Banks Put Bailout Cash Straight Back into BOK Experts Predict Tense Christmas for the Economy Top Firms' Cash Assets, Short-Term Debt Soar BOK to Supply Up to W5 Trillion for Bond Fund Gov't in Fresh Bid to Make Banks Lend More Moody's Mulls Downgrading 10 Korean Banks Gov't Gets Tough on Banks W20 Trillion Promised to Bolster Banks Developed Status 'Could Hurt Korean Bourse'

The Financial Supervisory Service predicts that Korea’s 14 commercial banks will see their Bank for International Settlements capital adequacy ratios rise from an average 10.79 percent at the end of September to 11.37 percent before the end of this year, with the issuance of around W7 trillion (US$1=W1,473) in subordinated bonds aimed at bolstering capital.

This is around the capital adequacy ratio of the end of June, which was 11.36 percent before the global financial crisis spread following the collapse of U.S. Lehman Brothers on Sept. 15. On the international financial markets, a bank’s capital adequacy ratio must fall within 11-12 percent to be considered financially healthy.

According to FSS data seen by the Chosun Ilbo regarding the issuance of subordinated bonds by commercial banks in November, domestic lenders are to issue W6.94 trillion in such debt before the end of this year.

Kookmin Bank has already issued W1.5 trillion in subordinated bonds, and Woori Bank W1 trillion. Two other commercial banks have issued subordinated bonds as well. As of Nov. 21, Korean commercial banks had issued W4.43 trillion worth of subordinated bonds, or 58 percent of the volume they plan to issue. The reason is that such bonds are in high demand, fetching high yields of between 7.7 and 8.8 percent.

As a result, the capital adequacy ratios of Korean banks, which had fallen to 10.79 percent in September -- the lowest since 10.47 percent in March 2001 -- are expected to rise to 11.37 percent, according to the FSS.

In the case of Shinhan Bank, its BIS capital adequacy ratio rose from 11.9 percent at the end of September to 12.64 percent, Woori Bank from 10.53 percent to 11.18 percent, and Hana Bank from 10.65 percent to 11.71 percent. Kookmin Bank, whose BIS capital adequacy ratio fell to less than 10 percent due to its shift to a holding company structure, will see its ratio rise to 10.71 percent.

The capital adequacy ratios of Korean banks are already higher than those of banks in advanced countries that have received emergency cash infusions. But the FSS says Korean banks need to boost their ratios since a stagnant real economy could lead to a rise in insolvent loans.

A senior FSS official said the UK’s Standard Chartered Bank recently boosted its capital adequacy ratio to 16 percent, adding that banks need to take advance measures to bolster cash because they could be hit hard if the financial crisis impacts the real economy and causes insolvencies.

(englishnews@chosun.com )