By Park Hyong-ki
The country's four big banking groups enjoyed record profits in the first half of this year on massive job cuts and rising interest income.
KB Financial, Shinhan Financial, Woori Bank Group and Hana Financial each posted over 1 trillion won ($886 billion) in net profit in the first six months of 2018.
KB managed to secure back its title as the biggest banking group with a net profit of over 1.9 trillion won, followed by Shinhan, Woori and Hana.
But this fanfare came with a price.
They had to let go of a lot of people, which reduced their general and administrative costs.
Also, their earnings mostly came from interest revenue by extending household loans with interest far exceeding not only that of deposits but also reasonable market rates.
Over the last three years, KB Kookmin Bank reduced its manpower by 4,300, the biggest among the big four banks, according to CEO Score, a local corporate data provider.
KEB Hana Bank slashed the number of its employees by 2,800, while Woori Bank let go of 1,150 between March 2015 and March 2018. Nearly 700 were axed by Shinhan Bank.
The four have been implicated in a hiring scandal, facing a probe for giving preferential treatment to job applicants who had ties with the banks' key executives.
The manpower reduction came as the banks said they seek to further expand their online services in response to the growing use of smartphones and mobile applications for financial transactions.
Park Ju-geun, head of CEO Score, said the banks began to downsize their retail branches three years ago to prepare for the Fourth Industrial Revolution.
They kept on reducing their staff, despite sound earnings.
“Their stellar earnings in part resulted from the reduction in manpower,” Park said.
“They downsized to better provide services to customers in the digital age. But their services have not seemed to improve even with the staff reduction and profit increase.”
Korea Federation of Banks Chairman Kim Tae-young said in a meeting with Financial Supervisory Service (FSS) Governor Yoon Suk-heun that local banks will hire 3,100 in the second half of this year.
In total, the federation said the industry would increase employment by 54 percent, while spending about 700 billion won on social charity programs.
However, Park said the banks are likely to keep on downsizing their retail branch operations, while remaining dependent on loan-deposit margins for their major source of profit.
He cited the banks' recent household lending through irregular assessment of interest rates as an example of their “desperation for earnings and weak services.”
The regulator has chided the banks for unfairly charging high interest rates on loans.
The four banks' net interest income reached 10 trillion won in the first half of the year.
KB posted the highest at nearly 3 trillion won, up more than 11 percent from the same period a year ago. Shinhan saw the biggest gain of 14 percent among the four, posting over 2.7 trillion won in net interest income.
Financial Services Commission Chairman Choi Jong-ku said in a briefing to the National Assembly the regulator will see to it that the financial industry regains trust from customers.
He added it will also have financial companies further improve their governance amid the hiring and lending irregularities.