S. Korean banks tighten belt as they brace up for tougher environment next year

2019.12.02 13:50:11 | 2019.12.02 13:50:36

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South Korea’s commercial lenders have stepped up streamlining as they face more difficult year in sustaining organizations against protracted economic slowdown and low interest environment.

According to sources in the banking industry, most commercial banks in Korea plan to scale back payroll and outlets starting this month.

The combined general management expenses of the top four - KB Kookim, Shinhan, Woori, and KEB Hana – reached 9.5 trillion won ($8.1 billion) as of September this year, up 7.6 percent on year.

To cope with rising expenses and challenge from online banking services, many banks are hoping to close down unprofitable branches. The move is, however, complicated as financial authorities mandate banks to keep a certain number of the bricks-and-mortar outlets open for customers.

New openings this year stopped at 37 after 39 last year, compared with 71 in 2017.

They have also been eager in encouraging early retirements.

Banks have gone on dieting as they face possible restriction in selling trust accounts after major losses they have caused through sale of high-risk derivatives to make up for reduced income from savings against protracted low-interest environment.

Bank earnings this year came largely from trust accounts. Hana Bank earned 676.6 billion won from commissions over January-September period, up 8.8 percent from the same period last year. Shinhan drew 518.8 billion won, up 5.2 percent on year, and Woori 727.7 billion won, up 4.2 percent on year.

Last month, the Financial Services Commission and Financial Supervisory Service unveiled new consumer protection measures including the universal ban on banks’ sale of high-risk private funds and trust products, which often generate higher commissions income for banks than other financial products.

Banks’ bottom line will suffer if they are restricted from selling products beyond traditional interest-based instruments.

By Moon Il-ho and Cho Jeehyun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]