Major commercial banks have reportedly improved operational efficiency through voluntary retirements since 2020. However, due to recent criticism of the banks' severance pay 'money feast', the retirement conditions have been reduced, leading to a halving of the voluntary retirement workforce and putting operational efficiency back in place.
According to the Financial Supervisory Service's financial statistics information system on the 6th, the average cost-to-income ratio (CIR) of the four major banks (KB Kookmin, Shinhan, Hana, Woori) decreased from 52.25% at the end of 2020 to 49.29% at the end of 2021, 45.71% at the end of 2022, and 43.45% at the end of 2023. The CIR reflects the percentage of operating profit consumed by selling and administrative expenses, meaning that a lower percentage indicates higher efficiency and productivity.
The CIR of the four major banks exceeded an average of 50% until 2020, with some nearing 70%. Following the COVID-19 pandemic, digital and non-face-to-face banking became the trend, prompting 'improvement of operational structure' to become a focal point. The banks accelerated the efficiency of their workforce structure through expanded voluntary retirements, successfully lowering the CIR.
To lower the CIR, banks need to increase operating profits or reduce selling and administrative expenses. Most banks manage the CIR by reducing labor costs, which account for 60% of these expenses. They are also minimizing maintenance costs through branch consolidations.
However, this management strategy for operational efficiency is encountering obstacles. Although they have provided special severance payments amounting to several hundred million won per person and have increased workforce reductions annually, a critical sentiment has emerged stating that they are merely enriching themselves through interest lending, compelling them to reduce voluntary retirement payments. A bank official noted, 'As of 2021-2022, the number of voluntary retirements in the banking sector exceeded 4,000 annually,' adding, 'As criticism intensified over banks enjoying easy profits through interest lending, management reduced the conditions for voluntary retirements, resulting in the number of annual voluntary retirements halving to about 2,000.'
The CIR of commercial banks has also seen a pause in its decline since last year. Hana Bank's CIR was 41.3% at the end of last year, which is a 2.7 percentage points increase from 38.7% at the end of 2023. KB Kookmin Bank's CIR at the end of last year was 43.3%, showing a slight increase from 43.2% at the end of the previous year. The increase in expenses due to the Hong Kong H Index linked securities (ELS) compensation last year also impacted operating profits, but the rise in selling and administrative expenses has been even more significant.
A bank official mentioned, 'With interest rates declining, it will be difficult to significantly increase operating profits, and it has also become challenging to expand the voluntary retirement scale, making expense control difficult,' and added, 'For the time being, it is unlikely that the CIR will substantially improve.'