Korean banks are preparing to reduce their workforces once the coronavirus situation eases, a preemptive move to cut fixed costs amid prevailing challenges surrounding low interest rates.
Revenue from issuing loans has for decades served as a major cash cow for commercial lenders here, but skepticism is growing over whether they will be able to generate as much interest-related margins as in the past.
With the second and third wave of the COVID-19 pandemic spreading here and abroad heightening the sense of financial uncertainty, banks are poised to reduce unnecessary costs and seek management efficiency in the face of possibly longer-than-expected economic damage from the coronavirus.
For banks, manpower reduction is considered one of most efficient options to cut fixed costs at a time when the financial authorities are calling on them to set up more reserves for bad debts for fear of additional economic damage from the virus shock.
NongHyup Bank was the first to ask for voluntary resignations from its employees over the age of 56. For five days from Nov. 26, 503 workers applied for early retirement, up 147 from a year ago, according to the lender.
Standard Chartered Bank Korea has also just finished receiving applications for voluntary retirement. The bank enticed more employees aged over 55 to make the decision by offering additional incentives of a maximum of 20 million won in the name of educational expenses for their children.
Woori Bank will also start accepting applications for early retirement for employees aged over 54. The lender’s management is in the final stage of negotiations with the union over what packages of incentives it will offer for the voluntary resignations.
Woori plans to offer a typical severance pay package equal to 36 months of the worker’s average monthly salary for the 54-year-old employees. The lender is fine-tuning other additional incentives with the employee union.
Chances are the average number of employees applying for early retirement from major lenders will increase this year from last year, as bank clerks particularly in their 50s will be less motivated to work amid the rise of digital banking, and they are already aware of the overall industrial trend to downsize human resources amid the virus-induced market uncertainties.
“We have not confirmed internal discussion over the voluntary retirement program this year, but the plan will be announced early next year,” a spokesman at Shinhan Bank said.
KB Kookmin Bank, another top-tier bank here, is also discussing details over a similar plan.
“For most lenders, the scale of the severance pay will be on a similar level with that of last year, but each bank will offer different levels of other incentives, depending on their determination to switch to digital banking or their viewpoint on virus-related uncertainties,” a bank industry source said.
“Most banks put top priority on transforming themselves into becoming agile digital lenders,” he said. “Despite the paradigm shift, the widening fear of the third wave of the virus spread will make lenders brace for the worst-case scenario and to do so, cutting fixed costs is an inevitable step.”
