Bank CEOs under fire for big paychecks

By Kang Seung-woo

Following the global financial crisis, one of the biggest issues in the financial industry both at home and abroad was an overhaul of the compensation schemes for financial CEOs as they were criticized for enjoying astronomical incomes in good times while avoiding taking responsibility for losses during bad ones.

With the crisis waning, the issue is re-emerging in the local banking industry as many financial firms are still giving huge salaries and bonuses to their CEOs regardless of corporate performance. Shinhan Financial Group and Korea Exchange Bank (KEB) became the top two financial services providers to give the highest saleries to their bosses.

According to Bae Young-shik of the ruling Grand National Party (GNP), Shinhan Financial Group Chairman Ra Eung-chan and CEO Shin Sang-hoon were paid 1.05 billion won and 982 million won respectively, down 23.5 percent from their 2008 salaries of 1.38 billion won and 1.29 billion won. The income included performance-related bonuses and other allowances.

As for KEB, the nation’s No. 5 bank, it declined to disclose the salary of its CEO Larry Klane, but its executive directors’ pay was about 505 million won and their salary is expected to be similar to that of the Shinhan Financial Group CEO, according to him.

However, the two players are on different paths.

The financial holding firm has stood out through the global financial crisis and has shown solid performances.

The second-quarter earnings of the nation’s third-largest financial services company gained 33.9 percent from a year earlier, while major financial institutions suffered shortfalls or subpar earnings due to increasing loan-loss reserves.

Its net profit tallied 588.6 billion won ($496.2 million) in the April-June period, compared with 439.7 billion won the previous year, though the earnings fell 24.5 percent compared with three months earlier, affected by provisions related to the corporate revamp.

The year-on-year operating profit rose 20.5 percent to 769.7 billion won, while the net interest margin (NIM), a key measure of profitability, came in at 3.48 percent in the second quarter, up from 2.77 percent a year earlier.

In the third quarter, its net profit is forecast to reach 628.9 billion won, the highest estimation among the financial players.

Whereas, KEB, controlled by Texas-based Lone Star Funds, was not as impressive during the same span, as its earnings declined 11.4 percent from a year earlier and the net income totaled 210.9 billion won ($180.4 million), compared with 238.1 billion won the previous year.

The lender’s earnings fell 33.7 percent from three months earlier, while the operating profit inched down 1.1 percent to 277 billion won.

The bank’s net interest margin sat at 2.6 percent down from 2.83 percent three months earlier, as bank lending rates fell faster than deposit rates amid declining market rates.

Meanwhile, among chief executives of state-run banks, Industrial Bank of Korea (IBK) CEO Yun Yong-ro and Export-Import Bank of Korea CEO Kim Dong-soo made 484 million won apiece last year, followed by the Korea Development Bank (KDB) CEO Min Euoo-sung, who earned 462 million won.