[Reporter’s Notebook] The Difference Between Banks and Samsung Electronics

Banks' Record Profits Driven by Interest Business, Not Management Performance
Innovation Neglected as Focus Remains on Securing Personal Gains

Nokia, Sharp, Daewoo.

What do these three have in common? They were once at the top but have now disappeared from consumers' choices and memories. They stagnated and fell behind by neglecting innovation.

Is it an excessive worry to recall these companies when looking at domestic financial firms?

The labor and management of KB Kookmin Bank announced that they have agreed on a wage and collective bargaining agreement with a performance bonus amounting to 300% of monthly salary plus 6 million KRW. This is the highest level among the five major commercial banks. It is also a significant increase compared to the initially announced 250% plus 2 million KRW. Previously, the KB Kookmin Bank union threatened a total strike if the '300% performance bonus and 10 million KRW cash offer' were not accepted.

The KB Kookmin Bank union argues that since the company made 'record-breaking profits' last year, the employees should also be rewarded. Indeed, banks recorded their highest-ever performance last year. According to financial information firm FnGuide, KB Financial Group's net profit for the fourth quarter of last year was expected to surge 241.1% to 721 billion KRW from 211.4 billion KRW in the same period the previous year. However, it is difficult to easily agree that this can be seen as the 'management performance' of bank employees.

The reason banks achieved record-high profits last year was, after all, 'interest business.' Despite the financial authorities' household debt management policy and interest rate cuts last year, banks were able to maintain high additional interest rates. This ultimately led to an expansion of the interest rate spread between deposits and loans, enabling banks to achieve record profits. According to the Korea Federation of Banks, the new interest rate spread of the four major banks averaged 1.46 percentage points in December last year, expanding for four consecutive months since August (0.94%).

While commercial banks easily generate profits like this, innovation takes a backseat. Even when looking at productivity per employee, the difference is clear. The average profit per employee at the five major commercial banks was 255 million KRW, whereas the average profit per employee at the three internet banks was 562 million KRW. The productivity of the three internet banks is a staggering 120% higher.

The position of bank employees, who have focused only on their own profits while neglecting innovation, is gradually shrinking. Earlier, the Industrial Bank of Korea union went on a total strike demanding wage increases, but the impact of the strike was minimal. This is understandable because with the emergence of internet banks and the normalization of non-face-to-face transactions, it is arrogant to think that financial transactions would stop without bank employees. According to the Bank of Korea Economic Statistics System, the proportion of transactions through bank branches fell from 26.9% in the first quarter of 2005 to 4.1% in the first quarter of 2024.

In October last year, Kim Byung-hwan, Chairman of the Financial Services Commission, sharply criticized, saying, "When Samsung Electronics makes a profit, it is praised, but when banks make a profit, they are criticized. We need to think about that difference."

The 'difference' pointed out by the Financial Services Commission chairman. Everyone knows it, but is it only the banks that do not? Or are they deliberately pretending not to know?

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