Domestic Banks' Q1 BIS Ratio Deteriorates... "Impact of Hong Kong ELS Compensation"

Financial Supervisory Service Announces Q1 Domestic Banks' BIS Ratios
Total Capital Ratio 15.57%...Down 0.10%p from Previous Quarter
"All Exceed Regulatory Ratios...Financial Soundness is Good"

In the first quarter of this year, the BIS (Bank for International Settlements) capital ratios of domestic banks deteriorated compared to the previous quarter. This was due to losses from Hong Kong H-Index (Hang Seng China Enterprises Index·HSCEI) based equity-linked securities (ELS) compensation.

According to the 'Status of Bank Holding Companies and Banks' BIS Capital Ratios' announced by the Financial Supervisory Service on the 29th, the total BIS capital ratio of domestic banks at the end of the first quarter of this year was 15.57%, down 0.10 percentage points from the end of the previous quarter. The BIS ratio is a key indicator that assesses the soundness of banks based on their capital adequacy according to BIS standards. A higher ratio indicates better soundness.

During the same period, the common equity tier 1 capital ratio fell by 0.08 percentage points to 12.93%, and the tier 1 capital ratio decreased by 0.04 percentage points to 14.26%. This was due to reduced net income and increased operational risk caused by losses from Hong Kong H-Index ELS compensation. However, the simple tier 1 capital ratio rose by 0.01 percentage points to 6.6%.

[Source=Financial Supervisory Service]

Domestic banks must comply with regulatory ratios of 7.0% for common equity tier 1 capital, 8.5% for tier 1 capital, and 10.5% for total capital. Additionally, banks designated as Domestic Systemically Important Banks (D-SIB) are subject to an extra 1 percentage point regulatory requirement. The simple tier 1 capital regulatory ratio is 3%.

In the first quarter of this year, all domestic banks' capital ratios exceeded the regulatory minimums. Based on total capital ratios, KB, Shinhan, Hana, NongHyup, Woori, as well as Citi, Kakao, and SC all surpassed 15%. The bank with the highest increase in total capital ratio compared to the previous quarter was Toss Bank, which rose by 2.07 percentage points. This is because Toss Bank applied Basel III from the first quarter of this year, lowering the risk weight for personal credit loans from 100% to 75%. Basel III is a regulation introduced after about seven years of discussions by the Basel Committee following the 2008 global financial crisis to strengthen banks' risk measurement and management standards. Based on common equity tier 1 capital ratios, Citi, Kakao, and SC showed relatively high levels above 14%, while Toss, KB, and Shinhan were above 13%.

A Financial Supervisory Service official stated, "Despite the ELS loss compensation issue, banks' financial soundness remains well above regulatory ratios. However, given the ongoing high interest rate and high exchange rate environment and the increasing uncertainty in domestic and international financial markets, it is necessary to enhance loss absorption capacity."

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