Bank BIS Ratio at 15.29% at the End of June... Decline Due to Increasing Corporate Loans

[Asia Economy Reporter Song Hwajeong] Due to an increase in corporate loans, the total capital ratio of domestic banks under the Basel III framework (BIS) declined in the second quarter of this year compared to the previous quarter.

According to the "Status of Bank Holding Companies and Banks' BIS Capital Ratios as of the End of June" released by the Financial Supervisory Service (FSS) on the 7th, as of the end of June, domestic banks recorded common equity tier 1 capital ratio, tier 1 capital ratio, total capital ratio, and simple tier 1 capital ratio at 12.70%, 13.94%, 15.29%, and 6.25%, respectively.

The common equity tier 1 capital ratio, tier 1 capital ratio, and total capital ratio decreased by 0.29 percentage points, 0.28 percentage points, and 0.23 percentage points, respectively, compared to the end of March. The simple tier 1 capital ratio fell by 0.15 percentage points as the growth rate of total risk exposure exceeded the growth rate of tier 1 capital.

This is due to an increase in risk-weighted assets caused by the rise in corporate loans, while capital (accumulated other comprehensive income) decreased due to bond valuation losses, resulting in an asset growth rate (2.4%) that exceeded the capital growth rate (0.9%).

Although the ratios declined compared to the previous quarter, all domestic banks' capital ratios remained above regulatory requirements. Among them, JB Financial Group, which has been approved for the internal ratings-based approach, saw a significant increase in its common equity tier 1 capital ratio due to a decrease in risk-weighted assets. Meanwhile, 13 banks (K Bank, SC, Nonghyup, KB, Hana, Export-Import Bank, Shinhan, DGB, Woori, Suhyup, Citi, Industrial Bank, BNK) experienced a decline in their common equity tier 1 capital ratios as the growth rate of risk-weighted assets exceeded that of common equity tier 1 capital.

The FSS analyzed, "Although the capital ratios of domestic banks as of the end of June declined compared to the previous quarter, all banks' capital ratios remain above regulatory thresholds, indicating that capital adequacy is currently maintained at a sound level. However, due to recent rapid interest rate hikes, exchange rate increases, and expanded volatility in financial markets, as well as deteriorating domestic and external economic conditions, it is necessary to prepare for the possibility of unexpected losses expanding."

An FSS official stated, "Despite domestic and external economic shocks, we will continuously encourage banks to strengthen their loss absorption capacity so that they maintain soundness and faithfully perform their core function of financial intermediation. To this end, we will guide banks to strengthen capital ratio management and, if necessary, induce capital increases for banks with weak capital ratios."

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