Banks are tightening their belts

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Banks are tightening their belts

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Several heads of banks are expected to ask their labor union to freeze wages as profits shrink due to a stagnant economy and low-interest rate policies.

But banks are not the only financial institutions with falling profits. Businesses from brokerage firms to insurance companies are considering scaling back.

According to financial industry sources, Korea Federation of Banks Chairman Bahk Byong-won, Standard Chartered Korea President Richard Hill, Hana Bank President Kim Jong-jun and six others will meet with the Korean Financial Industry Union today at the bank federation building in Myeongdong, central Seoul, to discuss wages. The union has been demanding an increase of 8.1 percent.

Usually, negotiations between bank management and unions are held in October.

This is not the first time in recent years that management has proposed holding the line on wages during unfavorable market conditions.

In 2008, the union agreed to freeze wages during the global crisis that started with the bankruptcy of Lehman Brothers.

Financial market performance in the second quarter is estimated to be worse than in the first half. According to the information firm, FnGuide, in the second quarter net profit of 11 banking groups including the top four - Woori, KB, Shinhan and Hana - is projected to be 1.7 trillion won ($1.52 billion), compared to 1.9 trillion won in the first quarter.

This is a sharp drop from the 2.3 trillion won recorded during the same period in 2012.

The decline in profits is largely attributable to the sharp fall in loan interest rates and a rising number of insolvent bonds of shipping and trade-driven companies.

As of the first quarter, loan interest rates averaged 4.89 percent, compared to 4.92 percent at the end of 2012. In 2007, they averaged 7.17 percent.

The central bank in May cut its key borrowing rate to 2.5 percent to stimulate the economy.

As a result, financial companies are taking steps to streamline their organizations to cut costs.

The steps include either shutting down unprofitable branches and merging overlapping branches. Banks are also reducing hiring.

The top brass at Hana Financial Group, including Chairman Kim Jung-tae, met last week at a hotel in Weihai, China. Kim agreed to return 30 percent of his paycheck to the company while other executives including Hana Bank President Kim and Korea Exchange Bank President Yun Yong-ro agreed to return 20 percent of their paychecks.

Hana Bank also has decided to shut down 22 branches this year.

“The meeting was actually organized to discuss of Hana Financial Group’s overseas expansion strategy,” said an official at the group.

KB Kookmin Bank, the nation’s largest lender, said it will close four branches, and any new branches would specialize in financial services for corporate clients or foreigners.

“In the past customers would show up if we opened branches in major locations,” said Nam Hoon, who heads KB Kookmin Bank’s planning department. “But now we have to look for places where there are customers.

“Instead of getting fixated on the number of branches, we plan to test various models to generate profits.”

Woori Bank has already shut down three branches and cut its 170 holding-company employees by half.

Shinhan has either merged or shut down 11 branches and hired 100 new employees compared to 200 last year.

Yim Jong-ryong, NH Financial Group chairman, at a presentation held on Friday promised to focus on improving productivity and maximizing profits in the second half.

The brokerage industry is taking similar steps. Samsung Securities is in the process of shutting seven branches. Hyundai Securities plans to close 10 branches by the end of September on anticipation of a 25 billion won first half loss.

SK Securities executives will take 5 percent pay cuts, and Woori Investment & Securities executives will get 30 percent less.

“Restructuring is the only way these companies can overcome the long-term risks,” said Kiwoom Securities analyst Seo Young-soo.

BY LEE HO-JEONG, LEE JI-SANG [ojlee82@joongang.co.kr]

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