South Korean banks improve capital adequacy as CET1 ratio rises 0.12 percentage points

South Korean banks saw a modest improvement in capital adequacy in the second quarter, as higher net profit and paid-in capital increases boosted common equity tier 1 capital, pushing the CET1 ratio above its first-quarter level. All domestic banks continued to exceed regulatory minimums.

According to the Financial Supervisory Service, the CET1 ratio for domestic banks stood at 13.62% at the end of June, up 0.12 percentage points from 13.50% at the end of March.

Over the same period, common equity tier 1 capital grew by 8.8 trillion won ($6.38 billion), or 2.2%, outpacing the 42.6 trillion won, or 1.7%, increase in risk-weighted assets. The sector posted 7 trillion won in net profit for the period, and paid-in capital increases at some financial holding companies provided additional support for capital accumulation.

The tier 1 capital ratio and total capital ratio also rose, reaching 14.84% and 15.77%, respectively — gains of 0.08 percentage points and 0.03 percentage points from the previous quarter. The leverage ratio, however, edged down 0.07 percentage points to 6.59%.

Among individual institutions, Nonghyup Financial Group posted the largest improvement, with its CET1 ratio climbing 0.94 percentage points from 12.03% at end-March to 12.97% at end-June. The FSS attributed the sharp rise to the effects of a paid-in capital increase. Standard Chartered Bank Korea also advanced 0.78 percentage points to 15.65% from 14.86%, while iM Financial Group, Citibank Korea and Shinhan Financial all improved from the previous quarter.

On the other end, K bank recorded the steepest decline, with its CET1 ratio falling 1.39 percentage points from 19.47% to 18.08%. The Export-Import Bank of Korea, Suhyup Bank and BNK Financial Group also saw their ratios slip by 0.22 percentage points, 0.20 percentage points and 0.15 percentage points, respectively.

Overall capital adequacy across the banking sector remained sound. All domestic banks stayed well above regulatory thresholds, and major banks maintained CET1 ratios of at least 13%.

On a CET1 basis, Citibank Korea, Standard Chartered Bank Korea, K bank, Kakao Bank, Toss Bank, Suhyup Bank and the Export-Import Bank of Korea all held ratios above 14%, while KB Kookmin Bank, Shinhan Financial, Hana Bank, Woori Bank and Korea Development Bank each exceeded 13%. On a total capital ratio basis, Woori Bank, Nonghyup Financial Group, Citibank Korea, Standard Chartered Bank Korea, K bank, Kakao Bank, Toss Bank, Suhyup Bank and the Export-Import Bank of Korea all surpassed 16%.

Breaking down the figures by institution type, the eight bank holding companies posted a combined CET1 ratio of 13.32%, up 0.19 percentage points from the previous quarter, while the 20 standalone banks came in at 14.73%, up 0.04 percentage points. The improvement was relatively more pronounced among the holding companies.

The FSS assessed the current capital levels of domestic banks as sound. However, it noted that prolonged instability in the Middle East and other external uncertainties, combined with potential changes in economic conditions such as benchmark interest rate increases, could heighten credit risk and weigh on capital ratios.

"We plan to encourage domestic banks to strengthen their loss-absorbing capacity and tighten capital adequacy management so they can maintain financial soundness and fulfill their core role as financial intermediaries," the FSS said.

Meanwhile, major commercial banks turned in solid earnings in the first half of this year. KB Kookmin Bank recorded net profit for the period of 2.23 trillion won, Hana Bank posted 2.12 trillion won, and Woori Bank reported net profit of 1.37 trillion won.