In 2Q 2013, the Bank for International Settlements (BIS) capital adequacy ratio declined for Korean banks. Shinhan Bank, Citibank, and Woori Bank were generally in good condition, while the Industrial Bank of Korea (IBK), Korea Eximbank, and Korea Exchange Bank had low BIS ratios.
The Financial Supervisory Service announced on August 12 that the BIS capital adequacy ratio (Basel II) for Korean banks at the end of June was at 13.88%, a decline of 0.12% from 14.00% at the end of Q1.
Tier 1 capital ratio was at 10.97%, a decline of 0.03% from 11.00% at the end of last quarter.
BIS ratio is a ratio of a bank’s capital to its risky asset (non-performing loans). High BIS ratios indicate strong financial stability. A Tier 1 ratio excludes Tier II capital from the BIS ratio in order to evaluate the bank’s realistic capital adequacy.
The Financial Supervisory Service theorized that this is because risk-weighted assets increased by 15.1 trillion won (US$13.5 billion) in response to Q2 capital only increasing by 600 billion won (US$536 million).
The BIS ratio at Korean banks declined from 14.55% at the end of 2010 to 13.96% at the end of 2011. After a brief rebound to 14.30% at the end of 2012, it declined to 14% in Q1 and continued downwards in Q2.
BIS ratios were relatively high at Citibank at 17.39%, Shinhan Bank at 15.57%, Standard Chartered Bank Korea at 15.55%, and Woori Bank at 15.40%. On the other hand, the ratios were relatively low at Korea Eximbank at 10.33%, IBK at 12.11%, and Korea Exchange Bank at 12.35%. The BIS ratio at Kookmin Bank was at 14.77%, Nonghyup Bank at 13.99%, Hanabank at 13.56%, and Korea Development Bank at 13.54%.
The BIS ratio at Korea Development Bank dropped most sharply, from 15.25% at the end of 2011 to 15.01% at the end of 2012. It fell again to 14.46% in Q1, 2013 and to 13.54% in Q2.
The Financial Supervisory Service announced that it will take into account the recent worsening of local bank profitability and the execution of Basel III capital requirements at the end of this year, which will make it difficult for banks to improve the capital adequacy ratio. The Financial Supervisory Service will guide the banks to better secure sufficient capital and manage adequate capital through strict risk management.