Financial holding companies’ soundness slips

The fiscal soundness of financial holding companies deteriorated in the second quarter, mainly due to an increase in risk-weighed assets from loans.

According to the Financial Supervisory Service yesterday, the Banks for International Settlements (BIS) ratio of financial holding companies at the end of June was 12.95 percent, down 0.16 percentage point from the previous quarter. It was the second consecutive quarter the ratio fell.

The BIS capital adequacy ratio is an internationally recognized measure of solvency, in this case, of financial holding companies that manage bank and brokerage businesses. The ratio refers to the percentage of risk-weighed assets compared to equity capital. The lower the ratio, the less solvent the holding company.

“One of the main reasons the BIS ratio of financial holding companies decreased is because the amount of risk-weighed assets increased significantly in the second quarter,” said an FSS official. “Risk-weighed assets were added because of an increase in won-denominated loans to households and corporations.”

Based on FSS data, the amount of loans extended to households and corporations during the April-June period reached 12.7 trillion won ($11.7 billion), including 2.8 trillion won by Hana Financial Group, 2.7 trillion won by Korea Development Bank Financial Group and 2.5 trillion won by Woori Financial Group. The figure is a 1.85 percent increase from the previous quarter. On the other hand, the amount of equity capital held by financial holding companies increased by only 0.62 percent.

By financial group, the BIS ratio of Citigroup was 17.16 percent, while the ratio of Hana Financial Group was 10.85 percent and NH Nonghyup Financial Group 10.58 percent.

“We need to advise financial holding companies to better manage their capital adequacy ratio, especially when their profits have declined,” the FSS official said. “Companies with relatively low BIS ratios or those with a large decline will be asked to come up with measures to increase their capital and improve profitability.”

Recent data has shown that profits of major banks have declined significantly. Woori Bank, the flagship of Woori Financial Group, reported 812.8 billion won in profit in the first half of last year, compared to 386.1 billion won this year. KB Kookmin Bank’s profit also fell from 1 trillion won to 344.7 billion won, while Shinhan Bank’s fell from 1.5 trillion won to 698.9 billion won.

BY Lee Eun-Joo [angie@joongang.co.kr]