DGB Financial, First Regional Holding Company to Receive Internal Ratings-Based Approach Approval

[Asia Economy Reporter Kim Hyo-jin] DGB Financial Group announced on the 9th that it received final approval from the Financial Supervisory Service on the 8th to use the internal ratings-based approach for credit risk under Basel III, becoming the first regional financial holding company to do so.

DGB Financial Group completed the establishment of a system for measuring, verifying, and managing risk-weighted assets (RWA) based on the internal ratings-based approach in December 2016. After an operational period, it met all the minimum requirements for adopting the foundation internal ratings-based approach, including the establishment and operation of related systems (group corporate credit evaluation, RWA calculation and verification, suitability verification, stress testing), appropriate control organizations to operate the system, and well-organized internal regulations, thereby obtaining approval for the internal ratings-based approach.

By applying the internal ratings-based approach, financial institutions calculate risk-weighted assets (RWA) by applying their own estimated probabilities of default (PD), loss given default (LGD), and exposure at default (EAD) based on credit ratings they have assessed.

This method results in relatively lower risk-weighted assets (RWA) compared to the standardized approach, which only allows the use of credit ratings evaluated by qualified credit rating agencies designated by the Financial Supervisory Service. Accordingly, the Basel Committee on Banking Supervision (BIS) capital adequacy ratio increases.

As of the end of December 2020, DGB Financial Group's BIS total capital ratio was 12.41%, and the common equity tier 1 capital ratio was 9.59%. It is expected that both the BIS total capital ratio and the common equity tier 1 capital ratio will increase by more than approximately 2 percentage points upon applying the internal ratings-based approach. This approval is the result of securing an advanced risk management foundation and is expected to contribute to enhancing the group's capital adequacy and external credibility.

Chairman Kim Tae-oh stated, "This approval is the result of continuously improving DGB Financial Group's risk management level, and it is recognition from the financial authorities that DGB Financial Group's risk management meets international standards."

Chairman Kim also expressed his intention, saying, "DGB Financial Group will continue to strengthen its risk management personnel and expertise, further support small business owners and SMEs struggling due to COVID-19, and expand investments related to the New Deal."

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