Bank Branch Staff Increased Over 4 Years... Government Urges "Increase Hiring Further" (Comprehensive)

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[Image source=Yonhap News]

[Asia Economy reporters Kiho Sung and Seungseop Song] Amid the acceleration of non-face-to-face financial transactions due to the emergence of internet-only banks and COVID-19, the number of employees per branch at domestic banks has increased by about two compared to four years ago. Despite large-scale branch and workforce restructuring to counter the fierce offensive from big tech (large information and communication companies) and fintech (finance + technology) such as Naver, Kakao, and Toss, it is pointed out that the high-cost, low-efficiency structure has deepened further.

It is also analyzed that branch reduction is relatively easy, but workforce reduction is a more complicated process that requires significant cost and time. Because of this, there is a forecast that voluntary retirement programs for workforce reduction may increase in the future.

Where Did All the Disappeared Branch Employees Go?

According to the Bank of Korea's Economic Statistics System on the 10th, the number of domestic bank branches (including specialized banks) in the first quarter of this year was 6,558, down 269 from last year (6,827). During the same period, the number of employees decreased by 2,254 from 119,040 to 116,786.

The reason banks are accelerating branch and workforce reductions is interpreted as a strategy to improve operational efficiency and profitability, as the number of financial consumers visiting branches has significantly decreased since the COVID-19 outbreak. Especially, digital transformation is essential to compete with big tech, but the fixed costs of tens of billions of won per branch annually are a burden on banks.

Despite large-scale slimming down, the number of employees per branch has increased?from 15.7 in 2018 to 17.8 in the first quarter of this year. This means branch efficiency has rather declined. The number of employees per branch has been on the rise for four consecutive years.

Within the banking sector, it is explained that the number of employees has not decreased as much as the number of branches due to branch consolidations and closures. A banking official said, "When a bank branch closes, it does not mean that all employees working there quit," adding, "Employees from closed branches are often integrated into nearby branches."

In fact, branch reductions are mainly taking place in the metropolitan area and large cities where consolidation and closure are easier. According to the Financial Supervisory Service, the number of branches by region nationwide for KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup Banks decreased by 16.18% from the end of 2015 to March this year. Daejeon had the highest decrease rate at -27.19%, followed by Daegu (-20%), Busan (-19.62%), and Seoul (-19.59%).

Professor Daejong Kim of the Department of Business Administration at Sejong University diagnosed that branch and workforce reductions by banks are an inevitable choice for competitiveness. Professor Kim explained, "For companies, profit is the most important, and with huge fixed costs and rent, the environment itself has changed to non-face-to-face finance," adding, "Since Kakao Bank and Toss are making waves in the industry without branches, commercial banks have also accelerated a kind of branch restructuring."

On the other hand, the government holds the position that more hiring should take place in the financial sector. On this day, Eun Sungsoo, Chairman of the Financial Services Commission, met with the heads of the five major financial holding companies and urged them to actively engage in 'youth hiring,' requesting financial holding companies to support the '2021 Joint Financial Sector Job Fair' to be held next month.

After the meeting, Chairman Eun told reporters, "I know that expanding hiring is not easy, but I asked the chairmen to pay attention," adding, "I also asked them to consider structurally increasing youth hiring through adjustments such as labor cost management." However, while the financial holding company heads agreed on the social role of creating youth jobs, they reportedly expressed reluctance, citing that "digitalization is progressing rapidly, so it is not possible to increase employment indefinitely as in the past."

Saving 250 Billion Won by Branch Reduction, Pouring 1 Trillion Won into Voluntary Retirement

Banks take the position that it is efficient to boldly close loss-making branches and concentrate manpower in profitable branches. It is known that the labor and rent costs to operate one branch in a large city range from 1.2 billion to 1.7 billion won on average. To maintain profitability, each branch must secure deposits and loans worth about 200 billion won. Loss-making branches that cannot handle this are emerging one after another.

Moreover, as the era of receiving loans through mobile applications (apps) has arrived, building digital transformation is essential to survive in the competition.

In fact, as non-face-to-face finance has become active, internet-only banks are launching fierce attacks. Kakao Bank's pre-provision operating profit per employee in the first quarter of this year was 75 million won. The pre-provision operating profit, which indicates the productivity per employee in financial companies, is calculated by dividing the bank's total operating profit minus selling and administrative expenses by the average number of domestic employees. It is not affected by changes in provisions or asset size and shows the operational competitiveness of individual banks.

The five major banks recorded an average pre-provision operating profit per employee of 58.6 million won in the first quarter of this year. The highest was KB Kookmin Bank at 62 million won. Although it is the top among commercial banks, it is 13 million won lower than Kakao Bank. The lowest was 20 million won less than Kakao Bank. This is the first time all five major banks have been outperformed by Kakao Bank, which has only one branch, in productivity indicators.

To increase productivity, branch closures and workforce reductions, which incur high fixed costs, are necessary but still distant. Last year, commercial banks are estimated to have saved about 25 billion won through branch closures. On the other hand, the four major financial holding companies spent 1.0341 trillion won on severance pay for voluntary retirement last year, a 10.6% increase from the previous year (934.6 billion won).

However, some express concerns that rapid branch reductions by banks are harming vulnerable groups. There are also criticisms that they are not meeting the government's emphasis on job creation. Jo Yeonhaeng, chairman of the Financial Consumer Federation, said, "I understand banks pursuing profitability, but it is also true that vulnerable groups suffer damage and inconvenience during the branch reduction process," adding, "Banks also have a public responsibility, but the current pace of branch reduction is too steep."

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