Continued Improvement in Bank Soundness... BIS Ratio Rose to 15.53% at the End of Last Year

Increase in Risk-Weighted Assets Due to Loan Growth, but Capital Grows More Through Profit Expansion and Capital Increase
Upward Trend Continues Since 2019

[Asia Economy Reporter Song Hwajeong] Last year, the capital ratios reflecting the soundness of domestic banks rose, supported by expanded net profits and capital increases, continuing an upward trend since 2019.

According to the Financial Supervisory Service on the 30th, the total capital ratio of domestic banks under the Basel Committee on Banking Supervision (BIS) at the end of last year recorded 15.53%, up 0.53 percentage points compared to the end of 2020. The upward trend has continued since 2019. The total capital ratio increased from 13.91% at the end of 2019 to 15.00% at the end of 2020, and rose again last year. The common equity tier 1 capital ratio and tier 1 capital ratio were recorded at 12.99% and 14.19%, respectively, increasing by 0.54 percentage points and 0.72 percentage points compared to the previous year-end.

Although risk-weighted assets increased due to loan growth, capital increased more due to profit expansion and capital increases. Risk-weighted assets rose by 5.9% (KRW 112.8 trillion) compared to the end of last year, but total capital increased by 9.7% (KRW 27.7 trillion) due to profit expansion and capital increases.

In the case of the simple tier 1 capital ratio, the growth rate of tier 1 capital (11.6%) exceeded the growth rate of total risk exposure amount (9.9%), resulting in a 0.10 percentage point increase compared to the previous year-end.

As of the end of last year, all domestic banks exceeded regulatory ratios (including capital conservation buffer and D-SIB additional capital). Four banks (DGB, Hana, Woori, BNK) that increased capital and saw a decrease in risk-weighted assets due to the introduction of the Basel III final rules or approval of the internal ratings-based approach showed a significant rise in capital ratios compared to the previous year-end. On the other hand, six banks (Citibank, SC, Export-Import Bank, Industrial Bank, JB, Suhyup) whose risk-weighted assets such as loans increased more than capital or whose capital decreased saw declines in total capital ratios.

The total capital ratio of eight bank holding companies at the end of last year was 15.54%, while 20 non-holding banks recorded 16.52%.

A Financial Supervisory Service official said, "With increasing domestic and international economic uncertainties, the end of COVID-19 financial support measures, and interest rate hikes, there is a need to proactively prepare for potential expansion of non-performing loans. We plan to continuously encourage banks to expand their loss-absorbing capacity so that they can maintain soundness and faithfully perform their core functions despite economic shocks."

To this end, the Financial Supervisory Service will guide banks to properly assess latent credit risks and accumulate sufficient loan loss provisions based on this, while promoting the introduction of the countercyclical capital buffer for the household sector (SCCyB) to maintain sufficient capital to respond to unexpected losses.

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