Korean authorities to introduce measures to bolster capital at banks

Korea’s top four banks: KB Kookmin, Woori, Shinhan, and Hana, clockwise from top left [Photo by Yonhap]

South Korean authorities plans to introduce a system that improves the financial soundness of local banks by bolstering their capital to minimize any impact from the fallout of Silicon Valley Bank in the U.S.

“We will have the banks introduce the countercyclical capital buffer so that they can respond to economic fluctuations,” said Kim So-young, vice chairman of the Financial Services Commission on Wednesday. “We will also have them build up additional reserves depending on the results of their stress tests.”

Kim’s remarks were made in a meeting with the Financial Supervisory Service and bank officials in Seoul. The meeting was held on mounting concerns that the global markets would be affected by the recent collapse of SVB.

A study by Maeil Business Newspaper showed that Korea’s top four banks need to expand their capital base by 5.75 trillion won ($4.4 billion) under the commission’s measures.

The financial authorities plan to raise the countercyclical capital buffer ratio to 2.5 percent by September this year. They will also instruct the banks to bolster more capital based on the results of individual stress tests given the recent rise in uncertainty in the financial market and default rate. The applicable ratio may be about 2 percent.

The banks will also have to set aside capital on the request of the authorities to boost their resilience when unexpected losses occur.

The measures will allow the local banks’ capital ratio to go up to 14.5 percent.

The ratio of Shinhan Bank’s common equity to its total capital stood at 13.98 percent at the end of September, KB Kookmin Bank 13.96 percent, Hana Bank 14.52 percent and Woori Bank 12.42 percent.

Shinhan Bank is expected to raise 981.1 billion won more in capital, KB Kookmin Bank 1.23 trillion won and Woori Bank 3.58 trillion won to meet the 14.5 percent ratio target.