South Korean banks' capital adequacy ratio down in Q2

South Korean banks saw their capital adequacy ratios slip in the second quarter from three months earlier on hike in risk-weighted assets, the financial regulator said Monday. The average capital adequacy ratio of 18 local banks reached 13.88 percent at the end of June, down 0.12 percentage point from the previous quarter, according to the Financial Supervisory Service (FSS). The ratio, a percentage of a bank's risk-weighted credit exposure, is measured under the Basel II framework set by the Bank for International Settlements (BIS) and indicates the banks' capacity to absorb losses and meet risks including liabilities. The slight fall in the banks' capital adequacy ratios came as their risk-weighted assets increased by 15.1 trillion won (US$13.5 billion) on-quarter in the April-June period as loans extended to some large firms soured or became prone to default on the protracted economic downturn, the FSS said. The growth in the banks' loans in the cited three months added to the increase in their risk-weighted assets, the regulator said. In the second quarter, banks' loans extended increased 21.3 trillion won. The Tier 1 capital, a core measure of a bank's financial strength, also inched down 0.03 percentage point to a stable 10.97 percent. South Korean banks will be required to set aside a higher portion of reserves against potential losses from the end of this year in line with new Basel III to beef up their financial health.