Value context and insight. lkm@koreatimes.co.kr
Banks outline contingency plan to bolster foreign liquidity
From left are headquarters of Shinhan, Woori, KB and Hana financial groups. Korea Times file
By Lee Kyung-min
Local commercial lenders are rushing to outline emergency plans contingent upon volatile foreign exchange (FX) movements, in a collective move to fortify financial soundness and capital liquidity, market watchers said Friday.
Central to the concerns are the weakening of the Korean won relative to the U.S. dollar amid soaring demand for the world's reserve currency due to tariff uncertainties caused by the Trump administration.
Many lenders are closely monitoring capital soundness and FX liquidity, mindful of a weaker won translating into a lower Common Equity Tier 1 (CET1) ratio and liquidity coverage ratio (LCR). The lower the figures, the worse their financial soundness.
The financial regulators say the CET1 ratio should be maintained at over 12 percent, and the LCR at over 80 percent. The Koran currency weakening by 10 won leads to a CET1 ratio falling by 2 or 3 basis points.
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According to the financial industry, Woori Bank has set up a new emergency committee to better counter FX volatilities and to formulate plans to factor in fluctuations in FX levels.
Tighter credit limits will be imposed, as part of conservative asset management. FX-sensitive assets, including derivatives and foreign currency loans, will be closely monitored.
KB Kookmin Bank is preparing to respond to the tariff aftershocks in a three-tier system.
Factors under close monitoring include developments in bilateral negotiations involving the U.S. as well as the level of retaliation in tariff responses.
NongHyup Bank is strengthening its liquidity profile against a potential outflow of foreign funds triggered by a weak Korean won.
The agricultural industry-oriented lender plans to strengthen around-the-clock monitoring, especially for a considerable short-term inflow and outflow of funds.
The lenders are monitoring a sudden plunge in their LCR ratios.
The ratios for the commercial lenders combined came to 163.1 percent as of February, well over the financial regulator’s requirement of 80 percent.
Meanwhile, according to a NongHyup Securities and Investment report, the Korean won will gain relative to the U.S. currency in the latter half of the year, buoyed by reduced tariff uncertainties and a slowdown in the world’s largest economy and the resulting depreciation of the global reserve currency.
“The U.S. mutual tariffs are dampening global risk-on sentiment, prompting more investors to seek safe-haven assets,” it said.
“However, foreign selloff in the Korean equity market will continue for the time being, dragged down by political uncertainties.”
The Korean won traded at 1,434.1 won against the U.S. dollar, as of 3:30 p.m., Friday, gaining 32.9 won from 24 hours earlier.
The Korean currency registered an intraday high of around 1,430.2 won soon after the Constitutional Court ruled in favor of the impeachment motion against former President Yoon Suk Yeol earlier in the day.