KDB’s second quarter BIS ratio recovers to 14% range

[Photo by Lee Chung-woo]

South Korea’s Korea Development Bank (KDB) has managed to raise its Bank for International Settlements (BIS) capital adequacy ratio to the 14 percent range in the second quarter of 2023. The state-owned bank plans to maintain its BIS ratio above 13 percent in the second half of the year by issuing subordinated bonds and other measures.

According to KDB data obtained on Thursday by Representative Kim Hee-gon of the ruling People Power Party, who is also a member of the National Assembly’s State Affairs Committee, the bank’s BIS capital ratio stood at 14.11 percent in the second quarter, up 1 percentage point from the first quarter’s 13.11 percent.

KDB has generally maintained its BIS ratio in the 14-15 percent range since 2019. However, the ratio has exceeded 13 percent from the third quarter of last year, when it was 13.08 percent, to the first quarter of this year, when it hit 13.11 percent. Financial authorities recommend banks maintain a BIS capital adequacy ratio of 13 percent or higher for financial soundness.

A key factor contributing to the deterioration of KDB’s financial soundness is the large deficit at the country’s state utility Korea Electric Power Corp. (KEPCO). KDB is KEPCO’s largest shareholder with a 32.9 percent stake and recognizes KEPCO’s losses in proportion to its stake under the equity method. KEPCO posted an operating loss of 2 trillion won ($1.5 billion) in the second quarter of 2023.

HMM Co., the country’s largest shipping company which KDB is seeking to sell, is also putting pressure on the bank‘s financial soundness. If HMM’s stock price falls by 1,000 won, KDB‘s capital adequacy ratio also sees a 0.07 percentage point decline.

To maintain its BIS capital adequacy ratio above the 13 percent threshold, KDB issued 800 billion won worth of contingent capital securities (subordinated bonds) in April of this year. The government also injected capital into KDB, contributing 565 billion won worth of shares in Korea Land & Housing Corp. (LH) at the end of last year and 400 billion won worth of stocks in March.

“If necessary, we will continue our efforts to maintain a BIS capital adequacy ratio above 13 percent by raising additional capital through the issuance of 700 billion won worth of subordinated bonds in the second half of the year,” the KDB said.

Meanwhile, main opposition Democratic Party of Korea lawmakers from Busan, Ulsan, and South Gyeongsang Province, including Representative Park Jae-ho, introduced a bill to partially amend the Korea Development Bank Act on Tuesday that aims to relocate the bank’s headquarters to Busan.

According to KDB data obtained by Representative Hwang Un-ha of the opposition party, 168 KDB employees left the bank between 2020 and the first half of this year due to issues including the relocation to Busan. Among them, 68 were in their 20s or younger and 64 were in their 30s, accounting for 78 percent of those who quit.