Weak won leads HSBC's Seoul branch to raise capital

The Seoul branch of the UK-based Hong Kong and Shanghai Banking Corp. (HSBC) has made a capital increase of over 20% to raise its capital adequacy ratio in line with the Bank for International Settlements (BIS) due to the weak Korean currency.

The Korea Federation of Banks on Sunday said the branch on Oct. 31 raised its general working capital, or funds brought in by foreign banks, by 141.9 billion won ($100 million), boosting its capital 22% from 617 billion won to 758.9 billion won.

HSBC said the increase was to "raise our BIS capital adequacy ratio and overcome business obstacles due to limits on undercapitalization and credit (loans)."

In late June, HSBC Seoul's BIS ratio, calculated by dividing a bank's capital by its risk-weighted assets, plummeted to 18.37%, far from the 29.02% in the same period last year. A substantial increase in the risk-weighted assets of the denominator causes the ratio to fall. Over the same period, HSBC Seoul's risk-weighted assets surged 56.5% from 8.6 trillion won to 13.5 trillion won.

The growth in such assets was blamed on the rise of foreign currency derivative assets to hedge risk due to fluctuating interest rates and foreign exchange rates. As of late June, the branch held derivative assets worth 5.5 trillion won, or about three times the 1.8 trillion won from the same period last year.

A source at a foreign bank in Seoul said, "The BIS ratios of all foreign banks, which boosted their dollar derivative products, are known to have fallen," adding, "They are also considering a capital increase like HSBC." 

In September, the Seoul branch of BNP Paribas Bank of France raised its capital adequacy ratio 18.2% from 195.8 billion won to 231.5 billion won.

Write to Sang-Yong Park at yourpencil@hankyung.com