Bank holding firms' capital ratio drops in Q2

The capital adequacy ratio of South Korean bank holding companies fell for a second consecutive quarter, as they fared worse amid the central bank's easing cycle and tougher international capital rules, the financial regulator said Monday. The average capital adequacy ratio of 10 bank holding companies, including top player Woori Finance Holdings Co., stood at 12.95 percent in the second quarter ending in June, down 0.16 percentage point from three months earlier, according to the Financial Supervisory Service (FSS). The capital adequacy ratio refers to the proportion of the minimum amount of capital required under the Basel II capital rules that a bank must set aside as provisions against capital risks. Compared with the previous year, the figure inched up from 12.91 percent, the FSS added. The on-quarter drop came as the bank holding firms have faced a bumpy road in the past few quarters with their earnings being slashed by half amid a slowing economy and the Bank of Korea's consecutive rate cuts. With the updated stiffer capital rules, known as Basel III, to take effect in Korea from the end of this year, they have been pressured by the regulatory authorities to hold more reserves against potential losses. Their core capital, otherwise known as Tier 1 capital, also slipped 0.13 percentage point to 10.36 percent as of end-June. The core capital consists of common stock and retained earnings and is a key gauge of a bank's financial strength. NongHyup Financial Group Inc. saw its capital adequacy ratio fall by the most compared with other players, with the figure coming in at 10.58 percent, largely due to an increase in loss reserves of about 300 billion won (US$275.7 million). The corresponding ratio for Hana Financial Group Inc., No. 3 lender, was also among the lowest band at 10.85 percent, as its risk-weighted assets grew after it increased loans by 2.8 trillion won over the cited period.