2,500 Employees in Commercial Banks vs 0 in Policy Banks... Polarization in Voluntary Retirement (Comprehensive)

Last Year, 2,515 Early Retirees from 5 Major Banks
Generous Benefits Lead 1970s-born Managers and Assistants to Apply for Early Retirement

10% of Employees at 3 State-run Banks Likely Subject to Layoff System
Enduring Due to Relatively Lower Compensation Compared to Commercial Banks

2,515 to 0. This is the number of voluntary (hopeful) retirees from domestic commercial banks and policy banks last year. While commercial banks have been aggressively offering generous conditions to induce large-scale voluntary retirements every year, policy banks have not implemented voluntary retirement since the introduction of the wage peak system in public institutions in 2015. Commercial bank bankers, influenced by the exceptional benefits and the mindset of "let's leave while they take care of us," have packed their bags up to those born in the 1970s. However, policy bank employees are enduring the side effects of personnel stagnation due to relatively low compensation.

According to a comprehensive survey by Asia Economy on the status of retirees from domestic banks, 2,515 people applied for and took voluntary retirement from the five major banks?Shinhan, KB Kookmin, KEB Hana, Woori, and NH Nonghyup?from the end of last year to early this year. If Korea Citibank, which recently announced its withdrawal from retail banking, also carries out workforce restructuring, the number of retirees from commercial banks this year is likely to increase further. In contrast, during the same period, the three policy banks?KDB Industrial Bank, Export-Import Bank of Korea, and IBK Industrial Bank?had zero voluntary retirees. The number of employees subject to the wage peak system, which reduces wages annually after age 55, is expected to reach 1,393 this year, the highest ever. (Editor's note)

[Asia Economy reporters Seong Giho, Park Sunmi, Song Seungseop] As digital transformation rapidly progresses across the financial industry, banks are accelerating organizational and workforce restructuring. Despite regulatory authorities' calls for restraint, banks are drastically reducing offline branches and conducting the largest-scale voluntary retirements. The introduction of the wage peak system has accelerated the "retirement clock," and the opportunity to receive retirement bonuses worth hundreds of millions of won has fostered a widespread sentiment of "let's leave while we can." However, there are concerns that the rapid reduction of branches and bank staff may negatively impact financially vulnerable groups.

According to the Financial Supervisory Service on the 27th, the total number of employees at the five major banks?Shinhan, KB Kookmin, KEB Hana, Woori, and NH Nonghyup?was 76,165 at the end of last year, down 1,480 from 77,645 at the end of the previous year. This is 4.5 times the decrease of 323 in 2019.

The sharp increase in bank staff reduction is mainly due to branch consolidations. As online banking has become more active, banks have restructured their branches, naturally inducing a large number of voluntary retirements. According to the Financial Supervisory Service, the total number of domestic bank branches was 6,405 at the end of last year, down 304 from 6,709 a year earlier. Only 30 new branches were opened, while 334 were closed. Commercial banks reduced 238 branches, and regional banks lost 44.

The number of voluntary retirees surged due to the decrease in branches. From late November last year to early this year, 2,515 employees from the five major banks took voluntary retirement. This is about 750 more than the 1,763 who applied from late 2019 to early last year. The increase in voluntary retirees was partly due to exceptional conditions. According to the Korea Federation of Banks, the total retirement bonuses paid by domestic banks last year reached 1.3338 trillion won, a record high.

"Let's leave while they give more"... Generous retirement conditions compared to other industries also played a role

In particular, commercial banks are offering more aggressive conditions than in previous years to induce voluntary retirement. Generous conditions include up to three years' salary, tuition fees, and job transition support payments, and the eligibility is expanding to deputy managers and managers in their 40s. An employee at Bank A said, "Everyone knows that the number of required personnel is decreasing every year as non-face-to-face banking expands," adding, "There is a growing perception that waiting longer might mean losing good retirement conditions and could actually be a disadvantage."

In fact, last year, the highest earners in the banking sector were not bank presidents but voluntary retirees who completed their continuous service. The top five highest-paid employees at Hana Bank were all voluntary retirees, each receiving compensation in the 1.2 billion won range. This amount exceeds the 1.022 billion won received by former Hana Bank President Ji Sungkyu. Four of the retirees received retirement bonuses exceeding 1 billion won.

However, there are concerns that the downsizing of banks could ultimately harm consumers. There is worry that the banks' profit-maximizing strategies may inconvenience financially vulnerable groups such as the elderly and disabled. Park Taejun, director of the Credit Finance Research Institute, said, "Branch closures tend to start in rural areas where branch maintenance costs are high," expressing concern that services for financially vulnerable groups, including the elderly, may weaken.

Jo Yeonhaeng, chairman of the Financial Consumer Federation, advised, "While organizational slimming is necessary, if unprofitable businesses are also reduced, ordinary citizens may be neglected," adding, "Decisions should be made considering social benefits as well."

Policy banks have 1,393 employees under the wage peak system... a sevenfold increase in five years

In contrast to commercial banks, which have continuously pursued workforce reductions for cost savings, policy banks have not even touched workforce restructuring. Due to the ineffective voluntary retirement system, the number of employees subject to the wage peak system at the three policy banks this year is expected to approach 10% of the total workforce. Since employees under the wage peak system are assigned to relatively less important positions, concerns are growing about increased inefficiency in workforce management.

According to financial sources, the number of employees subject to the wage peak system at the three policy banks?KDB Industrial Bank, Export-Import Bank of Korea, and IBK Industrial Bank?is expected to reach 1,393 this year, the highest ever.

The number of employees under the wage peak system was only 222 in 2016 but has increased sevenfold in five years. Market observers predict that the number will inevitably continue to rise over the next two to three years, exceeding 10% of the total workforce.

The rapid increase in the wage peak system is due to the poor retirement conditions compared to commercial banks. Policy banks apply the civil servant voluntary retirement pay calculation method. They calculate retirement pay by taking 45% of the existing monthly salary as the base salary and multiplying it by half of the remaining months of service.

Since the retirement pay at policy banks is effectively only 20-30% of that at commercial banks, most employees choose the wage peak system to receive more money than the retirement pay. In fact, since the wage peak system was introduced in public institutions in 2015, there has not been a single voluntary retiree at these three banks. This contrasts sharply with commercial banks, which actively encourage voluntary retirement with exceptional conditions such as tens of millions of won in children's tuition fees and job transition support payments to reduce staff.

The number of branches also moves in the opposite direction to commercial banks. The number of domestic branches and offices at these three banks increased from 707 in 2016 to 717 at the end of last year. This is the exact opposite of private financial companies, which are reducing branches through consolidation. The number of employees increased only 8%, from 16,660 in 2016 to 18,002 as of now. Despite numerous national policy tasks such as the Korean-style (K) New Deal and COVID-19 support, these banks are showing limits in workforce management. In fact, the number of new regular full-time hires at the three banks increased only slightly, from 304 to 405 at the end of last year.

Jar-shaped workforce structure reduces efficiency... Calls for improvement grow

As they have not been able to carry out restructuring, the jar-shaped workforce structure has deepened, and there are urgent calls for realistic improvements to the voluntary retirement system. However, the government, which holds decision-making power, is reluctant, citing fairness with other public institutions. As a last resort, policy banks are responding by delaying the age at which the wage peak system begins. Currently, only KDB Industrial Bank starts the wage peak system at age 56, while the Export-Import Bank and IBK Industrial Bank have extended it to age 57.

Experts point out that the continued phenomenon of having many managers but few frontline workers inevitably reduces work efficiency. Professor Kim Sangbong of Hansung University’s Department of Economics said, "The fewer people leave, the harder it is to hire new employees, and the workload on existing staff increases." Professor Kim Daejong of Sejong University’s Department of Business Administration also expressed concern, saying, "If policy banks remain large, work will inevitably become inefficient."

There are also criticisms that the Moon Jae-in administration's policy of "creating jobs in the public sector" contributed to the bloating of policy banks. Professor Lee Byungtae of KAIST’s Department of Business Administration said, "The current government’s emphasis on job creation in the public sector has encouraged reckless management," advising, "Incentives should be increased to enable restructuring."

This content was produced with the assistance of AI translation services.