Korean banking giants lag behind in global capital standard

South Korean banks failed to make it into the global top tier in capital volume last year, data showed Monday.

According to an estimate by Korea Ratings, none of the country’s banking groups were among the top 60 in terms of core capital as of the end of 2016.

Five banking groups -- KB Financial Group, Shinhan Financial Group, Hana Financial Group, Woori Bank and the state-run Korea Development Bank -- were part of the top 100, but none made it on the top 50 list.

The estimate was based on a list of the top 1,000 world banks compiled by British magazine The Banker.

KB Financial ranked 60th as of 2016, up four notches from the previous year, followed by KDB at No. 64.

Shinhan Financial Group was 68th while Hana Financial Group and Woori Bank were ranked 80th and 88th, respectively, in core capital.

KB Financial Group held 32.9 trillion won ($29.1 billion) of core capital as of June, according to regulatory filings to the Financial Supervisory Service, while Shinhan Financial Group came close to the leading group, with 32.7 trillion won of capital.

The estimate also indicated that Korean banking groups’ profitability was subpar to the global standard. The combined return on assets of Korea’s banking groups was 0.4 percent, less than half that of the top 100 global banking groups at 0.9 percent, as of 2016.

However, the tier one capital adequacy ratio of Korean banking groups, at 15 percent, was close to the top 100 banks’ 16.5 percent in 2016.

Chinese banking group, the Industrial and Commercial Bank of China, had the largest volume of tier one capital, while another Chinese group, China Construction Bank, took second place, according to the estimate.

Tier one capital, which encompasses common shares and retained earnings among others, was designed to better ensure the capital adequacy of banks.

Korean banks should push harder to increase their core capital in order to prevent another financial crisis, while supplementary capital should be put aside with regards to assessing a bank, said Yang Jun-suk, an economics professor at Catholic University of Korea.

By Son Ji-hyoung
(consnow@heraldcorp.com)