Cathay United Bank (國泰世華銀行), Cathay Financial Holding Co’s (國泰金控) banking unit, plans to improve its capital adequacy by the end of this year to meet the higher capital standards required after the Financial Supervisory Commission added it to the list of “domestic systemically important banks” (DSIB) in late June.
The bank’s Common Equity Tier 1 (CET1) ratio reached 9.8 percent and its Tier 1 capital ratio was 11.4 percent as of the end of June,which meant it failed to meet the commission’s required minimum of 11 percent and 12.5 percent respectively.
A capital injection of NT$10 million (US$318,634) from its parent company would raise the bank’s CET1 ratio to 10.4 percent and boost its Tier 1 capital ratio ratio as well, Cathay Financial spokesman Daniel Teng (鄧崇儀) told an investors’ conference in Taipei yesterday.
Cathay Financial’s board last week approved plans to raise NT$10 million for the conglomerate’s banking arm and another NT$10 million for its insurance unit.
“Although there is a gap between our CET1 ratio and the required minimum, we will reduce it not only by increasing capital, but also by cutting our risk-weighted assets,” Teng told the Taipei Times.
The drop in risk-weighted assets would result in a higher CET1 ratio, he said.
When a bank invests in bonds or equities and lends money, those investments or loans are partially calculated as its risk-weighted assets, the commission said, citing the Basel Accord.
DSIBs are required by the commission to meet the new capital standards in four years, but Cathay United plans to achieve that goal earlier, Cathay Financial president Lee Chang-ken (李長庚) said.
“It is a great honor to be named among the DSIBs in Taiwan, but it also comes with a heavy financial burden, as we would have to be cautious over our investments and favor those with less risk,” Lee said.
Cathay Financial hopes the commission will give some incentives to banks categorized as DSIBs, as their markets share is approximately 5 percent and DSIBs in other countries usually have a market share of more than than 20 percent, Lee said.
Meanwhile, Cathay Life Insurance Co (國泰人壽) yesterday said its risk-based capital ratio hit 330 percent as of the end of June, the highest of all time.
The planned capital injection would help the life insurer better prepare amid for volatile financial markets, Cathay Life executive vice president Lin Chao-ting (林昭廷) said.
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