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Korean banks’ financial health improves

June 1, 2017 - 16:07 By Son Ji-hyoung
The capital adequacy ratio of banks and financial groups in South Korea improved in the first quarter of 2017 on the back of eased risk-weighted assets, data showed Wednesday.

On average, based on the Bank for International Settlements, the capital requirement ratio of South Korea‘s 17 banks came to 15.14 percent, according to the Financial Supervisory Service. It inched up 0.33 percentage point compared to the end of 2016.

The regulatory capital ratio is the percentage of a bank‘s capital to its risk-weighted assets, designed to measure its soundness in financial condition.

The nation‘s seven financial groups’ average figure over the cited period stood at 14.48 percent, up 0.15 percentage point from 2016.

The banks’ average ratio rose 1.16 percentage point on-year, while that of financial groups climbed up 0.74 percentage point.

Banks in South Korea had solid performance on average, the regulator said, compared to those in the United States. US banks‘ average ratio came to 14.15 percent from January to March.

Under the Basel III, or the Third Basel Accord -- a global regulatory framework on bank capital adequacy, stress testing, and market liquidity risk, -- a bank is required to maintain an 8 percent minimum capital adequacy ratio.

South Korea ratified the Basel III, designed to strengthen financial regulation and bank capital requirements, in December 2013. The accord remains valid until 2018.

The financial regulator cited a slide in financial entities’ risk-weighted assets, triggered by stronger local currency against the dollar and banks‘ relieved exposure to default.

Won-Dollar currency exchange rate dropped to 1,118.5 won on March 31, from 1,205 won at the end of 2016.

Banks‘ risk-weighted assets decreased by 23.6 trillion won ($21.1 billion), while the capital that banks retain rose 1.1 trillion won thanks to a surge in the banks’ net profit in the first quarter. The banking group’s capital fell by 500 billion won, which did not drag down the adequacy ratio since risk-weighted assets declined by 12.4 trillion won.

Citibank Korea logged the highest ratio among 17 banks at 18.91 percent, followed by KB Kookmin Bank at 16.71 percent. State-led Export-Import Bank of Korea‘s ratio stood at 11.89 percent.

When it comes to banking groups, KB Financial Group maintained the highest ratio of 15.75 percent. The provincial banking groups, such as Busan-based BNK Financial Group, Jeonju-based JB Financial Group and Daegu-based DGB Financial Group, were tallied at the lowest with 12.15 percent, 12.25 percent and 12.67 percent, respectively.

By Son Ji-hyoung (