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Risk Management | 12 Months Ended
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Dec. 31, 2022
Risk Management [Abstract] |
Risk Management |
45. | 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.
(1) | Capital risk management, continued
Details of the Company’s capital management accounts as of December 31, 2021 and 2022 are as follows:
|  |  |  |  | 2021 |  |  | 2022 |
|  |  |  |  | In millions of won |
Total borrowings and debt securities |  | ￦ |  |  |  |  | 80,529,513 |  |  |  | 120,605,365 |
Cash and cash equivalents |  |  |  |  |  |  | 2,635,238 |  |  |  | 3,234,780 |
Net borrowings and debt securities |  |  |  |  |  |  | 77,894,275 |  |  |  | 117,370,585 |
Total equity |  |  |  |  |  |  | 65,326,706 |  |  |  | 42,000,256 |
Debt to equity ratio |  |  |  |  |  |  | 119.24 | % |  |  | 279.45 | %
(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, 2021 and 2022 are as follows:
|  |  |  |  | 2021 |  |  | 2022 |
|  |  |  |  | In millions of won |
Cash and cash equivalents |  | ￦ |  |  |  |  | 2,635,238 |  |  |  | 3,234,780 |
Financial assets at fair value through profit or loss(*1) |  |  |  |  |  |  | 932,736 |  |  |  | 3,610,408 |
Derivative assets (trading) |  |  |  |  |  |  | 443,027 |  |  |  | 693,072 |
Financial assets at fair value through other comprehensive income (debt securities) |  |  |  |  |  |  | 491 |  |  |  | 529 |
Financial assets at amortized cost |  |  |  |  |  |  | 25,273 |  |  |  | 26,998 |
Loans |  |  |  |  |  |  | 909,071 |  |  |  | 1,013,371 |
Long-term/short-term financial instruments |  |  |  |  |  |  | 1,728,508 |  |  |  | 1,353,080 |
Derivative assets (applying hedge accounting) |  |  |  |  |  |  | 204,756 |  |  |  | 324,952 |
Trade and other receivables |  |  |  |  |  |  | 10,029,276 |  |  |  | 12,614,902 |
Financial guarantee contracts(*2) |  |  |  |  |  |  | 3,718,015 |  |  |  | 3,776,060 |
| (*1) | Equity investments held by the Company are excluded.
| (*2) | 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, foreign 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, 2021 and 2022 are as follows:
|  |  |  |  |  |  | 2021 |  |  | 2022 |
Type |  | Accounts |  |  |  |  | 1% Increase |  |  | 1% Decrease |  |  | 1% Increase |  |  | 1% Decrease |
|  |  |  |  |  |  | In millions of won |
Future salary increases |  | Increase (decrease) in defined benefit obligation |  | ￦ |  |  |  |  | 466,832 |  |  |  | (407,554 | ) |  |  | 321,930 |  |  |  | (283,658 | )
Discount rate |  | Increase (decrease) in defined benefit obligation |  |  |  |  |  |  | (422,290 | ) |  |  | 499,571 |  |  |  | (289,229 | ) |  |  | 337,033 |
Changes of employee benefits assuming a 1% increase and decrease movements in discount rate on plan asset for the years ended December 31, 2021 and 2022 are ￦25,649 million and ￦27,495 million, respectively.
| ② | Provisions
Changes in provisions due to movements in underlying assumptions as of December 31, 2021 and 2022 are as follows:
Type |  | Accounts |  | 2021 |  |  | 2022 |
PCBs |  | Inflation rate |  |  | 1.37 | % |  |  | 1.98 | %
|  | Discount rate |  |  | 1.88 | % |  |  | 1.92 | %
Nuclear plants |  | Inflation rate |  |  | 1.41 | % |  |  | 2.25 | %
|  | Discount rate |  |  | 2.20 | % |  |  | 2.48 | %
Spent fuel |  | Inflation rate |  |  | 2.93 | % |  |  | 2.93 | %
|  | Discount rate |  |  | 4.49 | % |  |  | 4.49 | %
Radioactive waste |  | Inflation rate |  |  | 1.00 | % |  |  | 3.06 | %
|  | Discount rate |  |  | 1.87 | % |  |  | 2.62 | %
A sensitivity analysis of provisions assuming a 0.1% increase and decrease movements in the underlying assumptions as of December 31, 2021 and 2022 are as follows:
|  |  |  |  |  |  | 2021 |  |  | 2022 |
Type |  | Accounts |  |  |  |  | 0.1% Increase |  |  | 0.1% Decrease |  |  | 0.1% Increase |  |  | 0.1% Decrease |
|  |  |  |  |  |  | In millions of won |
Discount rate |  | PCBs |  | ￦ |  |  |  |  | (222 | ) |  |  | 223 |  |  |  | (169 | ) |  |  | 169 |
|  | Nuclear plants |  |  |  |  |  |  | (369,540 | ) |  |  | 381,026 |  |  |  | (474,432 | ) |  |  | 491,360 |
|  | Spent fuel |  |  |  |  |  |  | (51,430 | ) |  |  | 53,438 |  |  |  | (54,330 | ) |  |  | 56,453 |
|  | Radioactive waste |  |  |  |  |  |  | (11,201 | ) |  |  | 11,306 |  |  |  | (15,089 | ) |  |  | 15,260 |
Inflation rate |  | PCBs |  |  |  |  |  |  | 224 |  |  |  | (224 | ) |  |  | 169 |  |  |  | (169 | )
|  | Nuclear plants |  |  |  |  |  |  | 403,420 |  |  |  | (391,754 | ) |  |  | 515,262 |  |  |  | (498,258 | )
|  | Spent fuel |  |  |  |  |  |  | 54,210 |  |  |  | (52,245 | ) |  |  | 57,269 |  |  |  | (55,191 | )
|  | Radioactive waste |  |  |  |  |  |  | 10,366 |  |  |  | (10,288 | ) |  |  | 14,190 |  |  |  | 14,056 |
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, 2021 and 2022 are as follows:
|  | Assets |  |  | Liabilities |
Type |  | 2021 |  |  | 2022 |  |  | 2021 |  |  | 2022 |
|  | In thousands of foreign currencies |
AED |  |  | 6,481 |  |  |  | 5,610 |  |  |  | 31,637 |  |  |  | 25,597 |
AUD |  |  | 3,733 |  |  |  | 4,448 |  |  |  | 926,960 |  |  |  | 299,663 |
BDT |  |  | 50,145 |  |  |  | 7,514 |  |  |  | 577 |  |  |  | — |
BWP |  |  | 939 |  |  |  | 824 |  |  |  | — |  |  |  | — |
EGP |  |  | — |  |  |  | — |  |  |  | 595 |  |  |  | 1,162 |
CAD |  |  | 582 |  |  |  | 89 |  |  |  | 2,266 |  |  |  | 595 |
CHF |  |  | — |  |  |  | — |  |  |  | 500,230 |  |  |  | 500,158 |
CZK |  |  | — |  |  |  | — |  |  |  | 386 |  |  |  | 153 |
EUR |  |  | 1,809 |  |  |  | 1,976 |  |  |  | 42,981 |  |  |  | 41,073 |
GBP |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 31 |
HKD |  |  | — |  |  |  | — |  |  |  | 1,651,665 |  |  |  | 4,014,446 |
IDR |  |  | 768,731 |  |  |  | 598,697 |  |  |  | 995,510 |  |  |  | 1,323,840 |
INR |  |  | 1,715,900 |  |  |  | 1,592,380 |  |  |  | 342,833 |  |  |  | 312,978 |
JOD |  |  | 1,852 |  |  |  | 1,146 |  |  |  | 118 |  |  |  | 14 |
JPY |  |  | 697,747 |  |  |  | 568,263 |  |  |  | 153,383 |  |  |  | 1,719,846 |
KZT |  |  | 1,510 |  |  |  | 1,510 |  |  |  | — |  |  |  | — |
MGA |  |  | 4,262,857 |  |  |  | 2,856,045 |  |  |  | 475,807 |  |  |  | 347,403 |
MMK |  |  | 210,335 |  |  |  | 199,518 |  |  |  | — |  |  |  | — |
MYR |  |  | 1,964 |  |  |  | 38,177 |  |  |  | — |  |  |  | — |
PHP |  |  | 164,167 |  |  |  | 68,592 |  |  |  | 104,245 |  |  |  | 7,493 |
PKR |  |  | 200,844 |  |  |  | 533,816 |  |  |  | 74,423 |  |  |  | 219,341 |
RUB |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,881 |
SAR |  |  | 2,615 |  |  |  | 1,713 |  |  |  | — |  |  |  | 9,710 |
SEK |  |  | — |  |  |  | — |  |  |  | 449,167 |  |  |  | 449,211 |
THB |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 389 |
USD |  |  | 1,381,441 |  |  |  | 1,484,614 |  |  |  | 12,023,085 |  |  |  | 13,599,643 |
UYU |  |  | 90,930 |  |  |  | 128,674 |  |  |  | 3,097 |  |  |  | 3,106 |
VND |  |  | 952,135 |  |  |  | 1,184,670 |  |  |  | 262,372 |  |  |  | 4,495 |
ZAR |  |  | 31,971 |  |  |  | 43,461 |  |  |  | — |  |  |  | — |
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, 2021 and 2022 are as follows:
|  |  |  |  | 2021 |  |  | 2022 |
Type |  |  |  |  | 10% Increase |  |  | 10% Decrease |  |  | 10% Increase |  |  | 10% Decrease |
|  |  |  |  | In millions of won |
Increase (decrease) of profit before income tax |  | ￦ |  |  |  |  | (1,439,185 | ) |  |  | 1,439,185 |  |  |  | (1,703,053 | ) |  |  | 1,703,053 |
Increase (decrease) of equity(*) |  |  |  |  |  |  | (1,439,185 | ) |  |  | 1,439,185 |  |  |  | (1,703,053 | ) |  |  | 1,703,053 |
| (*) | 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, 2021 and 2022. 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 currency forward agreements. There is an economic relationship between the hedged item and the hedging instrument as the terms of cross-currency swap agreement is consistent with the terms of expected transaction (repayment of foreign debt securities and others). The hedging ratio is 1:1 as the risk of cross-currency swap agreement matches the hedged instrument. As of December 31, 2022, the hedging instrument (cross-currency swap) hedges the risk of the hedged item(repayment of foreign debt securities and others).
| 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, 2021 and 2022 are as follows:
Type |  |  |  |  | 2021 |  |  | 2022 |
|  |  |  |  | In millions of won |
Short-term borrowings |  | ￦ |  |  |  |  | 391,897 |  |  |  | 3,154,972 |
Long-term borrowings |  |  |  |  |  |  | 2,405,244 |  |  |  | 5,388,073 |
Debt securities |  |  |  |  |  |  | 257,667 |  |  |  | 269,101 |
|  | ￦ |  |  |  |  | 3,054,808 |  |  |  | 8,812,146 |
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, 2021 and 2022 are as follows:
|  |  |  |  | 2021 |  |  | 2022 |
Type |  |  |  |  | 1% Increase |  |  | 1% Decrease |  |  | 1% Increase |  |  | 1% Decrease |
|  |  |  |  | In millions of won |
Increase (decrease) of profit before income tax |  | ￦ |  |  |  |  | (30,548 | ) |  |  | 30,548 |  |  |  | (88,121 | ) |  |  | 88,121 |
Increase (decrease) of shareholder’s equity(*) |  |  |  |  |  |  | (30,548 | ) |  |  | 30,548 |  |  |  | (88,121 | ) |  |  | 88,121 |
| (*) | The effect on the shareholders’ equity excluding the impact of income taxes.
The Company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings. To manage this, the Company enters into interest rate swaps, in which it agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. The above analysis measures the interest rate risk before reflecting the hedge effect by related derivatives.
| ③ | Electricity rates risk
The Company is exposed to electricity rates risk due to changes in government regulations and policies on national power supply schemes and electricity billing rates, in consideration of 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, 2021 and 2022 is as follows:
|  |  |  |  | 2021 |  |  | 2022 |
Type |  |  |  |  | 1% Increase |  |  | 1% Decrease |  |  | 1% Increase |  |  | 1% Decrease |
|  |  |  |  | In millions of won |
Increase (decrease) of profit before income tax |  | ￦ |  |  |  |  | 573,086 |  |  |  | (573,086 | ) |  |  | 661,990 |  |  |  | (661,990 | )
Increase (decrease) of shareholder’s equity(*) |  |  |  |  |  |  | 573,086 |  |  |  | (573,086 | ) |  |  | 661,990 |  |  |  | (661,990 | )
| (*) | The effect on the 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 expected maturities for non-derivative financial liabilities as of December 31, 2021 and 2022 in detail are as follows:
|  |  |  |  | 2021 |
Type |  |  |  |  | Less than 1 year |  |  | 1~2 Years |  |  | 2~5 Years |  |  | More than 5 years |  |  | Total |
|  |  |  |  | In millions of won |
Borrowings and debt securities |  | ￦ |  |  |  |  | 15,833,589 |  |  |  | 11,229,657 |  |  |  | 28,663,693 |  |  |  | 36,223,543 |  |  |  | 91,950,482 |
Lease liabilities |  |  |  |  |  |  | 620,121 |  |  |  | 636,724 |  |  |  | 1,521,421 |  |  |  | 2,150,722 |  |  |  | 4,928,988 |
Trade and other payables |  |  |  |  |  |  | 7,569,869 |  |  |  | 777,017 |  |  |  | 725,231 |  |  |  | 667,304 |  |  |  | 9,739,421 |
Financial guarantee contracts(*) |  |  |  |  |  |  | 435,729 |  |  |  | — |  |  |  | 3,105,599 |  |  |  | 176,687 |  |  |  | 3,718,015 |
|  | ￦ |  |  |  |  | 24,459,308 |  |  |  | 12,643,398 |  |  |  | 34,015,944 |  |  |  | 39,218,256 |  |  |  | 110,336,906 |
|  |  |  |  | 2022 |
Type |  |  |  |  | Less than 1 year |  |  | 1~2 Years |  |  | 2~5 Years |  |  | More than 5 years |  |  | Total |
|  |  |  |  | In millions of won |
Borrowings and debt securities |  | ￦ |  |  |  |  | 26,157,747 |  |  |  | 27,367,577 |  |  |  | 47,361,676 |  |  |  | 37,115,832 |  |  |  | 138,002,832 |
Lease liabilities |  |  |  |  |  |  | 639,756 |  |  |  | 657,210 |  |  |  | 1,390,374 |  |  |  | 1,925,012 |  |  |  | 4,612,352 |
Trade and other payables |  |  |  |  |  |  | 11,369,512 |  |  |  | 347,563 |  |  |  | 1,008,133 |  |  |  | 734,112 |  |  |  | 13,459,320 |
Financial guarantee contracts(*) |  |  |  |  |  |  | 105,091 |  |  |  | 54,310 |  |  |  | 3,495,437 |  |  |  | 121,222 |  |  |  | 3,776,060 |
|  | ￦ |  |  |  |  | 38,272,106 |  |  |  | 28,426,660 |  |  |  | 53,255,620 |  |  |  | 39,896,178 |  |  |  | 159,850,564 |
| (*) | This represents the total guarantee amounts associated with the financial guarantee contracts. Financial guarantee liabilities which are recognized as of December 31, 2021 and 2022 are ￦80,841 million and ￦67,240 million, respectively.
The following table shows the details of maturities of non-derivative financial liabilities as of December 31, 2021 and 2022. 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. The expected maturities for non-derivative financial assets as of December 31, 2021 and 2022 in detail are as follows:
|  |  |  |  | 2021 |
Type |  |  |  |  | Less than 1 year |  |  | 1~5 Years |  |  | More than 5 years |  |  | Other(*) |  |  | Total |
|  |  |  |  | In millions of won |
Cash and cash equivalents |  | ￦ |  |  |  |  | 2,635,238 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,635,238 |
Financial assets at fair value through other comprehensive income |  |  |  |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 435,107 |  |  |  | 435,107 |
Financial assets at amortized cost |  |  |  |  |  |  | 15,422 |  |  |  | 9,840 |  |  |  | 11 |  |  |  | — |  |  |  | 25,273 |
Loans |  |  |  |  |  |  | 88,396 |  |  |  | 443,146 |  |  |  | 407,584 |  |  |  | — |  |  |  | 939,126 |
Long-term/short-term financial instruments |  |  |  |  |  |  | 1,278,014 |  |  |  | 171,636 |  |  |  | 286 |  |  |  | 278,572 |  |  |  | 1,728,508 |
Financial assets at fair value through profit or loss |  |  |  |  |  |  | 360,833 |  |  |  | 346 |  |  |  | 3,130 |  |  |  | 668,555 |  |  |  | 1,032,864 |
Trade and other receivables |  |  |  |  |  |  | 8,123,455 |  |  |  | 1,233,703 |  |  |  | 679,048 |  |  |  | — |  |  |  | 10,036,206 |
|  | ￦ |  |  |  |  | 12,501,358 |  |  |  | 1,858,671 |  |  |  | 1,090,059 |  |  |  | 1,382,234 |  |  |  | 16,832,322 |
|  |  |  |  | 2022 |
Type |  |  |  |  | Less than 1 year |  |  | 1~5 Years |  |  | More than 5 years |  |  | Other(*) |  |  | Total |
|  |  |  |  | In millions of won |
Cash and cash equivalents |  | ￦ |  |  |  |  | 3,234,780 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,234,780 |
Financial assets at fair value through other comprehensive income |  |  |  |  |  |  |  |  |  |  | — |  |  |  | — |  |  |  | 502,829 |  |  |  | 502,829 |
Financial assets at amortized cost |  |  |  |  |  |  | 16,762 |  |  |  | 10,231 |  |  |  | 5 |  |  |  | — |  |  |  | 26,998 |
Loans |  |  |  |  |  |  | 132,877 |  |  |  | 411,594 |  |  |  | 502,050 |  |  |  | — |  |  |  | 1,046,521 |
Long-term/short-term financial instruments |  |  |  |  |  |  | 666,758 |  |  |  | — |  |  |  | 25 |  |  |  | 686,297 |  |  |  | 1,353,080 |
Financial assets at fair value through profit or loss |  |  |  |  |  |  | 3,181,791 |  |  |  | 645 |  |  |  | 3,535 |  |  |  | 523,537 |  |  |  | 3,709,508 |
Trade and other receivables |  |  |  |  |  |  | 10,464,191 |  |  |  | 1,083,593 |  |  |  | 1,080,831 |  |  |  | — |  |  |  | 12,628,615 |
|  | ￦ |  |  |  |  | 17,697,159 |  |  |  | 1,506,063 |  |  |  | 1,586,446 |  |  |  | 1,712,663 |  |  |  | 22,502,331 |
| (*) | The maturities cannot be presently determined.
Derivative liabilities classified by maturity periods which from reporting date to maturity dates as per the contracts as of December 31, 2021 and 2022 are as follows:
|  |  |  |  | 2021 |
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 and others |  |  |  |  |  |  | (6,628 | ) |  |  | (4,954 | ) |  |  | (33,635 | ) |  |  | (2,291 | ) |  |  | (47,508 | )
—Hedging |  |  |  |  |  |  | (2,555 | ) |  |  | (638 | ) |  |  | (1,914 | ) |  |  | (23,704 | ) |  |  | (28,811 | )
|  | ￦ |  |  |  |  | (9,183 | ) |  |  | (5,592 | ) |  |  | (35,549 | ) |  |  | (25,995 | ) |  |  | (76,319 | )
|  |  |  |  | 2022 |
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 and others |  |  |  |  |  |  | (42,663 | ) |  |  | (15,225 | ) |  |  | (171,130 | ) |  |  | (84,924 | ) |  |  | (313,942 | )
—Hedging |  |  |  |  |  |  | — |  |  |  | (10,064 | ) |  |  | (5,176 | ) |  |  | (10,265 | ) |  |  | (25,505 | )
|  | ￦ |  |  |  |  | (42,663 | ) |  |  | (25,289 | ) |  |  | (176,306 | ) |  |  | (95,189 | ) |  |  | (339,447 | )
Derivative assets classified by maturity periods which from reporting date to maturity dates as per the contracts as of December 31, 2021 and 2022 are as follows:
|  |  |  |  | 2021 |
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 |  |  |  |  |  |  | 93,554 |  |  |  | 54,617 |  |  |  | 202,663 |  |  |  | 105,856 |  |  |  | 456,690 |
—Hedging |  |  |  |  |  |  | 33,564 |  |  |  | 65,198 |  |  |  | 102,760 |  |  |  | 3,235 |  |  |  | 204,757 |
|  | ￦ |  |  |  |  | 127,118 |  |  |  | 119,815 |  |  |  | 305,423 |  |  |  | 109,091 |  |  |  | 661,447 |
|  |  |  |  | 2022 |
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 |  |  |  |  |  |  | 861,621 |  |  |  | 160,938 |  |  |  | (352,657 | ) |  |  | 65,661 |  |  |  | 735,563 |
—Hedging |  |  |  |  |  |  | 134,390 |  |  |  | 47,502 |  |  |  | 131,258 |  |  |  | — |  |  |  | 313,150 |
|  | ￦ |  |  |  |  | 996,011 |  |  |  | 208,440 |  |  |  | (221,399 | ) |  |  | 65,661 |  |  |  | 1,048,713 |
(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 the future contractual cash flows based on current market interest rates applied to similar financial instruments.
| (i) | Fair value and book value of financial assets and liabilities as of December 31, 2021 and 2022 are as follows:
|  |  |  |  | 2021 |  |  | 2022 |
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 |  | ￦ |  |  |  |  | 435,107 |  |  |  | 435,107 |  |  |  | 502,829 |  |  |  | 502,829 |
Derivative assets (trading) |  |  |  |  |  |  | 443,027 |  |  |  | 443,027 |  |  |  | 693,072 |  |  |  | 693,072 |
Derivative assets (hedge designated) |  |  |  |  |  |  | 204,756 |  |  |  | 204,756 |  |  |  | 324,952 |  |  |  | 324,952 |
Financial assets at fair value through profit or loss |  |  |  |  |  |  | 1,032,864 |  |  |  | 1,032,864 |  |  |  | 3,709,508 |  |  |  | 3,709,508 |
|  | ￦ |  |  |  |  | 2,115,754 |  |  |  | 2,115,754 |  |  |  | 5,230,361 |  |  |  | 5,230,361 |
Assets carried at amortized cost |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial assets at amortized cost |  | ￦ |  |  |  |  | 25,273 |  |  |  | 25,273 |  |  |  | 26,998 |  |  |  | 26,998 |
Loans and receivables |  |  |  |  |  |  | 909,071 |  |  |  | 909,071 |  |  |  | 1,013,371 |  |  |  | 1,013,371 |
Trade and other receivables |  |  |  |  |  |  | 10,029,276 |  |  |  | 10,029,276 |  |  |  | 12,614,902 |  |  |  | 12,614,902 |
Long-term financial instruments |  |  |  |  |  |  | 450,494 |  |  |  | 450,494 |  |  |  | 686,322 |  |  |  | 686,322 |
Short-term financial instruments |  |  |  |  |  |  | 1,278,014 |  |  |  | 1,278,014 |  |  |  | 666,758 |  |  |  | 666,758 |
Cash and cash equivalents |  |  |  |  |  |  | 2,635,238 |  |  |  | 2,635,238 |  |  |  | 3,234,780 |  |  |  | 3,234,780 |
|  | ￦ |  |  |  |  | 15,327,366 |  |  |  | 15,327,366 |  |  |  | 18,243,131 |  |  |  | 18,243,131 |
Liabilities recognized at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities (trading) |  | ￦ |  |  |  |  | 56,256 |  |  |  | 56,256 |  |  |  | 407,246 |  |  |  | 407,246 |
Derivative liabilities (hedge designated) |  |  |  |  |  |  | 21,775 |  |  |  | 21,775 |  |  |  | 25,505 |  |  |  | 25,505 |
|  | ￦ |  |  |  |  | 78,031 |  |  |  | 78,031 |  |  |  | 432,751 |  |  |  | 432,751 |
Liabilities carried at amortized cost |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Secured borrowings |  | ￦ |  |  |  |  | 176,358 |  |  |  | 176,358 |  |  |  | 102,368 |  |  |  | 102,368 |
Unsecured bond |  |  |  |  |  |  | 73,881,671 |  |  |  | 69,803,043 |  |  |  | 105,185,189 |  |  |  | 96,846,056 |
Lease liabilities |  |  |  |  |  |  | 4,410,503 |  |  |  | 4,410,503 |  |  |  | 4,163,143 |  |  |  | 4,163,143 |
Unsecured borrowings |  |  |  |  |  |  | 6,471,484 |  |  |  | 5,938,613 |  |  |  | 15,282,193 |  |  |  | 15,280,693 |
Trade and other payables(*) |  |  |  |  |  |  | 9,739,421 |  |  |  | 9,739,421 |  |  |  | 13,459,320 |  |  |  | 13,459,320 |
Bank overdraft |  |  |  |  |  |  | — |  |  |  | — |  |  |  | 35,615 |  |  |  | 35,615 |
|  | ￦ |  |  |  |  | 94,679,437 |  |  |  | 90,067,938 |  |  |  | 138,227,828 |  |  |  | 129,887,195 |
| (*) | Excludes 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 rates used for calculating fair value as of December 31, 2021 and 2022 are as follows:
Type |  | 2021 |  |  | 2022 |
Derivatives |  |  | (-) 0.63% ~ 3.88% |  |  |  | 0.60% ~ 7.93% |
Borrowings and debt securities |  |  | (-) 0.30% ~ 4.38% |  |  |  | 0.75% ~ 5.84% |
Finance lease |  |  | 0.00% ~ 16.83% |  |  |  | 0.00% ~ 17.08% |
| (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, 2021 and 2022 are as follows:
|  |  |  |  | 2021 |
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 |  | ￦ |  |  |  |  | 273,826 |  |  |  | — |  |  |  | 161,281 |  |  |  | 435,107 |
Derivative assets |  |  |  |  |  |  | — |  |  |  | 647,783 |  |  |  | — |  |  |  | 647,783 |
Financial assets at fair value through profit or loss |  |  |  |  |  |  | — |  |  |  | 1,027,067 |  |  |  | 5,797 |  |  |  | 1,032,864 |
|  | ￦ |  |  |  |  | 273,826 |  |  |  | 1,674,850 |  |  |  | 167,078 |  |  |  | 2,115,754 |
Financial liabilities at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities |  | ￦ |  |  |  |  | — |  |  |  | 78,031 |  |  |  | — |  |  |  | 78,031 |
|  |  |  |  | 2022 |
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 |  | ￦ |  |  |  |  | 300,057 |  |  |  | — |  |  |  | 202,772 |  |  |  | 502,829 |
Derivative assets |  |  |  |  |  |  | — |  |  |  | 1,018,024 |  |  |  | — |  |  |  | 1,018,024 |
Financial assets at fair value through profit or loss |  |  |  |  |  |  | — |  |  |  | 3,703,179 |  |  |  | 6,329 |  |  |  | 3,709,508 |
|  | ￦ |  |  |  |  | 300,057 |  |  |  | 4,721,203 |  |  |  | 209,101 |  |  |  | 5,230,361 |
Financial liabilities at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities |  | ￦ |  |  |  |  | — |  |  |  | 432,751 |  |  |  | — |  |  |  | 432,751 |
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, 2021 and 2022 are as follows:
|  |  |  |  | 2021 |
|  |  |  |  | Beginning balance |  |  | Acquisitions |  |  | Reclassified category |  |  | Valuation |  |  | Disposal |  |  | Foreign currency translation and others |  |  | Ending balance |
|  |  |  |  | In millions of won |
Financial assets at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial assets at fair value through profit or loss Cooperative |  | ￦ |  |  |  |  | 5,692 |  |  |  | — |  |  |  | — |  |  |  | 105 |  |  |  | — |  |  |  | — |  |  |  | 5,797 |
Financial assets at fair value through other comprehensive income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unlisted securities |  |  |  |  |  |  | 163,889 |  |  |  | 8,929 |  |  |  | — |  |  |  | (12,335 | ) |  |  | (13 | ) |  |  | 320 |  |  |  | 160,790 |
Debt securities |  |  |  |  |  |  | — |  |  |  | 500 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (9 | ) |  |  | 491 |
|  |  |  |  | 2022 |
|  |  |  |  | Beginning balance |  |  | Acquisitions |  |  | Reclassified category |  |  | Valuation |  |  | Disposal |  |  | Foreign currency translation and others |  |  | Ending balance |
|  |  |  |  | In millions of won |
Financial assets at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial assets at fair value through profit or loss Cooperative |  | ￦ |  |  |  |  | 5,797 |  |  |  | 400 |  |  |  | — |  |  |  | 132 |  |  |  | — |  |  |  | — |  |  |  | 6,329 |
Financial assets at fair value through other comprehensive income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unlisted securities |  |  |  |  |  |  | 160,790 |  |  |  | 9,451 |  |  |  | — |  |  |  | 33,237 |  |  |  | — |  |  |  | (1,235 | ) |  |  | 202,243 |
Debt securities |  |  |  |  |  |  | 491 |  |  |  | — |  |  |  | — |  |  |  | 38 |  |  |  | — |  |  |  | — |  |  |  | 529 |

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