[1mm Financial Talk] The Hidden Side of Banks' 'Value-Up'... Are Corporate Loan Doors Narrowing?

As banks actively respond to plans for enhancing corporate value (Value-up), concerns are being raised that the lending threshold may increase, particularly for corporate loans. This is because each company is managing the growth rate of risk-weighted assets (RWA) to maintain the common equity tier 1 (CET1) ratio, a key indicator of value-up.

Since 2018 until June of this year, a total of 14,426 ATMs have been removed from banks over approximately six years. On the 24th, ATMs from commercial banks are installed on a street in Seoul. Banks are rapidly withdrawing ATMs, citing maintenance costs such as ATM management and heating and cooling expenses. Photo by Yongjun Cho jun21@

According to the financial sector on the 5th, the four major domestic financial holding companies (KB, Shinhan, Hana, Woori) previously announced plans to maintain their group CET1 at 13% or higher in the medium to long term through their corporate value enhancement plans. As of the end of the third quarter, the CET1 ratios of the four major financial groups were KB Financial 13.85%, Shinhan Financial 13.12%, Hana Financial 13.17%, and Woori Financial 12.00%.

CET1 has emerged as a key indicator because it is used as a measure of shareholder returns. CET1 is calculated by dividing common equity capital by RWA, serving as an indicator to assess a financial company's loss absorption capacity and overall soundness. Generally, if CET1 exceeds 13%, it is considered that there is sufficient capacity for shareholder returns. For example, KB Financial recently stated in its corporate value enhancement plan that if CET1 exceeds 13% by year-end, the remaining surplus capital will be returned to shareholders.

For this reason, RWA has become a focus of intensive management by each financial holding company. To maintain or expand CET1, it is necessary to manage RWA, which corresponds to the 'denominator,' at an appropriate level. RWA is an indicator calculated by applying risk weights to assets held by financial companies according to their risk levels. Typically, mortgage loans, which make up most household loans, receive relatively low risk weights because they are secured by collateral such as housing, whereas corporate loans are assigned relatively higher risk weights due to their higher risk.

Each financial company has also announced plans to keep RWA at an appropriate level. KB Financial recently stated in its corporate value enhancement plan that it will manage the annual RWA growth rate below the 10-year average (6.1%), while Shinhan Financial and Woori Financial set targets of 5% and 4%, respectively. Hana Financial also announced it would manage RWA growth at the level of nominal gross domestic product (GDP) growth. Considering that the RWA growth rates of the four major financial groups reached 5-8% in the third quarter, this represents a significant reduction.

As each financial holding company begins to treat RWA as an important management target, concerns are also being raised that the lending gate may narrow for corporate loans in the near term. Managing RWA ultimately requires selecting borrowers carefully or controlling the growth of assets with high risk weights. Cases of closing the door to corporate loans have already appeared. Last year, Woori Bank, which had raised the banner of "restoring the prestige of corporate finance," decided to withdraw the authority for corporate loan approvals from its branches by the end of the year.

This is interpreted as an effort to control the increase in corporate loans with high risk weights after achieving the targeted asset growth plan. A Woori Financial official explained, "This year, the target for (corporate loans) has been exceeded up to the third quarter," adding, "We are not stopping operations entirely, but the intention is to focus on soundness management during the remaining two months."