Major Banks Gradually Finalize Bonus Plans
At Least 1.5 Times Higher Than Early Last Year
Interest Income Rises, Net Profit Also Significantly Up
Criticism Arises Over Strategy to Maximize Net Interest Margin
This year, year-start bonuses at major commercial banks are expected to increase significantly. This comes after record-breaking performance last year despite challenging business conditions such as COVID-19 and household loan regulations. However, there are criticisms regarding whether the internal distribution was appropriate, given that the banks’ profit improvements were driven by loan interest rate hikes and strategies to maximize net interest margins.
According to the financial sector on the 5th, the size of bonuses at major commercial banks is expected to be around 300%. This amounts to well over 20 million KRW depending on the position. This is the highest level among the bonuses paid by the four major banks?KB Kookmin, Shinhan, Hana, and Woori. It is also 1.5 times larger than last year’s highest bank bonus of 200%.
KB Kookmin Bank’s labor and management agreed through wage collective bargaining to pay a bonus equivalent to 300% of the base salary in cash. Additionally, they introduced a refresh leave system to give long-term employees a chance to recharge without special screening. Employees with more than 10 years of service, including regular and indefinite contract employees, can apply.
Shinhan Bank also concluded bonus negotiations early in December last year. They plan to pay a bonus reaching 300% and an additional cash payment of 1 million KRW as a reward.
Hana Bank conducted a vote among its members regarding the bonus size. The agreement reached between labor and management includes paying a 300% bonus. Of this, 250% will be paid in full in cash upfront, and the amount corresponding to over 50% will be paid later. They will also provide 1 million KRW in welfare points.
Bonus Fest Amid Interest Rate Hikes... Also Faces Criticism
Woori Bank has not yet finalized its bonus plan. However, among internal members, expectations for bonuses are rising due to last year’s strong performance.
The background for the agreement on a bonus increase exceeding 100 percentage points is interpreted as the banks’ significantly increased profits. The net income of the four major banks in the third quarter was 8.27 trillion KRW, a 31.5% (1.08 trillion KRW) increase compared to a year ago (6.467 trillion KRW), which was called a “record high performance.” It is reported that some unions at commercial banks initially demanded a bonus increase close to 500% during negotiations.
The improvement in profit indicators is mainly attributed to reduced preferential interest rates and the effect of maximizing net interest margins. Despite restrictions limiting total household loans to 4-5%, which hindered active sales efforts, banks earned huge interest income by raising loan interest rates faster than deposit rates during the base rate hike period.
Consequently, there is criticism that the bonus level is excessive. Professor Lee Jeong-hee of Chung-Ang University’s Department of Economics pointed out, “If banks had made customers’ financial lives more convenient through innovative services, the public would understand. But last year was not like that. The demand for funds increased among those struggling due to COVID-19, and banks earned large interest income by quickly raising loan interest rates, which is why there is critical public opinion.”
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