[1mm Finance Talk] Why the Four Major Financial Groups Maintained a 13% CET1 Ratio Despite Expanding Risk-Weighted Assets

CET1 Ratio Maintained at 13.21%–13.74% in Q2

Rising RWA Typically Lowers CET1, But

Record-Breaking Net Income Offsets Increase in RWA

Strong Performance Continues Amid Falling Exchange Rate... Further Improvement Possible in Q3

The Common Equity Tier 1 (CET1) ratio, a key measure of financial soundness for Korea’s four major financial groups, remained in the 13% range for the second quarter of 2026. This was achieved despite an increase in risk-weighted assets (RWA), a core factor in determining the CET1 ratio. The negative effects from an expansion in high-risk and productive financing, as well as a rise in the won-dollar exchange rate, were offset by record-breaking net income.

According to the financial sector on August 5, the CET1 ratios of the four major financial groups (KB Financial Group, Shinhan Financial Group, Hana Financial Group, and Woori Financial Group) stood between 13.21% and 13.74% as of the end of June 2026. The breakdown by group is as follows: KB Financial Group at 13.74%, Woori Financial Group at 13.70%, Shinhan Financial Group at 13.30%, and Hana Financial Group at 13.21%. Except for Hana Financial Group, the other groups saw their CET1 ratios rise compared to the previous quarter.

The CET1 ratio is a core capital indicator reflecting a financial institution’s capacity to absorb losses, and it is also used to assess potential for shareholder returns. A higher ratio means greater capacity for shareholder returns such as dividends or share buybacks and cancellations. Market participants view the financial authorities’ recommended figure of 13% as the minimum threshold for shareholder returns.

This result is notable because it was achieved despite an increase in RWA, which serves as the denominator for the CET1 ratio. Typically, higher RWA leads to a decline in the CET1 ratio, but this formula did not play out this time.

The combined RWA for the four major financial groups reached 1,290 trillion won as of the end of June 2026, a 4.6% increase from 1,233.3843 trillion won at the end of the previous year. The upward trend also continued compared to the 1,266.6589 trillion won at the end of the first quarter this year. This was due to an increase in total group assets, an expansion in corporate lending with high risk weights, and growth in the won-denominated value of foreign currency assets due to the strengthening of the dollar-won exchange rate.

Despite these factors that would ordinarily drive down the CET1 ratio, the figure was maintained in the 13% range—or even increased—mainly due to record net income in the second quarter of 2026. The combined net income for the four groups reached 6.0097 trillion won in the second quarter, up 18.6% from 5.0648 trillion won in the same period last year. This surpassed even last year’s record high results.

These unprecedented earnings boosted the CET1 ratio for the four financial groups by approximately 0.4 to 0.5 percentage points. For example, KB Financial Group, which posted the largest net income in the second quarter, saw its CET1 ratio climb by 0.54 percentage points compared to the previous quarter, thanks to higher net income. While the increase in RWA lowered the CET1 ratio by 0.15 percentage points, the contribution from net income more than offset this, resulting in an overall gain.

In the third quarter, there is potential for the CET1 ratio to improve further, as the increase in RWA is expected to slow. The four groups have begun managing their RWA growth, and the decline in the won-dollar exchange rate since the end of July has eased the burden of converting foreign currency assets to won. This could translate into a reduction of RWA.

An official from the financial sector said, "The recent strengthening of the won increases gains from foreign currency translation, which is also positive for earnings. Although the expansion of productive financing inevitably leads to a rise in RWA, this will act as a relieving factor in CET1 management."

This content was produced with the assistance of AI translation services.