Local Banks Report Sound Finances in Q2 2015

The Financial Supervisory Service (FSS) has reported that local banks in South Korea have stable capital adequacy ratio, which measures a bank's financial soundness.

"As of the second quarter, all banks and financial holding companies appear to be in a sound financial shape", according to the statement released by the finance regulator.

To calculate the ratio, a bank's risk-weighted assets are divided against its capital. And the total ratio for Q2 2015 is 14.08%, while the ratio for Q1 is 13.93%. This increase is owed to the improving total capital at 4.7 trillion won, which is up by 2.5% from the previous quarter, higher than risk-weighted assets at 1.5%.

Much of the increase is due to growth in securities issuances and profits. The rise in risk-weighted assets, on the other hand, is due to increasing won-denominated loans - assets with more risks because of the weaker won.

Two banks with relatively high ratios are Kookmin Bank with 16.40% and Citibank with 16.96%. On one hand, banks with low ratios are National Federation of Fisheries Cooperatives with 12.10% and Export-Import Bank of Korea with 10.01%.

The FSS has also reported the Tier 1 capital ratio at 11.64%, which compares core equity capital to risk-weighted assets. The common equity Tier 1 (CET1) ratio is 11.11%. Both figures are also higher than the previous quarter's Tier 1 capital ratio at 11.49% and CET1 ratio at 11.01%.

The total capital ratio of financial holding companies is 13.65% in Q2 and 13.63% in Q1. The Tier 1 capital ratio is 11.37%, while the CET1 ratio is 10.74%. Their risk-weighted assets have increased by 1.3% at 11.2 trillion won, what with consumer financing firms and banks (under holding companies) facing more risks from the rising numbers of new loans.

Despite considerably good figures in Q2, the FSS has urged banks to prepare.

"We will encourage banks to secure an appropriate level of assets to prepare better for the possibility of worsening external environment and profitability".

All the financial holding companies and banks in South Korea have met the highest composite supervisory criteria, considering that their Tier 1 capital ratio, CET1 ratio and total capital ratio exceeds 7.5%, 5.7% and 10% respectively.