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Korean banks’ Q2 capital ratio drops for third straight quarter

Aug 31, 2020 (Gmt+09:00)

The average capital adequacy ratio of South Korean banks declined in the April-June period for the third consecutive quarter, weighed by rising corporate lending in the wake of the coronavirus outbreak, the regulatory Financial Supervisory Service (FSS) said on August 31.

The capital ratio of 19 Korean lenders, or their combined equity capital divided by risk-weighted assets, averaged 14.53% at the end of June, down 0.19% points from three months previous.

Their capital adequacy ratio has been on the decline since hitting 15.4% at the end of September 2019.

In comparison, US commercial banks’ capital ratios averaged 14.16% at the end of March, according to the FSS statement.

During the second quarter, corporate lending by Korean banks jumped by a net 48.6 trillion won ($41 billion) in aggregate. That led to a rise in their risk-weighted assets for credit risk, while those for market risk increased due to market volatility expansion.

But the FSS said that Korean banks’ financial conditions remain solid, given that their average capital ratio is above the minimum 8% requirement under the Basel III rule.

The average capital ratio of the country’s five major banks -- Shinhan, Kookmin, Hana, Woori and NH -- stood at 14-15% at the end of June, compared to the 12-13% average of the two state-run banks – Korea Development Bank and Export-Import bank of Korea.

Meanwhile, the capital ratio for financial holding companies with a banking unit edged up by 0.26% points to 13.68% at the end of June, versus three months before.

The rise was largely attributed to a 20 trillion won drop in Woori Financial Group’s risk-weighted assets, after the financial regulator gave the nod to Woori’s adoption of its internal credit-risk assessment tool for a portion of loans in July.

Previously, Woori had used the standardized approach of the Basel rule to calculate risk-weighted assets, pulling its BIS ratio lower than domestic rivals using internal credit analysis methods.

By Hyun-woo Lim

Yeonhee Kim edited this article

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