Why are South Korean banks cutting staff amid record profits?

Head offfices of the top four South Korean banks in Seoul. (Photos provided by the companies)

The notion that South Korea’s banking sector guarantees “lifetime” job security is becoming a thing of the past.

All four top commercial banks — Shinhan Bank, KB Kookmin Bank, Woori Bank and Hana Bank — are in process of conducting voluntary retirement schemes, with aims to shed some 3,000 workers combined by the end of this month.

Up to 500 million won ($398,000) is being offered as lump-sum severance pay, while relatively younger employees in their 40s are allowed to apply for the redundancy program.

Hana Bank was the last among the four top commercial banks to announce that they started accepting retirement applications on Jan. 3.

Employees born between 1968 and 1970 are offered up to 36 months of average salary, along with other benefits like tuition fees for children and medical expenses.

Those born after 1971 can receive up to 24 months of average salary as severance pay.

The other three banks are also offering similar lucrative early retirement packages to their employees.

A day before Hana’s early retirement scheme came out, Shinhan Bank began accepting applications from employees who worked for the company for more than 15 years and were born after 1978.

KB Kookmin Bank accepted applications from employees that are born between 1967 to 1972 and Woori Bank accepted it from employees in their 40s who were born before 1980.

Their hefty payout plans, however, faced some criticism from the public as a large part of their record-high profits last year came from high-flying interest rates that caused many to suffer.

The four banks saw record high earnings in 2022. Their combined net profit from January to September last year was nearly 14 trillion won.

Despite the condemnation, local banks are choosing to proceed with early retirement schemes to adjust to a digitalizing banking industry, which has been leading to a constant decline in clients visiting physical branches.

“On top of digitalized environment, the number of clients who visit local branches also dropped further after COVID-19. Banks started to think that they do not need as many sales personnel as they used to,” said Seo Ji-yong, a management professor at Sangmyung University.

“Except for the employees in the IT division, it is expected that banks will try to lay off lots of employees in the coming future,” Seo added.

Employees of the banks are showing mixed responses to this voluntary retirement scheme.

“Most of my colleges view this scheme positively. I hope they still offer all these benefits when I reach the age to consider the option,” a Shinhan Bank employee who declined to be named said.

But a Hana Bank official who also wished to remain unnamed said, “I am glad that we have an option. But some colleagues view the scheme negatively because banks used it to lay off workers with permanent contracts in the past.”

Industry experts also warned against abusing the voluntary redundancy program.

“After the 2008 global financial crisis, Bank of America laid off employees to cut costs. But this caused staff shortage at individual branches and their losing competitiveness and market share,” said Seo of Sangmyung University.

He added that traditional banks are also likely to fail to differentiate their services against their fast-growing internet-only runner-ups.

Sung Tae-yoon, an economics professor at Yonsei University, also pointed out that even in the digitalized banking environment, banks must continue efforts to create jobs for young people that met their new needs.

“Hiring new employees is also essential for maintaining a healthy labor market,” Sung said.