Banks’ Capital Adequacy at World’s Highest Level
By Park Hyong-ki
Staff Reporter
Korean banks saw their capital adequacy ratio rise to nearly 13 percent at the end of March on improved earnings, indicating that domestic banks' capital structure has reached the soundest level in the world, the Financial Supervisory Service (FSS ) said.
The capital adequacy ratio, or Bank of International Settlements (BIS) ratio, rose to 12.99 percent as of the end of March from 12.75 percent at the end of last year, said the Financial Supervisory Service (FSS).
``The rise reflects shareholder equity growth outpaced that of risk-weighted assets in the first quarter,'' said Kim Dae-pyung, assistant governor of FSS.
The combined shareholder equity of banks grew 5 percent, higher than a 3 percent gain in risk-weighted assets.
A stronger capital adequacy is expected to allow domestic banks to effectively cope with the upcoming Basel II requirements that will be applied in 2008 to local banks. Under Basel II capital-adequacy rules, banks have to disclose capital charges for credit and market risks in their trading book, and operational risks.
Of 18 nationwide commercial and state-owned banks, 12, including Woori and Hana banks, saw their capital adequacy ratio rise, while six, including Kookmin and Shinhan banks, experienced a drop.
Korean banks' average BIS ratio came at a similar level to those of developed nations, it said. The corresponding BIS ratio in the U.S. stands at 12.37 percent; in the U.K. at 12.36 percent; and in Germany, 12.34 percent; according to the FSS.
``Korean banks are expected to gain capital increases through continued expansion of core capital from rising net profitability, enabling them to further improve their BIS ratios,'' said Kim.
In the meantime, the nation's regulator said it will finalize drawing up measures to create a financial environment to deal with Basel II, a new standard method for rating the capital adequacy ratio of banks, this month.
It will hold talks with financial experts and bank officials as well as go through the Financial Supervisory Committee to assess the eligibility of introducing the new Basel accord.