The banking sector is desperately focusing on risk management. They are reducing loans and even resorting to selling unused real estate. This is an effort to decrease risk-weighted assets (RWA) and increase common equity Tier 1 capital ratio (CET1) through sales profits, but the burden is growing as lending demand is also declining and the consolidation of branches is not proceeding smoothly.
According to the financial sector on the 22nd, seven properties listed by Woori Bank since the previous day have entered re-bidding for sale. All of them were unsuccessful in the first auction held from the 15th to the 17th. This public sale is a competitive bidding process in two rounds scheduled from April 15th to 23rd. The properties Woori Bank decided to sell this time are located in Seoul: ▲Guwidong ▲Dangsan-dong ▲Yeongcheon-dong ▲Bomun-dong ▲Mangwoo-dong ▲Yeouido North ▲Guro-dong branches.
Last week, Woori Bank announced it would publicly sell a total of seven properties that were used as branches. This was seen as beneficial for increasing asset efficiency. Real estate owned by a bank in Seoul, rather than a provincial area, is generally used for other purposes, such as being a venue for social contribution activities, even if not used as a branch, and it was believed that profits from the sale could also contribute to raising common equity Tier 1 (CET1) ratios.
However, the disposal of real estate listed by banks is not smooth. It is rare for a sale to be successful in one go, and six properties listed last year by Woori Bank—Samsung Central Station branch, Yeongtong Financial Center, Gasan Venture branch, Yongho-dong branch, Mokdong Nam branch, and Sinsung Shopping branch—also went unsold. Kookmin Bank also brought seven branches for sale: Nonsan branch, Yeosu branch, Daegu Gangbuk branch, Beomeum-dong branch, Seongnam-dong branch, Bokhyeon-dong branch, and Sin Haeundae branch, but could not find buyers.
The reason banks are selling even real estate is to reduce RWA. Idle real estate corresponds to RWA, which is the denominator for CET1, so disposing of it helps to increase the ratio. Recently, to improve CET1, banks have also started to reduce corporate loans that lack collateral and have relatively high RWA, and in March, the outstanding amount of corporate loans in domestic banks decreased by 2.1 trillion won to 1,324.3 trillion won, marking the first time in 20 years that a decline has occurred in March.
CET1 is an indicator that shows how sufficient safe capital is compared to risks; a higher ratio implies greater soundness. Domestic financial authorities recommend above 12%, but financial holding companies are managing CET1 with a target of over 13%. However, as of the end of last year, the CET1 ratio for each bank was: Woori Financial at 12.13%, KB Financial Group at 13.51%, and Shinhan Financial Group and Hana Financial Group at 13.03% and 13.13%, respectively, just barely above 13%.
A spokesperson for a commercial bank said, "While banks have reduced corporate loans, the demand for corporate loans has also diminished due to increasing economic uncertainty," and noted, "In this deadlocked situation, there is a greater demand to sell idle real estate rather than remodel or lease it, in order to increase the CET1 ratio, even if just a little."