By Kang Seung-woo
The Financial Supervisory Service (FSS) has alerted major financial services companies to pile up higher internal reserves against risks, the watchdog said Wednesday.
Its emphasis came as financial institutions from advanced economies gear up for tightened restrictions, while local players are just focusing on paying out hefty sums of dividends to their shareholders.
According to the FSS, it has met with management-level officials at major banking groups and advised to make up for their vulnerabilities in the management index.
The financial watchdog, especially, put a core tier 1 capital ratio in the spotlight. The ratio, emerging as the new standard of the financial supervision under Basel III rules, is a measurement of core capital, which can be used immediately in times of trouble.
According to the FSS, four financial holding firms ― KB, Woori, Shinhan and Hana ― posted sub-par numbers in the ratio.
As of the end of the first quarter this year, Hana sat at 10.11 percent, followed by KB at 9.96 percent, Shinhan at 8.66 percent and Woori at 8.50 percent.
The new global banking rules require a financial institution to increase the tier 1 ratio to 8.5 percent at least and add up to 2.50 percentage points in order to absorb shocks in case of economic troubles.
“If the Basel III guidelines are enforced right now, none of the four major financial groups will meet them,” said a high-ranking official at the FSS.
The Basel III rules are scheduled to go into effect from Jan. 1 2013.
“Banks have prepared themselves against prospective tighter capital regulations, but the banking groups have not.”
Compared with global players from major economies, they are far behind.
As of the end of 2009, USB put up an 18.9 percent tier 1 ratio, while Credit Suisse and Citigroup tallied 12.4 percent and 11.2 percent, respectively, noted the FSS, which assumed the gap might be much wider now.
As a result, the FSS told the financial holding companies to refrain from paying out high dividends and accumulate higher internal reserves to boost the tier 1 ratio.
One day earlier, the FSS Governor also stressed that the banking groups need to beef up enough loan loss reserves to brace against risks rather than to just dole out substantial amounts of dividends to their shareholders.
According to Daishin Securities, the four banking groups are expected to post a combined net profit of 9.89 trillion won for this year, whose 24 percents, or 2.3 trillion won, will be paid out to shareholders.