BNK Financial, First in Korea to Receive Internal Ratings-Based Approach Approval for Two-Bank System

[Asia Economy Reporter Kim Hyo-jin] BNK Financial Group announced on the 12th that it has received approval from the Financial Supervisory Service for the Basel III standard credit risk internal ratings-based approach.

BNK Financial Group owns a total of nine subsidiaries, including Busan Bank and Gyeongnam Bank. In September 2017, the group completed the establishment of foundational systems such as the integrated group model and met all minimum requirements for control organizations and internal regulations to efficiently operate the internal ratings-based system, leading to the approval of the internal ratings-based approach.

The internal ratings-based approach is a system that allows banks or bank-affiliated holding companies to calculate risk-weighted assets (RWA) by applying risk models and standards they have developed themselves. It calculates risk-weighted assets using risk measurement elements estimated based on the financial institution’s internally assessed credit ratings, such as probability of default, loss given default, and exposure at default.

BNK Financial Group’s internal ratings-based approach is particularly significant as it is the first case in South Korea to receive approval under a two-bank system without integrating Busan Bank, Gyeongnam Bank, and Yanghaeng. Unlike other financial holding companies that adjusted the standards of card companies or securities firms based on the existing internal ratings-based approach of their banks, BNK Financial Group renewed the internal ratings-based system operated by Yanghaeng to a group-wide standard.

With the approval of the internal ratings-based approach, BNK Financial Group’s BIS total capital ratio as of March 2021 is expected to increase by more than approximately 200 basis points from the previous level to 14.69%, and the common equity tier 1 capital ratio to 11.67%.

Additionally, the risk management system meets the global standards set by the Bank for International Settlements (BIS), thereby gaining a high level of external credibility. It is also meaningful in that it has established the criteria for internal ratings-based approach approval for financial holding companies operating under a two-bank system in the future.

Kim Ji-wan, Chairman of BNK Financial Group, said, “We are very pleased to prove BNK Financial Group’s high level of risk management with the first domestic approval of the internal ratings-based approach under the two-bank system.” He added, “BNK Financial Group will use this internal ratings-based approach approval as a springboard to further strengthen support for small business owners and SMEs struggling due to COVID-19 and faithfully fulfill its role as a lifeline to revitalize the regional economy.”

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