Friday, June 12, 2009

S Korea banks need more core capital

South Korea's financial watchdog is no longer pushing banks to further raise capital bases, which hit a two-year high at the end of March, but is recommending they boost core tier 1 capital, a senior official said today.

The financial authorities are also looking at adopting supplementary indicators to monitor banks' capital bases, Rhee Chang-yong, vice chairman of the Financial Services Commission, told a teleconference with foreign media.

''We are not talking about a specific level of BIS (Bank for International Settlements) ratios, but advising them to raise tier 1 capital bases,'' he said, when asked if the watchdog continued to ask for additional capital raising by banks.

South Korean banks have raised 28 trillion won (22.3 billion dollar) in the past eight months, mostly through issues of subordinated debt and hybrid securities, most of which are not categorised as core capital.

Rhee said global regulators were moving to apply the tangible common equity (TCE) standard and tier 1 capital ratios to gauge banks' capital bases.

''Our stance is that we will step in line with global regulatory bodies. It is not appropriate for us to move ahead of them,'' he said in reference to a possible adoption of the TCE ratio.

The TCE measure looks at how much common equity is supporting a company excluding intangible assets such as goodwill.

South Korea banks' capital ratio jumped to 12.94 per cent at the end of March under the BIS guidelines, the highest level since the first quarter of 2007.

KB Financial Group the parent company of top domestic bank Kookmin, was seeking to raise 1 billion dollar - 3 billion dollar through a new share sale by around the third quarter, a banking source said last week, which was seen as part of an attempt to buy smaller rival Korea Exchange Bank.

Rhee expected the banking sector's consolidation to happen after the economy and stock markets showed signs of bottoming out, and said the time may not be right for the government to sell stakes in banks such as Woori Finance Holdings.

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