Local banks' financial health improves in Q4

SEOUL, Feb. 22 (Yonhap) -- South Korean banks' financial health improved in the
fourth quarter from three months earlier as local lenders made efforts to boost
their capital base through share and bond sales, the nation's financial watchdog
said Sunday.

The average capital adequacy ratio of 18 commercial and state banks came in at
12.19 percent as of the end of December, up 1.33 percentage points from three
months earlier, according to the Financial Supervisory Service (FSS).
The ratio, a key barometer of financial soundness, measures the percentage of a
bank's capital to its risk-weighted credit.
"In the fourth quarter, risk-weighted assets inched down as lending growth slowed
and the local currency's year-end value rose," the FSS said. "Meanwhile,
aggressive efforts made by banks to boost their capital base sharply raised their
equity capital."
Lenders' tier one ratio, a barometer of core capital, reached 8.79 percent as of
end-December, up 0.46 percentage point from the previous quarter, it added.
Local banks have been seeking to bolster their falling capital adequacy ratios as
the slowing economy and a credit crunch are increasing the amount of bad loans.
Lenders have become especially wary of extending loans to smaller firms, fearing
that a corporate restructuring drive and the economic slowdown may hurt their
financial health down the road.
According to the FSS, local banks increased their capital base by a combined 16.2
trillion won (US$10.7 billion) through selling shares or subordinated bonds last
quarter.
The capital adequacy ratio of nine local banks was below 12 percent, the minimum
recommended by the FSS. Twelve lenders' tier one ratios fell short of the advised
9 percent.
The government is seeking to launch a 20 trillion won special fund by the end of
the first quarter to help local banks raise their capital base. The fund will be
used to buy subordinated bonds and hybrid debt.
The FSS expected that lenders whose tier one ratio was below 9 percent may need
about 9 trillion won in capital injections to meet the watchdog's recommendation.
Woori Bank, the county's No. 3 lender, said that it will tap the proposed bank
recapitalization fund in a bid to raise more than 2 trillion won in capital.
sooyeon@yna.co.kr
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