Korean banks' Q2 financial conditions improve

SEOUL, Sept. 22 (Yonhap) -- South Korean banks' financial health improved in the second quarter from three months earlier as their equity capital increased while the percentage of risky assets reduced, the financial watchdog said Monday.

The average capital adequacy ratio of 18 commercial and state banks came in at 11.36 percent as of the end of June, up 0.16 percentage point from three months earlier, the Financial Supervisory Service (FSS) said.

The ratio remains low, however, compared with 12.31 percent at the end of last year.
The ratio, a key barometer of financial soundness, measures the percentage of a
bank's capital to its risk-weighted credit. Basel, a Swiss-based Bank for
International Settlements (BIS), advises lenders to maintain a ratio of 8 percent
or higher.
All local lenders are obliged to abide by the New Basel Capital Accord, also
known as Basel II, which starts this year and calls for more rigorous risk and
capital management requirements.
"In the second quarter, local banks' capital base increased 1 percent from the
previous quarter, while risk-weighted assets declined 0.5 percent," the FSS said
in a statement. In the April-June period, their combined net profit reached 3.4
trillion won (US$2.99 billion), which helped raise the lenders' capital base.
Nine out of 18 lenders, including No. 3 industry player Shinhan Bank, saw their
capital adequacy ratio improve. The remainders' BIS declined from the previous
quarter, though their ratios all stayed above 10 percent, the FSS said.
South Korean banks' financial health is feared to deteriorate as an economic
slowdown may raise loan default rates for small and medium enterprises. The
central bank warned in July that credit risks for loans to smaller companies are
likely to increase in the third quarter.
The FSS said it will closely monitor the situation to brace for the economic
downturn and advise banks to further beef up risk management.
sooyeon@yna.co.kr
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