South Korean banks and financial holding companies are launching large-scale real estate sell-offs to secure cash and improve financial soundness indicators, including the Common Equity Tier 1 (CET1) ratio.

Financial industry sources said on Sunday that KB Kookmin Bank recently announced plans to sell 13 branches that were merged or closed, with the minimum bid prices totaling approximately 133.5 billion won ($96.71 million).

Woori Financial Group (WFG) is also working to liquidate its real estate assets. The group is currently considering selling its Digital Tower in Myeong-dong, central Seoul, which it purchased in 2019 for 209.2 billion won and is estimated to have increased in value by about 40 percent since the acquisition.

It has pledged to improve its capital ratio via real estate sales after receiving conditional approval from financial authorities for its acquisition of Tong Yang Life Insurance Co. and ABL Life Insurance Co. in May 2025.

The company is expected to liquidate roughly 450 billion won in real estate over the mid to long term by selling its training center in Anseong, Gyeonggi Province and 15 vacant branches.

Shinhan Bank and Industrial Bank of Korea (IBK) are also looking to sell their idle properties. Shinhan is disposing of its Mangwoo-dong branch in Seoul via a sale-and-leaseback arrangement while IBK plans to sell vacant properties in its branches in Gyeonggi Province, which are worth a total of 11 billion won.

Sources noted that financial institutions are pressing ahead with these sales to bolster their CET1 ratios even though it is a less-than-ideal time to secure favorable prices for these properties. The CET1 ratio is a key indicator of how much high-loss-absorbing capital - such as common equity and retained earnings - a financial institution holds.

Real estate is generally classified as a high-risk-weight asset.

“Real estate carries a 100 percent risk weight, meaning its full value is reflected in risk-weighted assets,” a risk management executive at a major commercial bank said. “Converting it to cash via sales significantly improves the CET1 ratio.”

Korea’s five major financial holding companies - KB, Shinhan, Hana, Woori, and NH NongHyup - have CET1 ratios above the regulatory minimum of 9 percent. However, they are preparing for financial authorities to raise the regulatory threshold to 11.5 percent by the end of 2025 with the introduction of a stress capital buffer.

There is also a growing consensus that it is better to accumulate an excess buffer of CET1 capital.

“Financial groups are expected to play a role in M&A markets as the economic downturn drags on, but many are unable to act aggressively due to CET1 constraints,” an official from a financial holding company said. “Selling idle real estate to raise the ratio to a safe level would enable them to have more room for investment.”

It is not just banks facing capital pressure - insurers are also struggling to meet the Korea Insurance Capital Standard (K-ICS), which quantifies the capital insurers need to ensure stable claims payouts. The solvency ratios of major non-life insurers fell significantly in the first quarter of 2025 compared to the same period during the previous year.

Lotte Insurance Co.’s solvency ratio dropped from 146.4 percent to 101.6 percent before applying transitional measures. KDB Life Insurance Co.’s ratio fell from 44.5 percent to 40.6 percent while that for MG Non-Life Insurance Co. plummeted from 42.7 percent to -15.3 percent.

Many other insurers also failed to meet the financial authorities’ recommended minimum of 150 percent, even after transitional adjustments. Given this situation, insurers are expected to issue subordinated bond and hybrid capital securities in the second half of 2025 to boost their solvency.

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