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Other Financial Assets and Liabilities | 12 Months Ended
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Dec. 31, 2022
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Other Financial Assets and Liabilities |
7. | Other Financial Assets and Liabilities
Details of other financial assets and liabilities as at December 31, 2021 and 2022, are as follows:
( i n millions of Korean won) |  | December 31, 2021 |  |  | December 31, 2022 |
Other financial assets |  |  |  |  |  |  |  |
Financial assets at amortized cost 1 |  | ￦ | 608,389 |  |  | ￦ | 1,060,058 |
Financial assets at fair value through profit or loss 1,2 |  |  | 952,319 |  |  |  | 1,064,856 |
Financial assets at fair value through other comprehensive income 1 |  |  | 347,877 |  |  |  | 1,508,192 |
Derivatives used for hedging |  |  | 99,453 |  |  |  | 190,830 |
Less: Non-current |  |  | (822,379 | ) |  |  | (2,501,484 | )
Current |  | ￦ | 1,185,659 |  |  | ￦ | 1,322,452 |
Other financial liabilities |  |  |  |  |  |  |  |
Financial liabilities at amortized cost 3 |  | ￦ | 263,500 |  |  | ￦ | 246,606 |
Financial liabilities at fair value through profit or loss |  |  | 216,040 |  |  |  | 141,280 |
Derivatives used for hedging |  |  | 18,126 |  |  |  | 33,555 |
Less: Non-current |  |  | (424,859 | ) |  |  | (412,650 | )
Current |  | ￦ | 72,807 |  |  | ￦ | 8,791 |
1 | As at December 31, 2022, the Group’s other financial assets amounting to ￦ 102,215 million (December 31, 2021: ￦ 115,033 million), which consist of checking account deposits, time deposits and others, are subject to withdrawal restrictions.
2 | As at December 31, 2022, the Group provided investments in Korea Software Financial Cooperative amounting to ￦ 5,626 million as a collateral for the payment guarantee provided by the Cooperative.
3 | The amount includes liabilities related to the obligation to acquire additional shares in Epsilon Global Communications Pte. Ltd. and MILLIE Co., Ltd. (Note 20).
Details of financial assets at fair value through profit or loss as at December 31, 2021 and 2022, are as follows:
( i n millions of Korean won) |  | December 31, 2021 |  |  | December 31, 2022 |
Equity Instruments (Listed) |  | ￦ | 24,285 |  |  | ￦ | 26,647 |
Equity Instruments (Unlisted) |  |  | 64,835 |  |  |  | 72,517 |
Debt securities |  |  | 862,481 |  |  |  | 942,274 |
Derivatives held for trading 1 |  |  | 718 |  |  |  | 23,418 |
Total |  |  | 952,319 |  |  |  | 1,064,856 |
Less: non-current |  |  | (488,040 | ) |  |  | (609,887 | )
Current |  | ￦ | 464,279 |  |  | ￦ | 454,969 |
1 | During the year ended December 31, 2022, derivative assets amount to ￦ 18,996 million, which is recognized by an agreement with LS Cable & System Ltd. In connection with KT Submarine Co., Ltd. (Note 20).
The maximum exposure of debt instruments of financial assets recognized at fair value through profit or loss to credit risk is the carrying amount as at December 31, 2022. Details of financial assets at fair value through other comprehensive income as at December 31, 2021 and 2022, are as follows:
( i n millions of Korean won) |  | December 31, 2021 |  |  | December 31, 2022 |
Equity Instruments (Listed) 1 |  | ￦ | 19,079 |  |  | ￦ | 1,006,476 |
Equity Instruments (Unlisted) |  |  | 234,048 |  |  |  | 496,284 |
Debt securities |  |  | 94,750 |  |  |  | 5,432 |
Total |  |  | 347,877 |  |  |  | 1,508,192 |
Less: non-current |  |  | (259,435 | ) |  |  | (1,508,192 | )
Current |  | ￦ | 88,442 |  |  | ￦ | — |
1 | As at December 31, 2022, financial assets at fair value through other comprehensive income include shares of Shinhan Financial Group Co., Ltd., HYUNDAI MOBIS, and HYUNDAI MOTOR COMPANY.
Upon disposal of these equity investments, any balance within the accumulated other comprehensive income for these equity investments is not classified to profit or loss, but to retained earnings. Upon disposal of these debt investments, the remaining balance of the accumulated other comprehensive income of debt investments is reclassified to profit or loss. During the period ended December 31, 2021, the Group sold all Mastercard Inc. shares. The fair value of the shares sold is ￦ 206,840 million, and the cumulative amount recognized in comprehensive income after tax is ￦ 76,296 million. Of these, ￦ 53,052 million is reclassified as retained earnings attributable to owners of the Controlling Company. Details of valuation of derivatives used for hedging as at December 31, 2021 and 2022, are as follows:
|  | December 31, 2021 |  |  | December 31, 2022 |
( i n millions of Korean won) |  | Assets |  |  | Liabilities |  |  | Assets |  |  | Liabilities |
Interest rate swap 1, 3 |  | ￦ | — |  |  | ￦ | 77 |  |  | ￦ | 4,236 |  |  | ￦ | — |
Currency swap 2, 3 |  |  | 99,453 |  |  |  | 18,049 |  |  |  | 186,594 |  |  |  | 33,555 |
Total |  |  | 99,453 |  |  |  | 18,126 |  |  |  | 190,830 |  |  |  | 33,555 |
Less: non-current |  |  | (67,889 | ) |  |  | (242 | ) |  |  | (147,141 | ) |  |  | (33,555 | )
Current |  | ￦ | 31,564 |  |  | ￦ | 17,884 |  |  | ￦ | 43,689 |  |  | ￦ | — |
1 | The interest rate swap contract is to hedge the risk of variability in future fair value of the borrowings.
2 | The currency swap contract is to hedge the risk of variability in cash flow from the borrowings. In applying the cash flow hedge accounting, the Group hedges its exposures to cash flow fluctuation until September 7, 2034.
3 | The amount of derivatives subject to the second phase of interest rate indicator reform is assets ￦ 100,537 million, liabilities ￦ 500 million and the Group is assessing the impact of switching to an alternative interest rate indicator.
The full fa ir value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months and, as a current asset or liability, if the maturity of the hedged item is less than 12 months. The valuation gains and losses on the derivatives contracts for the years ended December 31, 2020, 2021 and 2022, are as follows:
( i n millions of Korean won) |  | 2020 |  |  | 2021 |  |  | 2022 |
Type of Transaction |  | Valuation gain |  |  | Valuation loss |  |  | Other comprehensive income 1 |  |  | Valuation gain |  |  | Valuation loss |  |  | Other comprehensive income 1 |  |  | Valuation gain |  |  | Valuation Loss |  |  | Other comprehensive income 1 |
Interest rate swap |  | ￦ | — |  |  | ￦ | — |  |  | ￦ | (567 | ) |  | ￦ | — |  |  | ￦ | — |  |  | ￦ | 1 |  |  | ￦ | 63 |  |  | ￦ | 490 |  |  | ￦ | 4,666 |
Currency swap |  |  | — |  |  |  | 161,661 |  |  |  | (113,175 | ) |  |  | 203,961 |  |  |  | 7,206 |  |  |  | 191,569 |  |  |  | 154,611 |  |  |  | 20,723 |  |  |  | 79,781 |
Currency forwards |  |  | — |  |  |  | 2,049 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 754 |
Total |  | ￦ | — |  |  | ￦ | 163,710 |  |  | ￦ | (113,742 | ) |  | ￦ | 203,961 |  |  | ￦ | 7,206 |  |  | ￦ | 191,570 |  |  | ￦ | 154,674 |  |  | ￦ | 21,213 |  |  | ￦ | 85,201 |
1 | The amounts directly reflected in equity are before adjustments of deferred income tax and allocation to the non-controlling interest.
The ineffective portion recognized in profit or loss on the cash flow hedges are valuation gains of ￦ 2,707 million for the year ended December 31, 2022 (2020: valuation loss of ￦ 2,711 million, 2021: valuation gain of ￦ 11,825 million). The unsettled amount of derivative instruments for the years ended December 31, 2021 and 2022, are as follows: (i) Hedging instruments
( i n millions of Korean won and thousands of foreign currencies) |  | 2021 |
|  |  |  |  |  |  | Book value of hedging instruments |  |  | Changes in fair value to calculate the ineffective portion of hedges |
Currency |  | Foreign currency |  |  | Contract amount |  |  | Assets |  |  | Liabilities |
USD |  |  | 2,016,350 |  |  | ￦ | 2,322,085 |  |  | ￦ | 93,948 |  |  | ￦ | 77 |  |  | ￦ | 186,130 |
JPY |  |  | 30,000,000 |  |  |  | 326,751 |  |  |  | — |  |  |  | 18,049 |  |  |  | (7,199 | )
SGD |  |  | 284,000 |  |  |  | 245,208 |  |  |  | 5,431 |  |  |  | — |  |  |  | 18,387 |
EUR |  |  | 7,700 |  |  |  | 10,283 |  |  |  | 74 |  |  |  | — |  |  |  | 51 |
Total |  |  |  |  |  | ￦ | 2,904,327 |  |  | ￦ | 99,453 |  |  | ￦ | 18,126 |  |  | ￦ | 197,369 |
( i n millions of Korean won and thousands of foreign currencies) |  | 2022 |
|  |  |  |  |  |  | Book value of hedging instruments |  |  | Changes in fair value to calculate the ineffective portion of hedges |
Currency |  | Foreign currency |  |  | Contract amount |  |  | Assets |  |  | Liabilities |
USD |  |  | 2,111,509 |  |  | ￦ | 2,527,626 |  |  | ￦ | 160,243 |  |  | ￦ | 32,936 |  |  | ￦ | 170,856 |
JPY |  |  | 400,000 |  |  |  | 4,357 |  |  |  | — |  |  |  | 409 |  |  |  | (308 | )
SGD |  |  | 284,000 |  |  |  | 245,208 |  |  |  | 26,351 |  |  |  | — |  |  |  | 20,511 |
EUR |  |  | 7,700 |  |  |  | 10,283 |  |  |  | — |  |  |  | 210 |  |  |  | 129 |
KRW |  |  | — |  |  |  | 170,000 |  |  |  | 4,236 |  |  |  | — |  |  |  | 4,717 |
Total |  |  |  |  |  | ￦ | 2,957,474 |  |  | ￦ | 190,830 |  |  | ￦ | 33,555 |  |  | ￦ | 195,905 |
(ii) Hedged item
( i n millions of Korean won) |  |  |  |  |  |
| 2021 |  |  | 2022 |
Currency |  | Book value of hedged items |  |  | Changes in fair value to calculate the ineffective portion of hedges |  |  | Cash flow hedge reserves 1 |  |  | Book value of hedged items |  |  | Changes in fair value to calculate the ineffective portion of hedges |  |  | Cash flow hedge reserves 1 |
USD |  | ￦ | 2,401,943 |  |  | ￦ | (177,120 | ) |  | ￦ | 21,826 |  |  | ￦ | 2,675,885 |  |  | ￦ | (170,010 | ) |  | ￦ | (13,947 | )
JPY |  |  | 309,072 |  |  |  | 7,199 |  |  |  | 269 |  |  |  | 3,813 |  |  |  | 308 |  |  |  | 116 |
SGD |  |  | 249,108 |  |  |  | (15,570 | ) |  |  | 3,071 |  |  |  | 267,843 |  |  |  | (18,720 | ) |  |  | 3,406 |
EUR |  |  | 10,336 |  |  |  | (53 | ) |  |  | 18 |  |  |  | 10,404 |  |  |  | (121 | ) |  |  | 582 |
KRW |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 101,035 |  |  |  | (4,655 | ) |  |  | 4,385 |
Total |  | ￦ | 2,970,459 |  |  | ￦ | (185,544 | ) |  | ￦ | 25,184 |  |  | ￦ | 3,058,980 |  |  | ￦ | (193,198 | ) |  | ￦ | (5,458 | )
1 | The amount is after the deferred tax directly added or subtracted to the capital is reflected.
Details of financial liabilities at fair value through profit or loss as at December 31, 2021 and 2022, are as follows:
( i n millions of Korean won) |  | December 31, 2021 |  |  | December 31, 2022 |
Derivatives held for trading 1,2,3 |  | ￦ | 216,040 |  |  | ￦ | 141,280 |
1 | The Group signed a shareholder-to-share agreement with financial investors participating in the paid-in capital increase of K Bank Inc. for the year period ended December 31, 2021. According to the Drag-Along Right, if K Bank Inc. fails to be listed on the terms agreed upon for the date of completion of the acquisition, financial investors may exercise the Drag-Along right to the Group, and the Group may comply or exercise the right to claim for sale. If financial investors exercise the Drag-Along Right, the Group must exercise the right to claim for sale or guarantee the return on the terms agreed upon by financial investors.
2 | The amount includes derivatives for convertible bonds issued by the Group (Note 16).
3 | During the year ended December 31, 2022, derivative liabilities recognized amount to ￦ 930 million, which is recognized by an agreement with LS Cable & System Ltd. in connection with KT Submarine Co., Ltd. (Note 20).
The valuation gain and loss on financial liabilities at fair value through profit or loss for the years ended December 31, 2020, 2021 and 2022, are as follows:
|  | 2020 |  |  | 2021 |  |  | 2022 |
( i n millions of Korean won) |  | Valuation gain |  |  | Valuation loss |  |  | Valuation gain |  |  | Valuation loss |  |  | Valuation gain |  |  | Valuation loss |
Derivatives held for trading |  | ￦ | 172 |  |  | ￦ | 53 |  |  | ￦ | 51,187 |  |  | ￦ | 8,741 |  |  | ￦ | 24,683 |  |  | ￦ | 1,800 |

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