Bond sales ease banking groups’ risk

The capital adequacy ratio of Korean banking groups rose to the highest level in nine months in the third quarter as their banking affiliates sold more junior bonds, the financial watchdog said yesterday.

The average capital adequacy ratio of 10 local banking groups reached 13.07 percent as of the end of September, up 0.15 percentage point from three months earlier, the Financial Supervisory Service (FSS) said.

The third-quarter numbers are the highest since the ratio hit 13.24 percent in the fourth quarter of last year.

The ratio, a key barometer of financial soundness, measures the percentage of a bank’s capital to its risk-weighted assets.

The FSS said that the rise came as banking units of financial services groups scurried to sell subordinated bonds to raise capital ahead of the implementation of tighter bank capital rules in 2013.

A set of toughened bank capital rules, known as Basel III, will be implemented next year compelling banks to hold more common equity to boost their capacity to absorb losses.

The proceeds from selling subordinated bonds with a maturity of more than five years have been recognized as supplementary capital, making local banks rely on the issuance of such debt in raising capital.

But starting next year, subordinated or hybrid bonds will be recognized as capital only under certain circumstances, such as worsening capital adequacy ratios.

The FSS said that the watchdog plans to advise local banking groups to beef up their loss-absorbing capacity to brace for the longstanding economic slowdown and the tougher bank capital rules.

Yonhap