Foreign-currency liquidity indicators are not yet at dangerous levels, but banks are moving to raise their guard because sharp currency moves can quickly affect capital soundness.
According to the financial sector on the 17th, the foreign-currency liquidity coverage ratio, or LCR, at the five major banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — stood at 142.73% to 201.55% as of the end of February. All five were well above the financial regulator’s 80% requirement.
The foreign-currency LCR measures how much high-quality liquid foreign-currency assets a bank holds to cover expected net foreign-currency outflows over the next 30 days. A higher ratio indicates more stable foreign-currency liquidity.
Banks are reacting quickly because the won-dollar rate has become highly volatile, including a break above the “psychological” 1,500 level. In Seoul’s foreign-exchange market, the won ended daytime trading at 1,493.6 per dollar, down 3.9 won from the previous session. A day earlier, it rose above 1,500 intraday for the first time in 17 years.
Market participants widely expect volatility could increase further depending on whether the war drags on and where international oil prices head.
If upward pressure on the exchange rate persists, it can weigh on financial firms’ capital strength. A weaker won raises the won value of foreign-currency assets, expanding risk-weighted assets and putting downward pressure on the common equity Tier 1, or CET1, ratio. The industry generally estimates that a 10-won rise in the exchange rate lowers the CET1 ratio by about 0.02 percentage points.
As volatility increases the burden of balance-sheet management, financial groups are strengthening internal checks. KB Financial Group said it is using hedges to minimize foreign-exchange translation gains and losses excluding investment profit and loss, and managing exposure at the group level by considering each affiliate’s FX position. KB Kookmin Bank introduced a return on risk-weighted assets, or RoRWA, metric to help manage capital adequacy indicators such as CET1 and the Bank for International Settlements, or BIS, capital ratio.
Shinhan Financial Group said it treats a rise of 2.5% from the previous day, or more than 5% within 10 days, as a crisis and has prepared response measures by threshold level. Hana Financial Group and Woori Financial Group are also operating emergency response systems to monitor foreign-currency liquidity and money-market conditions.
“A hard-to-predict market is likely to continue for some time as the won-dollar rate moves above 1,500 and volatility increases,” a financial industry official said. “Groups will likely keep stepping up risk checks and preparing for a possible rise in corporate funding demand.”
* This article has been translated by AI.
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