Korean Banks’ BIS Capital Buffer Slips Fourth Straight Quarter

South Korean lenders’ capital adequacy ratio as measured by Bank for International Settlements standards declined for a fourth straight quarter as riskier loans increased.

Reserves against assets at risk under so-called Basel II rules retreated to 13.83 percent on a preliminary basis as of June from 13.88 percent three months earlier, the Financial Supervisory Service said in an e-mailed statement.

Banks’ non-performing loan ratio for households rose to almost a six-year high in the second quarter as South Korea’s slowing economy weighed on property values. Regulators are urging local lenders to maintain their buffers as uncertainty around Europe’s crisis persists and banks prepare to adopt stricter Basel III rules next year.

Citigroup Inc. (C)’s South Korean unit posted the highest BIS ratio of 16.79 percent, followed by 15.57 percent at Standard Chartered Plc (STAN)’s local subsidiary, according to the statement. The levels for all 18 banks were above the regulator’s 10 percent guideline, the FSS said.

The average Tier 1 ratio slipped to 11.02 percent from 11.05 percent at the end of March, the regulator said.

South Korean banks must report their capital adequacy under Basel III rules starting next year, while bank holding companies will shift starting in 2014, the regulator said on Aug. 24.

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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