Citibank Korea Inc. said Monday that Citigroup Inc. provided the bank $800 million to raise its capital base on a recommendation by South Korea's financial regulator and in line with action taken by the country's other major banks.
A spokeswoman for Citigroup said South Korean regulators have strongly recommended that banks there strengthen their capital, given "the expected difficult market environment in 2009."
South Korean banks have been raising capital since last month, when the nation's Financial Supervisory Service raised concerns that their average capital adequacy ratio fell 57 basis points during the third quarter, to 10.79% at the end of September.
The South Korean banking industry's minimum capital adequacy ratio requirement is set at 8%, but financial regulators prefer domestic banks to keep their ratios well above that level, either under Basel I or Basel II standards, to weather any financial turmoil.
The country's major banks — Kookmin, Shinhan, Woori, and Hana — have issued common shares to their holding companies this month in exchange for an injection of cash. The banks have also issued subordinated bonds.
Citibank Korea said that with the $800 million injection, its capital adequacy ratio under Basel I guidelines will rise above 13%, from 10.8%, and its Tier 1 capital ratio is expected to rise above 11%, from 9.74%.
"Sixty percent of the capital injection will be used for Tier 1 common stocks, while the remaining 40% will be for subordinated debentures, both to be acquired by Citigroup," the bank said.
Under Basel II guidelines, Citibank Korea's capital adequacy ratio will exceed 11%, versus 9.5% at the end of September, the bank said.
Citibank Korea, the largest Citigroup subsidiary in the Asia-Pacific region in terms of capital and assets, also said the move will improve its capital position ahead of the expected further slowdown in the local economy.
The Citigroup spokeswoman said that the bank is the company's only Asia-Pacific arm that has received a capital injection, and that the funds did not come from the Treasury Department's Troubled Asset Relief Program.
"Citi's balance sheet remains very strong and has solid liquidity to support our franchise growth," she said.