | 2,369,739 |  |  |  | 1,358,345 |
Net borrowings and debt securities |  |  |  |  |  |  | 52,377,653 |  |  |  | 59,676,282 |
Total shareholder’s equity |  |  |  |  |  |  | 72,964,641 |  |  |  | 71,092,762 |
Debt to equity ratio |  |  |  |  |  |  | 71.78 | % |  |  | 83.94 | %
(2) | Financial risk management
The Company is exposed to various risks related to its financial instruments, such as, market risk (currency risk, interest rate risk, price risk), credit risk. The Company monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyze exposures by degree and magnitude of risks. The Company uses derivative financial instruments to hedge certain risk exposures. The Company’s overall financial risk management strategy remains consistent with the prior year.
| (i) | Credit risk
Credit risk is the risk of finance loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises primarily from the sales activities, securities and derivatives. In addition, credit risk exposure may exist within financial guarantees and unused line of credits. As these financial institutions the Company makes transactions with are reputable financial institutions, the credit risk from them are considered limited. The Company decides credit transaction limits based on evaluation of client’s credit, through information obtained from the credit bureau and disclosed financial position at committing contracts.
| ① | Credit risk management
Electricity sales, the main operations of the Company are the necessity for daily life and industrial activities of Korean nationals, and have importance as one of the national key industries. The Company dominates the domestic market supplying electricity to customers. The Company is not exposed to significant credit risk as customers of the Company are diverse and are from various industries and areas. The Company uses publicly available information and its own internal data related to trade receivables, to rate its major customers and to measure the credit risk that a counter party will default on a contractual obligation. For the incurred but not recognized loss, it is measured considering overdue period.
| ② | Impairment and allowance account
In accordance with the Company policies, individual material financial assets are assessed on a regular basis, trade receivables that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Value of the acquired collateral (including the confirmation of feasibility) and estimated collectable amounts are included in this assessment. Allowance for bad debts assessed on a collective basis are recognized for (i) the group of assets which individually are not material and (ii) incurred but not recognized losses that are assessed using statistical methods, judgment and past experience. Book values of the financial assets represent the maximum exposed amounts of the credit risk. Details of the Company’s level of maximum exposure to credit risk as of December 31, 2017 and 2018 are as follows:
|  |  |  |  | 2017 |  |  | 2018 |
|  |  |  |  | In millions of won |
Cash and cash equivalents |  | ￦ |  |  |  |  | 2,369,739 |  |  |  | 1,358,345 |
Financial assets at fair value through profit or loss |  |  |  |  |  |  | — |  |  |  | 920,935 |
Financial assets at fair value through profit or loss |  |  |  |  |  |  | 111,512 |  |  |  | — |
Derivative assets (trading) |  |  |  |  |  |  | 22,020 |  |  |  | 37,631 |
Equity investment at fair value through other comprehensive income |  |  |  |  |  |  | — |  |  |  | 399,495 |
Available-for-sale financial assets |  |  |  |  |  |  | 699,833 |  |  |  | — |
Financial assets at amortized cost |  |  |  |  |  |  | — |  |  |  | 14,042 |
Held-to-maturity investments |  |  |  |  |  |  | 3,144 |  |  |  | — |
Loans |  |  |  |  |  |  | 905,641 |  |  |  | 718,674 |
Long-term/short-term financial instruments |  |  |  |  |  |  | 2,244,514 |  |  |  | 2,318,027 |
Derivative assets (applying hedge accounting) |  |  |  |  |  |  | 10,606 |  |  |  | 64,704 |
Trade and other receivables |  |  |  |  |  |  | 9,683,769 |  |  |  | 9,613,437 |
Financial guarantee contracts(*) |  |  |  |  |  |  | 1,154,862 |  |  |  | 1,310,817 |
| (*) | Maximum exposure associated with the financial guarantee contracts is the maximum amounts of the obligation.
As of the reporting date, there are no financial assets and non-financial assets that were acquired through the exercise of the right of collateralized assets and reinforcement of credit arrangement.
| (ii) | Market risk
Market risk is the risk that the Company’s fair values of the financial instruments or future cash flows are affected by the changes in the market. Market risk consists of interest rate risk, currency risk and other price risk.
| (iii) | Sensitivity analysis
Significant assets and liabilities with uncertainties in underlying assumptions
| ① | Defined benefit obligation
A sensitivity analysis of defined benefit obligation assuming a 1% increase and decrease movements in the actuarial valuation assumptions as of December 31, 2017 and 2018 are as follows:
|  |  |  |  |  |  | 2017 |  |  | 2018 |
Type |  | Accounts |  |  |  |  | 1% Increase |  |  | 1% Decrease |  |  | 1% Increase |  |  | 1% Decrease |
|  | In millions of won |
Future salary increases |  | Increase (decrease) in defined benefit obligation |  | ￦ |  |  |  |  | 354,852 |  |  |  | (305,494 | ) |  |  | 416,956 |  |  |  | (363,820 | )
Discount rate |  | Increase (decrease) in defined benefit obligation |  |  |  |  |  |  | (313,597 | ) |  |  | 377,148 |  |  |  | (377,221 | ) |  |  | 445,833 |
Changes of employee benefits assuming a 1% increase and decrease movements in discount rate on plan asset for the years ended December 31, 2017 and 2018 are ￦8,926 million and ￦14,646 million, respectively.
| ② | Provisions
Changes in provisions due to movements in underlying assumptions as of December 31, 2017 and 2018 are as follows:
Type |  | Accounts |  | 2017 |  |  | 2018 |
PCBs |  | Inflation rate |  |  | 1.23 | % |  |  | 1.27 | %
|  | Discount rate |  |  | 2.55 | % |  |  | 2.18 | %
Nuclear plants |  | Inflation rate |  |  | 1.21 | % |  |  | 1.21 | %
|  | Discount rate |  |  | 2.94 | % |  |  | 2.94 | %
Spent fuel |  | Inflation rate |  |  | 2.93 | % |  |  | 2.93 | %
|  | Discount rate |  |  | 4.49 | % |  |  | 4.49 | %
A sensitivity analysis of provisions assuming a 0.1% increase and decrease movements in the underlying assumptions as of December 31, 2017 and 2018 are as follows:
|  |  |  |  |  |  | 2017 |  |  | 2018 |
Type |  | Accounts |  |  |  |  | 0.1% Increase |  |  | 0.1% Decrease |  |  | 0.1% Increase |  |  | 0.1% Decrease |
|  | In millions of won |
Discount rate |  | PCBs |  | ￦ |  |  |  |  | (811 | ) |  |  | 816 |  |  |  | (623 | ) |  |  | 627 |
|  | Nuclear plants |  |  |  |  |  |  | (262,949 | ) |  |  | 270,370 |  |  |  | (256,513 | ) |  |  | 263,595 |
|  | Spent fuel |  |  |  |  |  |  | (51,015 | ) |  |  | 52,997 |  |  |  | (49,182 | ) |  |  | 51,098 |
Inflation rate |  | PCBs |  |  |  |  |  |  | 826 |  |  |  | (822 | ) |  |  | 632 |  |  |  | (629 | )
|  | Nuclear plants |  |  |  |  |  |  | 287,926 |  |  |  | (280,249 | ) |  |  | 294,984 |  |  |  | (287,110 | )
|  | Spent fuel |  |  |  |  |  |  | 53,763 |  |  |  | (51,823 | ) |  |  | 51,837 |  |  |  | (49,961 | )
Management judgment effected by uncertainties in underlying assumptions
| ① | Foreign currency risk
The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities as of December 31, 2017 and 2018 are as follows:
|  | Assets |  |  | Liabilities |
Type |  | 2017 |  |  | 2018 |  |  | 2017 |  |  | 2018 |
|  | In thousands of foreign currencies |
AED |  |  | 5,693 |  |  |  | 10,513 |  |  |  | 2,049 |  |  |  | 5,890 |
AUD |  |  | 145 |  |  |  | 143 |  |  |  | 652,259 |  |  |  | 717,712 |
BDT |  |  | 60,208 |  |  |  | 71,575 |  |  |  | 1,001 |  |  |  | 1,175 |
BWP |  |  | 797 |  |  |  | 1,214 |  |  |  | — |  |  |  | — |
CAD |  |  | 82 |  |  |  | 96 |  |  |  | 171 |  |  |  | 4 |
CHF |  |  | — |  |  |  | — |  |  |  | 400,004 |  |  |  | 400,000 |
CNY |  |  | 13,007 |  |  |  | — |  |  |  | 26,140 |  |  |  | 26,140 |
EUR |  |  | 5,708 |  |  |  | 337 |  |  |  | 68,003 |  |  |  | 105,673 |
GBP |  |  | 3 |  |  |  | — |  |  |  | 2,327 |  |  |  | 1 |
HKD |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,650,000 |
IDR |  |  | 167,775 |  |  |  | 60,568 |  |  |  | — |  |  |  | 206,935 |
INR |  |  | 1,228,259 |  |  |  | 1,228,795 |  |  |  | 227,078 |  |  |  | 183,963 |
JOD |  |  | 1,624 |  |  |  | 2,764 |  |  |  | 5 |  |  |  | 5 |
JPY |  |  | 799,501 |  |  |  | 35,935 |  |  |  | 21,624,128 |  |  |  | 390,921 |
KZT |  |  | 359 |  |  |  | 319 |  |  |  | — |  |  |  | — |
MGA |  |  | 2,762,572 |  |  |  | 3,318,447 |  |  |  | 319,581 |  |  |  | 170,641 |
NOK |  |  | — |  |  |  | — |  |  |  | 482 |  |  |  | — |
PHP |  |  | 189,261 |  |  |  | 709,285 |  |  |  | 125,431 |  |  |  | 66,985 |
PKR |  |  | 251,190 |  |  |  | 305,542 |  |  |  | 4,676 |  |  |  | 3,588 |
SAR |  |  | 1,191 |  |  |  | 2,024 |  |  |  | 44 |  |  |  | — |
SEK |  |  | — |  |  |  | — |  |  |  | 449,002 |  |  |  | 450,000 |
USD |  |  | 1,653,858 |  |  |  | 1,422,510 |  |  |  | 8,321,335 |  |  |  | 8,103,602 |
UYU |  |  | 12,955 |  |  |  | 39,898 |  |  |  | 10,586 |  |  |  | 4,253 |
ZAR |  |  | 361 |  |  |  | 170 |  |  |  | 4 |  |  |  | 4 |
MMK |  |  | — |  |  |  | 25,208 |  |  |  | — |  |  |  | — |
GHS |  |  | — |  |  |  | 25,794 |  |  |  | — |  |  |  | — |
A sensitivity analysis on the Company’s income for the period assuming a 10% increase and decrease in currency exchange rates as of December 31, 2017 and 2018 are as follows:
|  |  |  |  | 2017 |  |  | 2018 |
Type |  |  |  |  | 10% Increase |  |  | 10% Decrease |  |  | 10% Increase |  |  | 10% Decrease |
|  |  |  |  | In millions of won |
Increase (decrease) of profit before income tax |  | ￦ |  |  |  |  | (844,122 | ) |  |  | 844,122 |  |  |  | (887,561 | ) |  |  | 887,561 |
Increase (decrease) of shareholder’s equity(*) |  |  |  |  |  |  | (844,122 | ) |  |  | 844,122 |  |  |  | (887,561 | ) |  |  | 887,561 |
| (*) | The effect on the shareholders’ equity excluding the impact of income taxes.
The sensitivity analysis above is conducted for monetary assets and liabilities denominated in foreign currencies other than functional currency, without consideration of hedge effect of related derivatives, as of December 31, 2017 and 2018. To manage its foreign currency risk related to foreign currency denominated receivables and payables, the Company has a policy to enter into currency forward agreements. In addition, to manage its foreign currency risk related to foreign currency denominated expected sales transactions and purchase transactions, the Company enters into cross-currency swap agreements.
| ② | Interest rate risk
The Company is exposed to interest rate risk due to its borrowing with floating interest rates. A 1% increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. The Company’s borrowings and debt securities with floating interest rates as of December 31, 2017 and 2018 are as follows:
Type |  |  |  |  | 2017 |  |  | 2018 |
|  |  |  |  | In millions of won |
Short-term borrowings |  | ￦ |  |  |  |  | 290,873 |  |  |  | 24,235 |
Long-term borrowings |  |  |  |  |  |  | 1,743,252 |  |  |  | 2,358,860 |
Debt securities |  |  |  |  |  |  | 685,700 |  |  |  | — |
|  | ￦ |  |  |  |  | 2,719,825 |  |  |  | 2,383,095 |
A sensitivity analysis on the Company’s long-term borrowings and debt securities assuming a 1% increase and decrease in interest rates, without consideration of hedge effect of related derivatives for the years ended December 31, 2017 and 2018 are as follows:
|  |  |  |  | 2017 |  |  | 2018 |
Type |  |  |  |  | 1% Increase |  |  | 1% Decrease |  |  | 1% Increase |  |  | 1% Decrease |
|  |  |  |  | In millions of won |
Increase (decrease) of profit before income tax |  | ￦ |  |  |  |  | (27,198 | ) |  |  | 27,198 |  |  |  | (23,831 | ) |  |  | 23,831 |
Increase (decrease) of shareholder’s equity(*) |  |  |  |  |  |  | (27,198 | ) |  |  | 27,198 |  |  |  | (23,831 | ) |  |  | 23,831 |
| (*) | The effect on the shareholders’ equity excluding the impact of income taxes.
To manage its interest rate risks, the Company enters into certain interest swap agreements or maintains an appropriate mix of fixed and floating rate borrowings.
| ③ | Electricity rates risk
The Company is exposed to electricity rates risk due to the rate regulation of the government which considers the effect of electricity rate on the national economy. A sensitivity analysis on the Company’s income for the period assuming a 1% increase and decrease in price of electricity for the years ended December 31, 2017 and 2018 are as follows:
|  |  |  |  | 2017 |  |  | 2018 |
Type |  |  |  |  | 1% Increase |  |  | 1% Decrease |  |  | 1% Increase |  |  | 1% Decrease |
|  |  |  |  | In millions of won |
Increase (decrease) of profit before income tax |  | ￦ |  |  |  |  | 546,499 |  |  |  | (546,499 | ) |  |  | 568,420 |  |  |  | (568,420 | )
Increase (decrease) of shareholder’s equity(*) |  |  |  |  |  |  | 546,499 |  |  |  | (546,499 | ) |  |  | 568,420 |  |  |  | (568,420 | )
| (*) | The effect on the shareholders’ equity excluding the impact of income taxes.
| (iv) | Liquidity risk
The Company has established an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by continuously monitoring forecasted and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. In addition, the Company has established credit lines on its trade financing and bank overdrafts, and through payment guarantees it has received, it maintains an adequate credit (borrowing) line. In addition, the Company has the ability to utilize excess cash or long-term borrowings for major construction investments. The following table shows the details of maturities of non-derivative financial liabilities as of December 31, 2017 and 2018. This table, based on the undiscounted cash flows of the non-derivative financial liabilities including estimated interests, has been prepared based on the respective liabilities’ earliest maturity date.
|  |  |  |  | 2017 |
Type |  |  |  |  | Less than 1 year |  |  | 1~2 Years |  |  | 2~5 Years |  |  | More than 5 years |  |  | Total |
|  |  |  |  | In millions of won |
Borrowings and debt securities |  | ￦ |  |  |  |  | 10,748,437 |  |  |  | 7,948,320 |  |  |  | 21,331,394 |  |  |  | 22,694,867 |  |  |  | 62,723,018 |
Finance lease liabilities |  |  |  |  |  |  | 174,534 |  |  |  | 87,709 |  |  |  | 185,284 |  |  |  | 108,749 |  |  |  | 556,276 |
Trade and other payables |  |  |  |  |  |  | 5,867,729 |  |  |  | 301,165 |  |  |  | 698,289 |  |  |  | 1,937,558 |  |  |  | 8,804,741 |
Financial guarantee contracts(*) |  |  |  |  |  |  | 7,081 |  |  |  | 18,054 |  |  |  | 1,049,667 |  |  |  | 80,060 |  |  |  | 1,154,862 |
|  | ￦ |  |  |  |  | 16,797,781 |  |  |  | 8,355,248 |  |  |  | 23,264,634 |  |  |  | 24,821,234 |  |  |  | 73,238,897 |
|  |  |  |  | 2018 |
Type |  |  |  |  | Less than 1 year |  |  | 1~2 Years |  |  | 2~5 Years |  |  | More than 5 years |  |  | Total |
|  |  |  |  | In millions of won |
Borrowings and debt securities |  | ￦ |  |  |  |  | 10,204,471 |  |  |  | 9,274,378 |  |  |  | 28,143,311 |  |  |  | 25,312,534 |  |  |  | 72,934,694 |
Finance lease liabilities |  |  |  |  |  |  | 87,709 |  |  |  | 87,709 |  |  |  | 141,074 |  |  |  | 65,250 |  |  |  | 381,742 |
Trade and other payables |  |  |  |  |  |  | 6,348,195 |  |  |  | 150,479 |  |  |  | 375,661 |  |  |  | 2,188,950 |  |  |  | 9,063,285 |
Financial guarantee contracts(*) |  |  |  |  |  |  | 91,722 |  |  |  | 855,488 |  |  |  | 363,607 |  |  |  | — |  |  |  | 1,310,817 |
|  | ￦ |  |  |  |  | 16,732,097 |  |  |  | 10,368,054 |  |  |  | 29,023,653 |  |  |  | 27,566,734 |  |  |  | 83,690,538 |
| (*) | This represents the total guarantee amounts associated with the financial guarantee contracts. Financial guarantee liabilities which are recognized as of December 31, 2017 and 2018 are ￦23,475 million and ￦15,586 million, respectively.
The expected maturities for non-derivative financial assets as of December 31, 2017 and 2018 in detail are as follows:
|  |  |  |  | 2017 |
Type |  |  |  |  | Less than 1 year |  |  | 1~5 Years |  |  | More than 5 years |  |  | Other(*) |  |  | Total |
|  |  |  |  | In millions of won |
Cash and cash equivalents |  | ￦ |  |  |  |  | 2,369,739 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,369,739 |
Available-for-sale financial assets |  |  |  |  |  |  | — |  |  |  | — |  |  |  | 214,156 |  |  |  | 485,677 |  |  |  | 699,833 |
Held-to-maturity investments |  |  |  |  |  |  | 5 |  |  |  | 3,139 |  |  |  | — |  |  |  | — |  |  |  | 3,144 |
Loans |  |  |  |  |  |  | 244,309 |  |  |  | 261,672 |  |  |  | 429,628 |  |  |  | 10,821 |  |  |  | 946,430 |
Long-term/short-term financial instruments |  |  |  |  |  |  | 1,702,084 |  |  |  | 201,821 |  |  |  | 340,304 |  |  |  | 305 |  |  |  | 2,244,514 |
Financial assets at fair value through profit or loss |  |  |  |  |  |  | — |  |  |  | — |  |  |  | 111,512 |  |  |  | — |  |  |  | 111,512 |
Trade and other receivables |  |  |  |  |  |  | 7,930,715 |  |  |  | 920,539 |  |  |  | 788,795 |  |  |  | 52,031 |  |  |  | 9,692,080 |
|  | ￦ |  |  |  |  | 12,246,852 |  |  |  | 1,387,171 |  |  |  | 1,884,395 |  |  |  | 548,834 |  |  |  | 16,067,252 |
|  |  |  |  | 2018 |
Type |  |  |  |  | Less than 1 year |  |  | 1~5 Years |  |  | More than 5 years |  |  | Other(*) |  |  | Total |
|  |  |  |  | In millions of won |
Cash and cash equivalents |  | ￦ |  |  |  |  | 1,358,345 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,358,345 |
Equity investment at fair value through other comprehensive income |  |  |  |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 399,495 |  |  |  | 399,495 |
Financial assets at amortized cost |  |  |  |  |  |  | 11,956 |  |  |  | 2,086 |  |  |  | — |  |  |  | — |  |  |  | 14,042 |
Loans |  |  |  |  |  |  | 123,646 |  |  |  | 314,744 |  |  |  | 319,988 |  |  |  | — |  |  |  | 758,378 |
Long-term/short-term financial instruments |  |  |  |  |  |  | 1,869,286 |  |  |  | 278,899 |  |  |  | 164,057 |  |  |  | 5,785 |  |  |  | 2,318,027 |
Financial assets at fair value through profit or loss |  |  |  |  |  |  | 313,893 |  |  |  | 81,828 |  |  |  | 483,398 |  |  |  | 41,816 |  |  |  | 920,935 |
Trade and other receivables |  |  |  |  |  |  | 7,795,619 |  |  |  | 1,067,800 |  |  |  | 701,743 |  |  |  | 57,651 |  |  |  | 9,622,813 |
|  | ￦ |  |  |  |  | 11,472,745 |  |  |  | 1,745,357 |  |  |  | 1,669,186 |  |  |  | 504,747 |  |  |  | 15,392,035 |
| (*) | The maturities cannot be presently determined.
Derivative liabilities classified by maturity periods which from reporting date to maturity date of contract as of December 31, 2017 and 2018 are as follows:
|  |  |  |  | 2017 |
Type |  |  |  |  | Less than 1 year |  |  | 1~2 Years |  |  | 2~5 Years |  |  | More than 5 years |  |  | Total |
|  |  |  |  | In millions of won |
Net settlement |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
—Trading |  | ￦ |  |  |  |  | (774 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (774 | )
Gross settlement |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
—Trading |  |  |  |  |  |  | (51,496 | ) |  |  | (19,887 | ) |  |  | (16,597 | ) |  |  | (4,967 | ) |  |  | (92,947 | )
—Hedging |  |  |  |  |  |  | (17,547 | ) |  |  | (28,977 | ) |  |  | (192,205 | ) |  |  | (44,137 | ) |  |  | (282,866 | )
|  | ￦ |  |  |  |  | (69,817 | ) |  |  | (48,864 | ) |  |  | (208,802 | ) |  |  | (49,104 | ) |  |  | (376,587 | )
|  |  |  |  | 2018 |
Type |  |  |  |  | Less than 1 year |  |  | 1~2 Years |  |  | 2~5 Years |  |  | More than 5 years |  |  | Total |
|  |  |  |  | In millions of won |
Net settlement |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
—Trading |  | ￦ |  |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Gross settlement |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
—Trading |  |  |  |  |  |  | 5,734 |  |  |  | 16,565 |  |  |  | 28,283 |  |  |  | 40,124 |  |  |  | 90,706 |
—Hedging |  |  |  |  |  |  | 5,154 |  |  |  | (43,447 | ) |  |  | 71,840 |  |  |  | (40,917 | ) |  |  | (7,370 | )
|  | ￦ |  |  |  |  | 10,888 |  |  |  | (26,882 | ) |  |  | 100,123 |  |  |  | (793 | ) |  |  | 83,336 |
(3) | Fair value risk
The fair value of the Company’s actively-traded financial instruments (i.e. FVTPL, FVOCI, etc.) is based on the traded market-price as of the reporting period end. The fair value of the Company’s financial assets is the amount which the asset could be exchanged for or the amount a liability could be settled for. The fair values of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. If there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, the Company uses that technique. For trade receivables and payables, the Company considers the carrying value net of impairment as fair value. While for disclosure purposes, the fair value of financial liabilities is estimated by discounting a financial instruments with similar contractual cash flows based on the effective interest method.
| (i) | Fair value and book value of financial assets and liabilities as of December 31, 2017 and 2018 are as follows:
|  |  |  |  | 2017 |  |  | 2018 |
Type |  |  |  |  | Book value |  |  | Fair value |  |  | Book value |  |  | Fair value |
|  |  |  |  | In millions of won |
Assets recognized at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial assets at fair value through other comprehensive income |  | ￦ |  |  |  |  | — |  |  |  | — |  |  |  | 399,495 |  |  |  | 399,495 |
Available-for-sale financial assets(*1) |  |  |  |  |  |  | 699,833 |  |  |  | 699,833 |  |  |  | — |  |  |  | — |
Derivative assets (trading) |  |  |  |  |  |  | 22,020 |  |  |  | 22,020 |  |  |  | 37,631 |  |  |  | 37,631 |
Derivative assets (applying hedge accounting) |  |  |  |  |  |  | 10,606 |  |  |  | 10,606 |  |  |  | 64,704 |  |  |  | 64,704 |
Long-term financial instruments |  |  |  |  |  |  | 542,430 |  |  |  | 542,430 |  |  |  | — |  |  |  | — |
Short-term financial instruments |  |  |  |  |  |  | 1,702,084 |  |  |  | 1,702,084 |  |  |  | — |  |  |  | — |
Financial assets at fair value through profit or loss |  |  |  |  |  |  | — |  |  |  | — |  |  |  | 920,935 |  |  |  | 920,935 |
Financial assets at fair value through profit or loss |  |  |  |  |  |  | 111,512 |  |  |  | 111,512 |  |  |  | — |  |  |  | — |
|  | ￦ |  |  |  |  | 3,088,485 |  |  |  | 3,088,485 |  |  |  | 1,422,765 |  |  |  | 1,422,765 |
Assets carried at amortized cost |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial assets at amortized cost |  | ￦ |  |  |  |  | — |  |  |  | — |  |  |  | 14,042 |  |  |  | 14,042 |
Held-to-maturity investments |  |  |  |  |  |  | 3,144 |  |  |  | 3,144 |  |  |  | — |  |  |  | — |
Loans and receivables |  |  |  |  |  |  | 905,641 |  |  |  | 905,641 |  |  |  | 718,674 |  |  |  | 718,674 |
Long-term financial instruments |  |  |  |  |  |  | — |  |  |  | — |  |  |  | 448,741 |  |  |  | 448,741 |
Short-term financial instruments |  |  |  |  |  |  | — |  |  |  | — |  |  |  | 1,869,286 |  |  |  | 1,869,286 |
Trade and other receivables |  |  |  |  |  |  | 9,683,769 |  |  |  | 9,683,769 |  |  |  | 9,613,437 |  |  |  | 9,613,437 |
Cash and cash equivalents |  |  |  |  |  |  | 2,369,739 |  |  |  | 2,369,739 |  |  |  | 1,358,345 |  |  |  | 1,358,345 |
|  | ￦ |  |  |  |  | 12,962,293 |  |  |  | 12,962,293 |  |  |  | 14,022,525 |  |  |  | 14,022,525 |
Liabilities recognized at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities (trading) |  | ￦ |  |  |  |  | 150,929 |  |  |  | 150,929 |  |  |  | 99,010 |  |  |  | 99,010 |
Derivative liabilities (applying hedge accounting) |  |  |  |  |  |  | 277,130 |  |  |  | 277,130 |  |  |  | 213,153 |  |  |  | 213,153 |
|  | ￦ |  |  |  |  | 428,059 |  |  |  | 428,059 |  |  |  | 312,163 |  |  |  | 312,163 |
Liabilities carried at amortized cost |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Secured borrowings |  | ￦ |  |  |  |  | 1,055,554 |  |  |  | 1,055,554 |  |  |  | 741,029 |  |  |  | 741,029 |
Unsecured bond |  |  |  |  |  |  | 51,146,783 |  |  |  | 53,436,659 |  |  |  | 56,603,988 |  |  |  | 58,804,070 |
Finance lease liabilities |  |  |  |  |  |  | 418,260 |  |  |  | 418,260 |  |  |  | 283,806 |  |  |  | 283,806 |
Unsecured borrowings |  |  |  |  |  |  | 2,476,196 |  |  |  | 2,477,055 |  |  |  | 3,522,602 |  |  |  | 3,950,517 |
Trade and other payables(*2) |  |  |  |  |  |  | 8,804,741 |  |  |  | 8,804,741 |  |  |  | 9,063,285 |  |  |  | 9,063,285 |
Bank overdraft |  |  |  |  |  |  | 68,859 |  |  |  | 68,859 |  |  |  | 167,008 |  |  |  | 167,008 |
|  | ￦ |  |  |  |  | 63,970,393 |  |  |  | 66,261,128 |  |  |  | 70,381,718 |  |  |  | 73,009,715 |
| (*1) | Book value of equity securities held by the Company that were measured at cost as of December 31, 2017 is ￦37,926 million as a quoted market price does not exist in an active market and its fair value cannot be measured reliably.
| (*2) | Excludes finance lease liabilities.
| (ii) | Interest rates used for determining fair value
The interest rates used to discount estimated cash flows, when applicable, are based on the government yield curve at the reporting date plus an adequate credit spread. The discount rate used for calculating fair value as of December 31, 2017 and 2018 are as follows:
Type |  | 2017 |  |  | 2018 |
Derivatives |  |  | 0.03% ~ 4.16% |  |  |  | 0.02% ~ 4.16% |
Borrowings and debt securities |  |  | 0.08% ~ 4.38% |  |  |  | 0.51% ~ 5.14% |
Finance lease |  |  | 9.00% ~ 10.83% |  |  |  | 3.50% ~ 10.83% |
| (iii) | Fair value hierarchy
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, classified as Level 1, 2 or 3, based on the degree to which the fair value is observable. Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities; Level 2: Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and Level 3: Inputs that are not based on observable market data. Fair values of financial instruments by hierarchy level as of December 31, 2017 and 2018 are as follows:
|  |  |  |  | 2017 |
Type |  |  |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
|  |  |  |  | In millions of won |
Financial assets at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale financial assets |  | ￦ |  |  |  |  | 274,453 |  |  |  | 214,156 |  |  |  | 173,298 |  |  |  | 661,907 |
Derivative assets |  |  |  |  |  |  | — |  |  |  | 18,466 |  |  |  | 14,160 |  |  |  | 32,626 |
Financial assets at fair value through profit or loss |  |  |  |  |  |  | — |  |  |  | 111,512 |  |  |  | — |  |  |  | 111,512 |
|  | ￦ |  |  |  |  | 274,453 |  |  |  | 344,134 |  |  |  | 187,458 |  |  |  | 806,045 |
Financial liabilities at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities |  | ￦ |  |  |  |  | — |  |  |  | 428,059 |  |  |  | — |  |  |  | 428,059 |
|  |  |  |  | 2018 |
Type |  |  |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
|  |  |  |  | In millions of won |
Financial assets at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial assets at fair value through other comprehensive income |  | ￦ |  |  |  |  | 210,056 |  |  |  | — |  |  |  | 189,439 |  |  |  | 399,495 |
Derivative assets |  |  |  |  |  |  | — |  |  |  | 100,490 |  |  |  | 1,845 |  |  |  | 102,335 |
Financial assets at fair value through profit or loss |  |  |  |  |  |  | 106,600 |  |  |  | 809,283 |  |  |  | 5,052 |  |  |  | 920,935 |
|  | ￦ |  |  |  |  | 316,656 |  |  |  | 909,773 |  |  |  | 196,336 |  |  |  | 1,422,765, |
Financial liabilities at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities |  | ￦ |  |  |  |  | — |  |  |  | 310,008 |  |  |  | 2,155 |  |  |  | 312,163 |
The fair value of financial assets (FVTPL and FVOCI) publicly traded is measured at the closing bid price quoted at the end of the reporting period. Meanwhile, the fair value of unquoted financial assets (FVTPL and FVOCI) is calculated using the valuation results from an external pricing service in which weighted average borrowing rates of interest of evaluated companies are used as a discount rate. The fair value of derivatives is measured using valuation model which is determined at the present value of estimated future cash flows discounted at current market interest rate. Changes of financial assets and liabilities which are classified as level 3 for the years ended December 31, 2017 and 2018 are as follows:
|  |  |  |  | 2017 |
|  |  |  |  | Beginning balance |  |  | Acquisition |  |  | Reclassified category |  |  | Valuation |  |  | Disposal |  |  | Foreign currency translation |  |  | Ending balance |
|  |  |  |  | In millions of won |
Financial assets at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Available-for-sale financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unlisted securities |  | ￦ |  |  |  |  | 269,461 |  |  |  | — |  |  |  | (92,128 | ) |  |  | (6,201 | ) |  |  | — |  |  |  | 2,166 |  |  |  | 173,298 |
|  |  |  |  | 2018 |  |  |  |
|  |  |  |  | Beginning balance |  |  | Effect of change in accounting policy |  |  | Acquisition |  |  | Reclassified category |  |  | Valuation |  |  | Disposal |  |  | Foreign currency translation |  |  | Ending balance |
|  |  |  |  | In millions of won |  |  |  |
Financial assets at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial assets at fair value through profit or loss |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cooperative |  | ￦ |  |  |  |  | — |  |  |  | 5,038 |  |  |  | — |  |  |  | — |  |  |  | 14 |  |  |  | — |  |  |  | — |  |  |  | 5,052 |
Financial assets at fair value through other comprehensive income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unlisted securities |  |  |  |  |  |  | — |  |  |  | 197,450 |  |  |  | — |  |  |  | — |  |  |  | (11,744 | ) |  |  | (326 | ) |  |  | 4,059 |  |  |  | 189,439 |

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