Banks launch emergency reviews as won-dollar rate threatens post-financial crisis high

As the won-dollar exchange rate threatened to breach 1,550 won — its highest level since the global financial crisis — and volatility intensified, South Korea's major financial groups and commercial banks moved in unison to review their emergency response frameworks. With market, capital and liquidity risks rising on the back of the sharp won depreciation, the institutions are focusing their efforts on preemptive foreign exchange position management and defending capital adequacy.

KB Financial held an emergency executive meeting Monday morning to review recent foreign exchange market trends and assess the group's overall response, according to financial industry sources.

KB Financial said it is overhauling risk management systems across its subsidiaries and relevant departments to prepare for sudden exchange rate swings, and will continue to monitor its emergency response framework. The group is particularly focused on managing its foreign exchange position exposure at the group level, actively deploying currency hedges to minimize foreign currency translation gains and losses excluding investment income.

In step with those efforts, KB Kookmin Bank said it has introduced a return on risk-weighted assets metric to systematically manage risk-weighted assets and keep capital adequacy indicators — including its common equity tier 1 ratio and BIS capital ratio — on a stable footing.

Hana Financial also moved proactively. The group convened a "Crisis Management Council" on June 4, chaired by Group Chief Risk Officer Kang Jae-shin, to discuss risk management measures in preparation for a prolonged period of elevated exchange rates.

Shinhan Bank plans to hold a "Crisis Management Council" — a department-head-level meeting chaired by the head of its risk management group — on Tuesday to assess the bank's situation in light of deteriorating market indicators including share prices and the exchange rate.

Shinhan Bank is currently managing its crisis level at the "Caution" stage. Should conditions worsen and be assessed as reaching "Alert" or above, the bank will convene a management-led "Crisis Management Committee" and activate a full crisis response team. The bank's crisis framework consists of four stages: Caution, Alert, Crisis Warning and Crisis.

Woori Bank did not separately address exchange rate-related matters at its executive meetings Monday, but is expected to focus on related risks and the current situation at a "Crisis Response Council" to be chaired by its risk management group head on June 15, sources said.

"Given that uncertainty in the foreign exchange market is expected to persist for some time, there is a broad atmosphere across the banking sector of reviewing contingency plans and strengthening conservative asset management to ensure foreign currency liquidity and capital soundness indicators are not impaired," a financial industry official said.