Samsung, Hanwha, and Other Financial Groups' Capital Adequacy Deteriorates... "Shock Absorption Capacity Decreases"

Last Year's Q3 Financial Group Integrated Disclosure
Samsung's Capital Adequacy Ratio Falls Below 300%

The first Compliance Committee meeting after Lee Jae-yong, Vice Chairman of Samsung Electronics, was released took place privately on the 17th at the Samsung Life Insurance building in Seocho-gu, Seoul. The Samsung Life Insurance building on that day. Photo by Moon Honam munonam@

[Asia Economy Reporter Oh Hyung-gil] The capital adequacy ratios, which indicate the loss absorption capacity of financial conglomerates such as Samsung, Hyundai Motor, Hanwha, Kyobo, Mirae Asset, and DB, have been continuously declining.

According to the integrated disclosures of each financial group on the 5th, Samsung Financial Group (with Samsung Life Insurance as the representative financial company) recorded a capital adequacy ratio of 289.7% in the third quarter of last year, down 19.4 percentage points from the previous quarter. Since Samsung began integrated financial group disclosures in the first quarter of 2020 (294.5%), its capital adequacy ratio had consistently exceeded the 300% level.

The main cause of the decline was a significant reduction in equity capital (loss absorption capacity), excluding overlapping capital, which decreased by about 3.5 trillion KRW from 72.6788 trillion KRW in the previous quarter to 69.1511 trillion KRW. As a result, surplus capital also fell from 49.1686 trillion KRW in the second quarter to 45.2858 trillion KRW.

Hanwha (Hanwha Life Insurance) also entered the 100% range for the first time, recording 190.2%, down 10.1 percentage points from the previous quarter. This is a sharp drop of 71.1 percentage points compared to the same period last year.

This was due to increased risks such as risk transfer among financial affiliates after Hanwha Asset Management acquired 56,761,908 shares of Hanwha Investment & Securities held by Hanwha Global Asset, Hanwha Hotels & Resorts, and Hanwha Galleria Timeworld in August last year. The surplus capital size decreased by 653 billion KRW (9.3%) from the previous quarter to 6.3443 trillion KRW.

Kyobo (Kyobo Life Insurance), Hyundai Motor (Hyundai Capital), and Mirae Asset (Mirae Asset Securities) also saw slight decreases in their capital adequacy ratios. Kyobo recorded 274.0%, down 1.2 percentage points from the previous quarter, while Hyundai Motor and Mirae Asset fell by 1.9 and 0.3 percentage points to 174.2% and 163.6%, respectively.

Surplus capital increased by 183.6 billion KRW to 8.1522 trillion KRW for Kyobo, Hyundai Motor rose by 294.6 billion KRW to 8.1164 trillion KRW, and Mirae Asset also increased by 170 billion KRW to 4.5059 trillion KRW compared to the previous quarter.

DB (DB Insurance) was the only one among the six groups to see an increase in its capital adequacy ratio. It rose by 2.2 percentage points to 210.7% in the third quarter. Surplus capital increased by 162.5 billion KRW to 4.672 trillion KRW.

The Financial Services Commission designated these six groups as financial conglomerates in July last year following the enforcement of the "Act on the Supervision of Financial Conglomerates" in June. Accordingly, they must regularly inspect and evaluate their capital adequacy starting from the 14th of this month.

They must maintain loss absorption capacity, considering the overlapping use of capital, at or above the minimum capital standards that take into account additional risks at the group level. The Financial Conglomerates Act requires this to be maintained at 100% or higher, and if it falls below 100%, they must submit a management improvement plan to the authorities. Any changes in governance, internal controls, risk management, or internal transaction management must also be reported and disclosed to the authorities.

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