South Korean banks saw their capital adequacy ratio fall in the second quarter from three months earlier, due largely to an increase in risk-weighted assets, the financial regulator said Sunday.
The average capital adequacy ratio of 18 local banks reached 13.83% as of the end of June, down 0.05 percentage point from 13.88 % the previous quarter, according to the Financial Supervisory Service (FSS).
The ratio, expressed as a percentage of a bank’s risk-weighted credit exposures, was measured under the Basel II framework set by the Bank for International Settlements (BIS) and indicates banks’ capacity to absorb losses and meet risks, including liabilities, South Korean (Yonhap) news agency reported.
The drop in banks’ capital adequacy ratio came as their risk-weighted assets increased. In particular, the three banks the state-run Korea Development Bank, Kookmin Bank, and the Korea Exchange Bank each saw their risk-weighted assets grow by more than 3 trillion won (US$2.64 billion) in the April-June period.
Under the Basel III plan, which is scheduled to take effect next year, banks are required to beef up their capital buffers against a potential financial breakdown.