Watchdog downplays Fitch's warning against Korean banks

SEOUL, March 13 (Yonhap) -- South Korea's financial watchdog said Friday local
banks have sufficient capacity to boost their capital bases, shrugging off Fitch
Ratings' estimate that they may sustain considerable losses.
Fitch estimated South Korean lenders may suffer a combined 42 trillion won
(US$28.5 billion) in additional losses by the end of 2010 due to their high-risk
loans and exposure to foreign currency assets.
The tangible common equity ratio for Korean banks is forecast to reach 4 percent
by the end of next year, down from 6.4 percent at the end of June 2008, Fitch
said in the results of its stress test, which measures how well lenders will
weather the severe economic slowdown.
The ratio, a gauge of a lender's financial health, measures the percentage of a
bank's common stock capital to its tangible assets.
The ratings agency said Korean banks need to boost their capital further, saying
that a proposed 20 trillion won bank recapitalization fund is not sufficient.
"Unlike banks in major developed countries, South Korean lenders are able to
boost their capital bases through common share offerings and have their own
capacity enough to raise capital," the Financial Services Commission (FSC) said
in a statement, dismissing the results.
The FSC added that even if local banks posts more than 40 trillion won in losses,
their financial health would remain relatively sound despite the global economic
downturn.
Fitch's warning comes as the Korean financial regulator plans to inject an
initial 12 trillion won into local banks in March out of the bank
recapitalization fund that will be used to buy subordinated bonds and hybrid debt
from lenders.
Local banks have been making efforts to boost their falling capital adequacy
ratios as the slumping economy and a corporate overhaul drive are increasing the
amount of bad debt, compromising their financial strength.
sooyeon@yna.co.kr
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