Rising Retirement and Layoff Costs in the Banking Sector Expected to Increase Further

Retirement Benefits in Banking Sector Reach 1.03 Trillion Won in September
First Time Exceeding 1 Trillion Won in Q3
666 Billion Won Spent on Layoffs and Voluntary Retirements, Up 35.7%
"Short-Term Spending Increase Brings Medium- to Long-Term Gains"

Financial companies are significantly increasing their spending on retirement benefits and severance costs. This is due to rising salaries of executives and employees and ongoing workforce reductions in the banking sector. Banks explain that despite the immediate increase in costs, this trend is beneficial in the medium to long term. This year, downsizing is expected to continue mainly among private financial firms, and large-scale voluntary retirements are also anticipated, which will likely further increase costs.

According to the Financial Statistics Information System on the 25th, the total retirement benefit expenses of 19 banks operating domestically, including foreign banks, amounted to KRW 1.029822 trillion as of the third quarter of last year. Compared to KRW 937.526 billion spent a year earlier, this represents an increase of KRW 92.296 billion (9.8%). This is the first time retirement benefit expenses have exceeded KRW 1 trillion within just three quarters.

The scale of retirement benefits tends to correlate not only with the number of retirees but also with the salaries of executives and employees. This means that as internal members’ wages increase, so do the retirement benefits. According to the Employee Retirement Benefit Security Act, when establishing a retirement pay system, at least 30 days’ worth of average wages per year of continuous service must be paid as retirement pay. Therefore, the higher the employees’ salaries, the more the company must set aside or spend on retirement benefit reserves.

Currently, banks have spent KRW 9.2776 trillion on employee salaries, the highest in the past five years. This is an increase of KRW 419.1 billion (4.7%) compared to the previous year’s KRW 8.8585 trillion. This surpasses the 2021 wage increase rate (4.3%) and the minimum wage increase rate (1.5%). The rapid wage growth is interpreted as banks spending more money to lay off employees.

Short-term Spending Increases but Medium to Long-term Gains... Severance and Voluntary Retirement Costs Also Rise

Looking at individual banks, IBK Industrial Bank of Korea’s retirement benefit expenses have surged sharply. The bank’s retirement benefit costs rose from KRW 101.9 billion to KRW 204.9 billion, an increase of KRW 103 billion (101.0%) in just one year. This already exceeds the year-end figure of KRW 134.4 billion from the previous year. The Export-Import Bank also saw an increase from KRW 8.6 billion to KRW 11 billion, a 27.9% (KRW 2.4 billion) rise, approaching the previous year’s total cost of KRW 11.9 billion.

Costs related to severance and voluntary retirement benefits have also increased. During the same period, these expenses reached KRW 66.686 billion, a sharp rise of KRW 17.562 billion (35.7%) from KRW 49.124 billion in the same period last year. It is expected to exceed the expenditure scale of KRW 99.1 billion recorded at the end of 2020.

Severance and voluntary retirement costs are expected to increase further through the fourth quarter and early this year. Since the end of last year and into the beginning of this year, thousands of employees have left or are preparing to leave due to consecutive voluntary retirements at banks. Approximately 250 employees at Shinhan Bank and about 400 employees at Hana Bank have reportedly submitted voluntary retirement applications. At Korea Citibank, which is withdrawing from domestic consumer finance, about 2,300 employees have applied for voluntary retirement. At the end of last year, 1,980 employees left the bank, and additional voluntary retirements are planned for the first half of this year.

Financial companies acknowledge that costs are increasing immediately but maintain that this is beneficial from a medium to long-term perspective. A financial sector official explained, "Although paying two to three years’ worth of wages at once may seem like a large expense, considering the money that would have to be paid until retirement age, it is ultimately advantageous," adding, "In a situation where the importance of branches and resident staff is decreasing, it is better to hire a small number of new or experienced employees later if needed."

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