Korean banks pay workers to leave as branch numbers decline

A joint branch shared between Woori Bank and Hana Bank that opened in Yongin, Gyeonggi, in April. [WOORI BANK]

Thousands of bank employees are set to take voluntary retirement as financial institutions struggle with digitization and as workers increasingly like the idea of ending their careers when they are still relatively young.

Woori Bank is taking voluntary retirements through Dec. 27, while 500 employees 40 and over have accepted signed up for voluntary retirements in a deal offered by NongHyup Bank last month.

KB Kookmin, Shinhan and Hana banks offered voluntary retirement in January, and may offer the program again early next year.

The layoffs — totaling more than 2,000 — come as banks report strong profits.

Interest income for all banks totaled 40.6 trillion won ($32 billion) this year through the third quarter, up 20.3 percent from the same period a year earlier, according to the Financial Supervisory Service (FSS) last month.

Their net interest margin, the difference between loan and deposit rates, was 1.59 percent at the end of the third quarter, up from 1.44 percent.

Voluntary retirements allow banks to “create new jobs,” said Hur Woong, a spokesperson for KB Kookmin Bank. “Due to the digitalization, not as many workers are required compared to the past. Also, it became unnecessary to maintain the volume of branches they had in the past as the number of visitors to the brick-and-mortar locations declined.”

Korea had 6,094 branches at the end of 2021, compared to 7,281 at the end of 2015, according to the FSS in March.

Changing views toward voluntary retirement may help in reducing numbers.

For the ongoing voluntary retirement program, Woori Bank is offering up to 36 months of average monthly salary, 28 million won of school expenses for two children each, 33 million won for the employee’s retirement and expenses for health examinations and travel.

NongHyup Bank is offering up to 39 months of an employee’s average monthly salary. The number of workers that signed up for the program increased from 427 in 2021 to 500 this year.

“Younger people no longer believe in working at the same company throughout their entire career,” said Hur. “A lot of people are preparing to create a second career path as we reach an era where people live up to 100 years old.”

The situation is different for state-run banks, where compensation is relatively low.

“The motivation to retire early is low at state-run banks because the compensation isn’t big,” said Park Hyeon-seo, a spokesperson for Korea Development Bank. “Unlike commercial banks, we don’t have a voluntary retirement system.”

Compensation for early retirement differs by the number of years left until retirement. But employees with fewer than five years before retirement are given 45 percent of their average salary for half the time left until normal retirement.

Employees at state-run banks are able to either choose to resign or continue working at the company for several more years at a lower pay when they reach 57.

The Export-Import Bank of Korea recruited 25 regular employees in 2022 compared to 77 in 2018, according to All Public Information In-One, a website run by the Ministry of Economy and Finance. Recruitment at the Industrial Bank of Korea was 149 this year compared to 339 employees in 2018.

Employment at state-run banks is decided based on the funds budgeted by the Ministry of Economy and Finance.

“Most people choose to continue working at a lower pay instead of retiring at a regular retirement age because they can earn more,” said a source from a state-run bank. “Even the state-run banks are financial institutions, so the voluntary retirement system needs to be activated for more new employees to be hired.”

BY JIN MIN-JI [jin.minji@joongang.co.kr]