Banks poised to shutter 80 branches nationwide

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Banks poised to shutter 80 branches nationwide

As part of cost-cutting measures and efforts to improve deteriorating profitability, banks are expected to close down about 80 money-losing branches before the end of this year, according to financial industry sources yesterday.

The move, however, is stirring concerns over possible large-scale restructuring in the financial sector as the outlook for banks’ profitability remains gloomy.

“We have recently received a report from banks on how they will do away with branches that are not making any profit,” said an official from the Financial Supervisory Service. “There are about 7,800 bank branches in total and about 900 of them are in the red.”

Based on the report that has been submitted by 18 banks to the FSS, the branches to be closed include 25 from Hana Bank, 12 from KB Kookmin Bank and eight from Woori Bank. Banks have already been identifying poorly performing branches. Shinhan Bank, for example, shut down 14 branches during the first half of the year.

According to the Korea Federation of Banks, there were a total of 7,835 bank branches as of Dec. 31 and 7,811 as of the end of March.

Banks’ efforts to tighten their belts come after remarks by FSS Gov. Choi Soo-hyun last month at a meeting with chiefs of financial holding companies that emphasized that they should improve operational conditions and come up with preemptive countermeasures to preserve financial soundness.

Insiders note that shutting down branches that have been losing money for the past several years would help banks improve their financial sheets by saving rent and operating costs.

FSS data showed last week that local banks’ net profit in the second quarter fell 48 percent year-on-year to 1.1 trillion won.

As for the cause of the significant drop, the regulator noted a decrease in interest profit.

With most bank profits coming from interest on loans, there have been calls for the institutions to diversify their businesses.

For example, the regulator has urged financial institutions to enter overseas markets more aggressively to find new ways of growth.

“With continuing uncertainty in the economy, the outlook for banks’ business doesn’t seem to be that bright,” said an FSS official. “It is time they find new profit sources and make efforts to increase efficiency and profitability.”

There are concerns, however, that the closing of branches might lead to a large-scale restructuring in their work force.

According to insiders, speculation is high that banks will start offering packages to encourage voluntary retirements in the end of this year.

Some, meanwhile, say that banks’ approach to increasing profitability should come from their top executives.

“Bank executives have been under fire for receiving high annual salaries despite deteriorating profits,” said an industry official. “Efforts to improve profitability should be made from the executive level by cutting their salaries first rather than taking away the jobs of working-level employees.”

BY lee eun-joo [angie@joongang.co.kr]

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