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Major Korean financial holding companies saw their Common Equity Tier 1 (CET1) ratios decline sharply in the first quarter, as the Korean won weakened and corporate lending expanded. CET1—a key measure of a bank’s loss-absorbing capacity—is calculated by dividing common equity capital by risk-weighted assets (RWA).

Against this backdrop, Woori Financial Group stood out by proactively managing its risk-weighted assets and lifting its capital ratio. However, the improvement has drawn mixed assessments, as it appears to have come at the expense of earnings growth.

/IT조선

According to the financial industry on April 30, the RWAs of the four major financial groups—KB Financial Group, Shinhan Financial Group, Hana Financial Group, and Woori Financial Group—all increased in the first quarter. RWA represents the size of assets adjusted for risk, and serves as the denominator in CET1 calculations.

KB Financial Group’s RWA rose 2.5% from the end of last year to 366 trillion won. Shinhan Financial Group’s RWA increased 3.4% to 365 trillion won, while Hana Financial Group’s climbed 4.2% to 301 trillion won. Woori Financial Group also posted a 2.8% increase to 241 trillion won. The sharp depreciation of the Korean won—by nearly 80 won against the U.S. dollar during the quarter—raised the risk weights of foreign currency-related assets, while expanded corporate lending under the government’s “productive finance” policy also contributed to the rise.

The problem lies in capital ratios. As RWAs increase, the denominator expands, putting downward pressure on CET1. KB Financial Group’s CET1 ratio fell 19 basis points to 13.63% from 13.82%. Shinhan Financial Group’s ratio declined 16 basis points to 13.19%, and Hana Financial Group’s dropped 29 basis points to 13.09%. Despite solid net profits, the combined impact of currency volatility and Basel III regulations weighed on capital adequacy.

Woori Financial Group, however, took a different approach. Its CET1 ratio rose from 12.9% to 13.6%, making it the only one among the four to record an improvement. The key driver was its management of RWAs, which market participants have described as “extreme denominator control.”

Woori reduced assets sensitive to exchange rate fluctuations and cut back on high-risk-weight exposures, while restructuring its corporate loan portfolio toward higher-quality borrowers.

Indeed, while KB, Shinhan, and Hana banks posted corporate loan growth rates in the range of 4–7%, Woori Bank recorded a modest 0.4% increase. The bank expanded lending to large corporates but reduced exposure to small and medium-sized enterprises (SMEs), effectively managing overall loan volume. While maintaining its focus on corporate finance, it adjusted asset composition by weighing risk against returns.

However, this denominator-focused strategy has structural limitations. Reducing risk inevitably constrains asset growth and profit expansion. In fact, Woori Bank has been criticized for slowing its growth pace by cutting SME loans too aggressively during its portfolio reshuffling.

The market is now questioning the next step. Rather than merely defending capital ratios by reducing risk, the focus should shift toward “numerator growth”—boosting capital through stronger earnings. Ultimately, the sustainability of capital ratios depends on a firm’s ability to generate profits.

Woori Financial Group appears to recognize this challenge. Its strategy includes expanding corporate finance in advanced strategic industries, supporting innovative firms through guaranteed loans, and strengthening its non-bank portfolio in insurance, securities, and credit card businesses. The group also aims to establish a virtuous cycle between asset growth and shareholder returns.

Choi Jung-wook, an analyst at Hana Securities, said, “Taking into account weak first-quarter results, we have revised down our full-year earnings forecast for Woori Financial Group to 3.16 trillion won. While we had expected earnings diversification from the addition of an insurance subsidiary and improvements in group ROE, it may take more time, as Dongyang Life Insurance posted only 25 billion won in net profit in the first quarter. The market will likely require clearer signs of enhanced competitiveness and increased earnings contributions from non-bank subsidiaries before assigning a higher valuation multiple.”