Bank Capital Ratio Down 0.19%p in Q2... Cumulative Impact of COVID-19 Financial Support

"Still Stable Considering Regulatory Ratios"
"Guidance to Secure Loss Absorption Capacity Including Capital Expansion"

[Asia Economy Reporter Kim Hyo-jin] The capital ratio, a key soundness indicator for banks, declined again in the second quarter of this year following a drop in the previous quarter. This is interpreted as the cumulative effect of extensive financial support measures in response to the novel coronavirus infection (COVID-19).

According to the Financial Supervisory Service on the 31st, the total capital ratio of domestic banks based on the Bank for International Settlements (BIS) standards stood at 14.53% at the end of the second quarter, down 0.19 percentage points from the end of the first quarter. The Tier 1 capital ratio (12.67%) and common equity tier 1 capital ratio (12.09%) also fell by 0.13 percentage points and 0.07 percentage points, respectively.

The capital ratio declined as the growth rate of risk-weighted assets (4.1%) exceeded the growth rate of capital (2.8% based on total capital) during the second quarter.

Corporate loans increased by 48.6 trillion KRW, causing credit risk-weighted assets to rise by 50 trillion KRW, and market risk-weighted assets also increased by 19 trillion KRW due to market volatility expansion, resulting in a total increase of 67.8 trillion KRW in risk-weighted assets.

Provided by the Financial Supervisory Service

The capital ratio of the banking sector also fell by 0.40 to 0.54 percentage points compared to the end of last year in the first quarter of this year. However, the Financial Supervisory Service explained that the level remains stable, exceeding regulatory requirements by 3 to 4 percentage points.

By bank, Korea Citibank had the highest total capital ratio at 18.88%, followed by Busan Bank at 15.86%.

All banks, including major commercial banks such as Hana (15.37%), Shinhan (15.49%), NH Nonghyup (14.84%), Woori (14.66%), and KB Kookmin (14.39%), maintained total capital ratios above the regulatory minimum of 10.5%.

KDB Industrial Bank (12.85%) and Korea Eximbank (13.45%), which have shouldered particularly large amounts of COVID-19 financial support, experienced relatively high declines in total capital ratios of 0.48 percentage points and 0.30 percentage points, respectively.

Provided by the Financial Supervisory Service

The capital ratios of bank holding companies with banks as subsidiaries increased. At the end of the second quarter, the total capital ratio (13.68%), Tier 1 capital ratio (12.26%), and common equity tier 1 capital ratio (11.17%) of bank holding companies rose by 0.26 percentage points, 0.28 percentage points, and 0.21 percentage points, respectively, compared to the previous quarter.

During the second quarter, the capital growth rate (2.2% based on total capital) exceeded the growth rate of risk-weighted assets (0%).

The total capital of bank holding companies expanded by 3.9 trillion KRW due to consolidated net income (an increase of 3.6 trillion KRW) and capital increases (1.3 trillion KRW in capital securities).

Overall risk-weighted assets increased by 3.4 trillion KRW despite asset growth in subsidiaries, due to a decrease of 21.8 trillion KRW in risk-weighted assets of Woori Financial Group, which has been approved for the internal ratings-based approach.

A Financial Supervisory Service official stated, "In preparation for the prolonged COVID-19 situation, we plan to guide banks (and holding companies) to maintain their funding supply functions while securing sufficient loss absorption capacity through capital increases and internal reserves expansion."

This content was produced with the assistance of AI translation services.