Basel III capital regulations will be implemented to bank holding companies from December 1, 2013 to meet the global capital standards.
BASEL III CAPITAL REGULATIONS
A. Minimum Capital Ratio
With the implementation of Basel III, minimum capital requirements for bank holding companies will be subdivided according to each category of capital: common equity capital ratio (4.5%), Tier 1 capital ratio (6%), and total capital ratio (8%).
Minimum Capital Ratio under Basel III
|
|
Common
Equity Ratio |
Tier
1 Capital Ratio |
Total
Capital Ratio |
||||||||||||
|
‘15 |
‘16 |
‘17 |
‘18 |
‘19 |
‘15 |
‘16 |
‘17 |
‘18 |
‘19 |
‘15 |
‘16 |
‘17 |
‘18 |
‘19 |
|
|
Min. Capital Ratio (A) |
4.5 |
4.5 |
4.5 |
4.5 |
4.5 |
6.0 |
6.0 |
6.0 |
6.0 |
6.0 |
8.0 |
8.0 |
8.0 |
8.0 |
8.0 |
|
Min.
Capital Buffer (B) |
- |
0.625 |
1.25 |
1.875 |
2.5 |
- |
0.625 |
1.25 |
1.875 |
2.5 |
- |
0.625 |
1.25 |
1.875 |
2.5 |
|
(A)+(B) |
4.5 |
5.125 |
5.75 |
6.375 |
7.0 |
6.0 |
6.625 |
7.25 |
7.875 |
8.5 |
8.0 |
8.625 |
9.25 |
9.875 |
10.5 |
B. Capital Conservation Buffer1
Capital conservation buffer will be introduced to bank holding companies from 2016 in accordance with implementation schedule proposed by the Basel Committee on Banking Supervision (BCBS).
Basel III Minimum Capital Ratio
|
|
Common
Equity Ratio |
Tier
1 Capital Ratio |
Total
Capital Ratio |
||||||||||||
|
‘15 |
‘16 |
‘17 |
‘18 |
‘19 |
‘15 |
‘16 |
‘17 |
‘18 |
‘19 |
‘15 |
‘16 |
‘17 |
‘18 |
‘19 |
|
|
Min. Capital Ratio (A) |
4.5 |
4.5 |
4.5 |
4.5 |
4.5 |
6.0 |
6.0 |
6.0 |
6.0 |
6.0 |
8.0 |
8.0 |
8.0 |
8.0 |
8.0 |
|
Min.
Capital Buffer (B) |
- |
0.625 |
1.25 |
1.875 |
2.5 |
- |
0.625 |
1.25 |
1.875 |
2.5 |
- |
0.625 |
1.25 |
1.875 |
2.5 |
|
(A)+(B) |
4.5 |
5.125 |
5.75 |
6.375 |
7.0 |
6.0 |
6.625 |
7.25 |
7.875 |
8.5 |
8.0 |
8.625 |
9.25 |
9.875 |
10.5 |
It is not mandatory for bank holding companies to maintain minimum capital conservation buffer ratios. If their holdings of capital conservation buffer fall short of minimum requirements, however, bank holding companies will be limited in distributing dividends or repurchasing of their shares.
Limitations in Income Outflow
|
|
Common
Equity Ratio |
Tier
1 Capital Ratio |
Total
Capital Ratio |
||||||||||||
|
‘15 |
‘16 |
‘17 |
‘18 |
‘19 |
‘15 |
‘16 |
‘17 |
‘18 |
‘19 |
‘15 |
‘16 |
‘17 |
‘18 |
‘19 |
|
|
Min. Capital Ratio (A) |
4.5 |
4.5 |
4.5 |
4.5 |
4.5 |
6.0 |
6.0 |
6.0 |
6.0 |
6.0 |
8.0 |
8.0 |
8.0 |
8.0 |
8.0 |
|
Min.
Capital Buffer (B) |
- |
0.625 |
1.25 |
1.875 |
2.5 |
- |
0.625 |
1.25 |
1.875 |
2.5 |
- |
0.625 |
1.25 |
1.875 |
2.5 |
|
(A)+(B) |
4.5 |
5.125 |
5.75 |
6.375 |
7.0 |
6.0 |
6.625 |
7.25 |
7.875 |
8.5 |
8.0 |
8.625 |
9.25 |
9.875 |
10.5 |
C. Prompt Corrective Action
The financial authorities will take prompt corrective action against bank holding companies which fail to meet minimum requirements of total capital ratio, Tier 1 capital ratio, and common equity capital ratio. (To be in force from January 1, 2015)
∙ Currently: A bank holding company is instructed to improve its business operation when its consolidated BIS capital ratio is below 8%.
∙ Under Basel III: A bank holding company will be instructed to improve its business operation when it fails to meet the following minimum requirements: 4.5% of common equity ratio, 6% of Tier 1 capital ratio, and 8% of total capital ratio.
EXPECTED OUTCOME
An average BIS capital ratio of 10 bank holding companies is expected to rise by 0.44%p upon implementation of the Basel III capital regulations. (12.91% → 13.35%, as of end-June, 2012).
Bank holding companies are expected to see a KRW 7.9 trillion decrease in equity capital and a KRW 100.3 trillion decrease in risk-weighted assets.
FUTURE SCHEDULE
Preliminary notice on changes to capital requirements for bank holding companies will be announced on August 1 and open to the public for any comment. The FSC will finally approve the amendments at its regular meeting in August or September.
*Please read the attached file for details.