South Korean banks saw their financial health worsen slightly in the third quarter of this year from three months earlier due to a rise in risky assets, the financial watchdog said Wednesday.
The average capital adequacy ratio (CAR) of 18 commercial and state-run banks stood at 13.96 percent as of end-September, down 0.13 percentage points from the previous quarter, according to the Financial Supervisory Service (FSS).
The ratio, a key barometer of financial soundness, measures the proportion of a bank's capital to its risk-weighted credit. The Basel, Switzerland-based Bank for International Settlements (BIS), an international organization of central banks, advises lenders to maintain a ratio of 8 percent or higher since late 1992.
The on-quarter fall in the capital ratio came as a rise in risky assets outweighed an increase in equity capital. The amount of equity capital grew 2.7 percent, or 5.3 trillion won (US$4.59 billion), in the July-September period, while risky assets surged 3.7 percent, or 51.3 trillion won, according to the FSS.
Citibank Korea Inc. logged the highest capital ratio of 16.76 percent, followed by Kookmin Bank with 16.14 percent, while the state-run Korea Export-Import Bank (Korea Eximbank) ranked the lowest with 9.44 percent.
In order to buttress the Eximbank's financial soundness, the government plans to funnel fresh liquidity into the policy lender, according to sources.
The policy lender has been reeling from massive losses stemming from the collapse of a slew of big-name companies, including STX Group, and, more recently, key manufacturers such as shipbuilder Daewoo Shipbuilding & Marine Engineering Co., which is saddled with mounting losses.
With a plan to finance some 500 billion won, state-run Korea Development bank (KDB) is juggling an option to transfer stocks it holds of some public firms such as Korea Electric Power Corp. (KEPCO), to the Eximbank as a way to beef up its capital base.
Meanwhile, the average CAR of the country's eight bank holding firms edged up by 0.02 percentage points to 13.66 percent during the third quarter, according to the watchdog.
KB Financial Group Inc. ranked first with 15.72 percent, followed by Standard Chartered Korea with 14.32 percent.
"Most of the banks and holding companies have fared well, meeting the criteria of being the top class in the management evaluation of keeping the ratio above 10 percent," the FSS said in a release.
"But as unfavorable external conditions and low profits could bring the ratio down, authorities will urge the entities to boost equity capital further," it added.