SEOUL, March 31 (AJP) - South Korean banks’ capital buffers edged lower at the end of last year as the won’s sharp weakening inflated foreign-currency assets, underscoring growing pressure from exchange-rate-driven balance sheet expansion, data showed Tuesday.
The common equity Tier 1 (CET1) ratio of domestic banks stood at 13.51 percent at end-2025, down 0.12 percentage point from the previous quarter, according to the Financial Supervisory Service.
The decline came despite steady earnings, as a weaker won boosted the value of foreign-denominated loans and assets, increasing risk-weighted assets and diluting capital ratios.
Other key capital metrics also slipped. The Tier 1 capital ratio fell 0.08 percentage point to 14.80 percent, while the total capital ratio dropped 0.09 percentage point to 15.83 percent. The leverage ratio edged down to 6.76 percent.
The data highlights how currency-driven balance sheet effects — rather than credit deterioration — are emerging as a key variable for capital adequacy, particularly as Korean lenders maintain sizable foreign-currency exposure.
Still, overall capital levels remained comfortably above regulatory thresholds, indicating that the banking sector retains solid loss-absorbing capacity.
By bank, most major lenders maintained strong buffers, with several including KB, Woori, Citi and SC posting total capital ratios above 16 percent, reflecting ample resilience.
However, the downward drift was broad-based. Thirteen banks saw their CET1 ratios decline from the previous quarter, while only a handful posted gains.
Supervisors warned that risks could intensify as geopolitical tensions and a prolonged strong dollar environment lift both funding costs and credit risks. Authorities said they would step up monitoring of capital adequacy and encourage banks to bolster loss-absorbing buffers to navigate potential shocks from high oil prices and currency volatility.
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