In the second quarter, the Bank for International Settlements (BIS) capital ratio, a capital soundness indicator for domestic banks, improved slightly. Net income and paid-in capital increases boosted equity capital. However, with internal and external uncertainties persisting, including the prolonged Middle East situation and the possibility of higher interest rates, financial authorities said they would continue to examine banks' loss-absorption capacity.
According to the "capital adequacy ratios of domestic banks under the BIS standard as of the end of June" that the Financial Supervisory Service released on the 31st, common equity tier 1 (CET1) capital ratio at domestic banks stood at 13.62% at the end of June, up 0.12 percentage point from the end of March. The tier 1 capital ratio rose 0.08 percentage point to 14.84%, and the total capital ratio increased 0.03 percentage point to 15.77%. In contrast, the leverage ratio fell 0.07 percentage point to 6.59%.
The BIS capital ratio, the ratio of capital to risk-weighted assets, is a key indicator of a bank's financial soundness and ability to absorb expected losses. The current regulatory minimums are 8.0% for the common equity tier 1 ratio, 9.5% for the tier 1 ratio, 11.5% for the total capital ratio, and 3.0% for the leverage ratio. For domestically systemically important banks (D-SIBs), an additional 1 percentage point applies to each.
The Financial Supervisory Service (FSS) explained that domestic banks' common equity capital increased by 880 billion won (2.2%) in the second quarter, outpacing the 4.26 trillion won (1.7%) increase in risk-weighted assets, which supported the ratio's improvement. All 17 domestic banks far exceeded the regulatory minimums.
By banking group, the total capital ratio exceeded 16% at Woori Financial Group (16.54%) and NongHyup Financial Group (16.23%). Including non-holding company banks, Citibank Korea (28.24%), KakaoBank (22.11%), Kbank (20.02%), Suhyup Bank (18.65%), Standard Chartered Bank Korea (17.77%), Toss Bank (16.64%), and Export-Import Bank of Korea (16.63%) were also at 16% or higher. BNK Financial Group was relatively low at 13.48%.
For the common equity tier 1 ratio, NongHyup Financial Group posted the largest increase, up 0.94 percentage point on the back of a paid-in capital hike, and Standard Chartered Bank Korea also rose 0.78 percentage point. In contrast, Kbank fell 1.39 percentage points, the biggest decline. The Financial Supervisory Service (FSS) said, "There remains the possibility of wider credit risk and a decline in capital ratios due to changes in economic conditions," adding, "We will guide banks to strengthen capital adequacy management so they can maintain soundness and faithfully perform their financial intermediation function."