Local banks financially sound in Q2, says FSS

Local banks’ total capital adequacy ratio, the barometer of their financial soundness, was stable in the second quarter, according to the Financial Supervisory Service (FSS) on Thursday.

The ratio, calculated by dividing a bank’s capital with its risk-weighted assets, stood at 14.08 percent, up from 13.93 percent the previous quarter.

The rise was due to an increase in total capital that exceeded growth in risk-weighted assets, the FSS said, which indicated that local banks were relatively sound.

Local banks’ total capital rose by 2.5 percent, or 4.7 trillion won ($3.9 billion), while risk-weighted assets increased by 1.5 percent, or 19.4 trillion won.

The increase in capital was thanks mainly to higher profits and growth in capital from securities issuances, while the growth in risk-weighted assets was due to a rise in won-denominated loans, which were perceived as riskier assets due to the weaker won.

Citibank and Kookmin Bank had relatively higher ratios, at 16.96 percent and 16.40 percent, respectively. Banks with lower ratios were the Export-Import Bank of Korea (10.01 percent) and National Federation of Fisheries Cooperatives (12.10 percent).

FSS also said that local banks’ Tier 1 capital ratio, comparing a bank’s core equity capital to its risk-weighted assets, was 11.64 percent and the common equity Tier 1 (CET1) ratio 11.11 percent, both higher than the previous quarter’s 11.49 and 11.01, respectively.

Financial holding companies’ total capital ratio was 13.65 percent, up from 13.63 percent three months ago. Their Tier 1 capital ratio and CET1 ratio were 11.37 percent and 10.74 percent, respectively.

Financial holding companies’ total capital grew by 1.5 percent, or 1.7 trillion won, while risk-weighted assets rose by 1.3 percent, or 11.2 trillion won, as banks and consumer financing firms under the holding companies were seen as more exposed to risk due to increases in loans issued.

All banks and financial holding companies met the criteria for the highest composite supervisory rating of one, as their total capital ratio was higher than 10 percent, and their Tier 1 capital ratio and CET1 ratio were higher than 7.5 percent and 5.7 percent, respectively.

“As of the second quarter, all banks and financial holding companies appear to be in a sound financial shape,” the FSS said in a statement. “We will encourage banks to secure an appropriate level of assets to prepare better for the possibility of worsening external environment and profitability.”

BY PARK JUNG-YOUN [park.jungyoun@joongang.co.kr]