South Korea has received the highest rating in the Basel Committee on Banking Supervision's (BCBS) assessment of its simple capital ratio regulation (RCAP). This evaluation confirms that the country's capital regulation framework aligns with international standards aimed at limiting excessive bank leverage.
The Financial Supervisory Service announced on October 14 that the Basel Committee has awarded South Korea a 'Compliant' rating for its simple capital ratio regulation framework.
Since the fourth quarter of last year, the Basel Committee has conducted regulatory compliance assessments for six countries, including South Korea, the United Kingdom, Japan, Australia, Canada, and Switzerland. This assessment utilized a group evaluation method, where a single evaluation team assessed multiple countries simultaneously for the first time. The results were finalized at a regular meeting on September 28 and made public on October 13.
In the assessment, South Korea received the highest 'Compliant' rating not only for the overall rating but also in all three subcategories: definition, application and calculation, exposure measurement, and disclosure requirements. The Basel Committee categorizes countries' regulatory compliance levels into four tiers: compliant, largely compliant, partially compliant, and non-compliant.
However, there was a noted discrepancy regarding the credit conversion factor applied to unconfirmed letters of credit, which is set at 20% under domestic standards compared to 50% under Basel standards. The Basel Committee deemed this difference to have a minimal market impact and classified it as a 'non-material issue,' thus not affecting the assessment rating.
The simple capital ratio is the ratio of a bank's Tier 1 capital to its total risk exposure. It mandates that banks maintain a minimum of 3% of their total risk exposure as basic capital, regardless of the credit risk level of their assets, to curb excessive leverage. Domestic banks have been calculating and disclosing this ratio quarterly since 2015, and since 2018, a 3% management guidance ratio has been applied.
Previously, South Korea received a 'largely compliant' rating in the Basel Committee's capital regulation assessment in 2016 and a 'compliant' rating in the liquidity coverage ratio (LCR) assessment. In 2024, it achieved 'compliant' in the net stable funding ratio (NSFR) assessment and 'largely compliant' in the large exposure (LEX) assessment.
* This article has been translated by AI.
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