The Basel Committee on Banking Supervision (BCBS) has assigned the highest rating to Korea's regulatory framework for the simple Tier 1 capital ratio. This assessment indicates that capital regulations designed to prevent excessive debt expansion among domestic banks comply with international standards.
The Financial Supervisory Service announced on the 14th that the Basel Committee had granted the highest rating, "Compliant," to Korea's simple Tier 1 capital ratio regulatory framework. The Basel Committee finalized its approval of the assessment results at its regular meeting on the 28th of last month and published them on the 13th of this month.
The Basel Committee conducts Regulatory Compliance Assessments (RCAP) to verify whether member countries' bank soundness regulations have been implemented in accordance with international standards. This assessment targeted six countries: Korea, the United Kingdom, Japan, Australia, Canada, and Switzerland. For the first time, a group-based assessment method was applied, in which a single assessment team evaluates multiple countries simultaneously rather than forming separate teams for each country.
The simple Tier 1 capital ratio is calculated by dividing a bank's Tier 1 capital by its total risk-weighted exposure. It is a regulation that mandates banks to maintain Tier 1 capital at 3% or more of their risk-weighted exposure, regardless of the credit risk level of their assets, in order to prevent excessive leverage expansion. Domestic banks have calculated and publicly disclosed this ratio quarterly since 2015, and have been subject to a 3% supervisory guideline ratio since 2018.
In this assessment, Korea received the highest rating, "Compliant," not only in the overall grade but also in three specific areas: definition, application, and calculation; exposure measurement; and disclosure requirements. Assessment ratings are categorized into four levels: Compliant, Broadly Compliant, Partially Non-Compliant, and Non-Compliant.
However, it was pointed out that there is a discrepancy between Korea's 20% credit conversion factor applied to unconfirmed credit commitments and the Basel standard of 50%. The Basel Committee determined this to be an immaterial item with negligible impact on the market and did not reflect it in the assessment rating.
Previously, in its 2016 assessment, Korea received a "Broadly Compliant" rating for capital regulation and a "Compliant" rating for the Liquidity Coverage Ratio (LCR). In 2024, it achieved a "Compliant" rating for the Net Stable Funding Ratio (NSFR) and a "Broadly Compliant" rating for Large Exposure (LEX) regulations.
The Financial Supervisory Service explained that this assessment officially confirmed the alignment of Korea's domestic soundness regulatory framework with international standards. Based on the response capabilities accumulated during this assessment process, it plans to prepare for the Risk-Weighted Assets (RWA) Regulatory Compliance Assessment scheduled for 2027. Additionally, it intends to continuously enhance the international consistency of domestic soundness regulations by monitoring revisions to Basel international standards.
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