South Korean banks saw their capital adequacy ratios fall in the first quarter from three months earlier, as their risk-weighted assets increased on more lending to smaller firms and dollar-denominated debts, the financial regulator said Monday. The average capital adequacy ratio of 18 local banks reached 14.00 percent, down 0.13 percentage point from the previous quarter, according to the Financial Supervisory Service (FSS). Compared with a year earlier, the figure gained 0.17 percentage point, it said. The ratio, a percentage of a bank\'s risk-weighted credit exposure, is measured under the Basel II framework set by the Bank for International Settlements (BIS) and indicates the banks\' capacity to absorb losses and meet risks, including liabilities. The decline in the banks\' capital adequacy ratio came as their risk-weighted assets increased by 213 trillion won (US$190.2 billion) on-quarter as lenders extended more loans to small and medium enterprises (SMEs), to be in step with the government\'s policy drive to shore up financial support for smaller firms. During the January-March period, banks extended fresh SME loans worth 8.3 trillion won, FSS data showed. The fast depreciation of the Korean currency against the U.S. dollar in recent months contributed to a hike in bank\'s risk-weighted assets. A weaker won made the conversion value of banks\' dollar-denominated debts grow by 8.5 trillion won, the FSS said. The Korean won sharply declined against the greenback, changing hands at 1,112.10 won as of end-March, compared with 1,071.10 won quoted at the end of December last year. Banks also saw their equity capital shrink in the first three months of the year from the previous quarter, as they reduced their holdings of hybrid and subordinated bonds, the FSS said. South Korean banks have opted to issue more subordinated debts before the Basel III starts to be phased in this year, as the new rule doesn\'t count such bonds as part of banks\' capital if they do not meet certain specified criteria. In 2012, banks sold subordinated debts worth a combined 11.5 trillion won, according to the regulator.