South Korean banks saw their capital adequacy ratio decline in the first quarter of this year from three months earlier due mainly to dividend payments, the financial regulator said Friday.

   The average capital adequacy ratio of 18 local banks came to 14.23 percent as of the end of March, down 0.32 percentage point from the end of 2010, the Financial Supervisory Service (FSS) said in a report.

   It marked the second straight quarter in which the ratio has fallen on-quarter. In the fourth quarter of 2010, the ratio fell to 14.55 percent from 14.62 percent three months earlier, according to the FSS.

   The ratio, which measures the portion of a bank's capital to its risk-weighted assets, indicates a bank's capacity to absorb losses and meet risks including liabilities.

   The first-quarter decline is mainly attributable to banks' payments of cash dividends to shareholders for their 2010 business performances, the regulator said. Also responsible was KB Financial Group Inc.'s credit card unit spin-off, which resulted in a reduction of capital on the balance sheet of the group's bank unit, the FSS noted.

   Local banks' capital adequacy ratio still remains at a more favorable level in comparison with their global peers, the FSS said, adding the comparable figure for the world's 20 biggest banks averaged 13.6 percent in July last year.

   However, the local banking sector is facing uncertainties in its financial health due to a possible rise in bad real estate loans, the FSS said, adding it plans to supervise banks to maintain solid capital bases.

Source: Yonhap News (May 27, 2011)