Local banks also suffer from restructuring cold… Desired retirement, up to a proxy level employee

Input 2020.12.30 14:00

While large commercial banks are embracing large-scale hopeful retirement this year, hopeful retirement is blowing even at local banks, which have had more difficult times than usual.

As the banking environment becomes difficult due to low interest rates and the aftermath of the novel coronavirus infection (Corona 19), and competition with large commercial banks intensifies, local banks are trying to reduce their size through hopeful retirement, honorary retirement, and special retirement.

According to the banking notes on the 30th, BNK Busan Bank, the largest regional bank in the Gyeongnam region, received requests for retirement by position and age on the 4th and 9th of this month, and is currently reviewing the number of confirmed employees. When Busan Bank received the applicant for retirement, it received not only employees who are 56 years of age or older, which is based on the bank’s wage peak system, but also employees who are exceptionally below the proxy level.

According to officials, the compensation plan for the desired retirement was prepared at a more generous level than before, and a large number of applicants for the 10th-year proxy level were also gathered. It is reported that the Busan Bank set a special severance pay for 32 months for 56-year-old employees, 38 months for employees below the agency salary, and 38-40 months for those born between 1966 and 1970. This is similar to that of commercial banks that pay 28 to 36 months of average monthly wages at the time of retirement as an honorary retirement allowance for employees under the wage peak system.

The same affiliate, BNK Kyungnam Bank, has not yet confirmed the desired retirement conditions, but is in consultation with the labor union on matters such as school expenses and re-employment support funds to proceed with the retirement procedure in January next year. It is known that Kyungnam Bank also provided special severance pay at the same level as Busan Bank.

Gwangju Bank completed the application for retirement on the 21st and 22nd of this month. The subjects were born in 65 to 67, and about 40 people applied. They are scheduled to retire on the 31st. DGB Daegu Bank also recently received an application for 10 additional 56-year-old employees in addition to 31 eligible for honorary retirement in July, and a total of 41 people are about to retire.

It is unusual for local banks to proceed with hopeful retirement under conditions comparable to those of commercial banks. Since retirement conditions lead to administrative expenses, there is a risk of burdening bank profitability. Nevertheless, the reason why local banks have expanded the conditions for honorary retirement is that non-face-to-face financial transactions are quickly becoming established in everyday life due to the enforcement of social distancing in accordance with Corona 19, and they are losing their place as they lag behind commercial banks in digital transformation. Busan Bank, Daegu Bank, and Jeonbuk Bank, which did not proceed with their hopeful retirement last year, decided to retire at the same time this year.

Six local banks in Korea, including DGB Daegu, BNK Busan, BNK Gyeongnam, Gwangju, Jeonbuk, and Jeju Banks, recorded net profit of 5712 billion won in the first half of this year, down 17.2% from the same period last year. By bank, except for Gwangju Bank (-6.6%) and Gyeongnam Bank (-12.3%), profits fell by around 20%. On the other hand, the four major commercial banks in Korea only saw a 5.9% decrease in net profit, excluding Woori Bank (-42.6%) during the same period.

Senior Research Fellow Lee Byung-yoon of the Financial Research Institute said, “Industries based in rural areas, such as the shipbuilding and automobile industries, are declining, and all high-tech knowledge industries that are used as new growth engines are being concentrated in the metropolitan area.” “As the proportion is high, profitability is rapidly deteriorating during the economic downturn as it is now, so we need to prepare for this.” In fact, as of the first half of this year, the proportion of local banks’ insolvent debt was 0.79%, more than twice that of commercial banks (0.38%).

An official from a banking sector said, “If local banks focus on digitalization and computerization like commercial banks, the number of bank stores will inevitably follow,” he said.