Bank holding companies in South Korea will be required to comply with revised global capital rules from December as part of efforts to beef up their financial health in line with international standards, the financial regulator said Wednesday.
The Financial Services Commission (FSC), the country's top financial regulator, will impose the Basel III capital requirements on local bank holding firms as of Dec. 1, according to the watchdog.
The Basel III refers to a set of the latest regulatory rules on bank capital adequacy agreed upon by the members of the Basel Committee on Banking Supervision (BCBS).
Under the new capital rules, a bank needs to set aside a higher portion of capital reserves in three different types of assets:
common equity, the amount that all common shareholders have invested in a company; Tier 1 capital, a core measure of a bank's financial strength; and additional capital buffers against liquidity risks, the FSC said.
A bank holding firm should hold 4.5 percent of common equity; 6 percent of Tier 1 capital, which includes common stocks and retained earnings; and at least 2.5 percent of hybrid or subordinated bonds.
The new capital rules are the same as the ones to be implemented on local banks, which are also due to take effect from the year-end, the FSC added.
If a bank holding firm fails to meet the required minimum level of capital adequacy, the FSC can restrict its dividend payouts or share buybacks, or enforce corrective measures to improve management. These restrictions will go into effect from 2015.
The FSC projected the revised rules will raise the average capital adequacy ratio -- otherwise known as the BIS ratio -- of 10 bank holding firms to 13.35 percent as of end-June, up from the current 12.91 percent.
The firms will be able to reduce the amount of their risk-weighted assets by 100.3 trillion won under the new capital rules, the FSC added.
The Basel III was developed upon a growing call for tougher capital standards from the member countries after a number of global banking giants went belly-up in the aftermath of the 2008 global financial crisis due to excessive leveraging.
The initial Basel I was enacted by the Group of Ten (G10) countries in the early 1990s, but the rules have been revised over the years as the previous versions were considered outdated.
South Korea first introduced the Basel rules on bank holding companies in 2007. (Yonhap News)
