All Five Major Banks Show Negative Returns on Retirement Pensions in Q2

DC-type returns around -1%... Direct impact on stock market
DB-type focused on deposits also low
Returns below pandemic period during COVID-19

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[Asia Economy Reporter Minwoo Lee] The retirement pension yields of major domestic banks in the second quarter of this year were found to have fallen below the benchmark interest rate. In the case of the defined contribution (DC) type, where individuals directly participate in management, negative (-) returns were recorded. This is interpreted as reflecting the time lag with the period of interest rate hikes and the impact of the stock market downturn coinciding with the rate hike period.

According to the Financial Supervisory Service's Integrated Pension Portal on the 11th, the defined contribution (DC) type retirement pension yields of the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?were all negative in the second quarter of this year. The DC type is a retirement pension where employees directly manage the funds.

Shinhan Bank recorded the lowest at -1.13%, followed by KB Kookmin Bank (-1.02%), Hana Bank (-0.79%), Woori Bank (-0.33%), and NH Nonghyup Bank (-0.15%). All had recorded positive (+) returns until the first quarter of this year but turned to losses in the second quarter.

This level is even lower than in the first quarter of 2020, when the COVID-19 pandemic (global social outbreak) began in earnest. At that time, DC type yields were KB (0.63%), Shinhan (0.87%), Hana (0.90%), Woori (0.85%), and NH Nonghyup (1.09%).

As before, the recent stock market has been sluggish, but this time the negative factors overlapped with the benchmark interest rate hikes. In fact, the Bank of Korea has already raised the benchmark interest rate four times this year. In the second quarter alone (April 14 and May 26), it was raised twice. During this period, the benchmark interest rate rose from 1.25% to 1.75%, an increase of 0.50 percentage points (P). Consequently, the KOSPI, which had stayed above 3000 throughout last year, fell to the 2300 range in the second quarter of this year. Although it has recently rebounded slightly, it still struggles to break above the 2400 level.

The defined benefit (DB) type, which is managed somewhat more conservatively, also showed poor performance. Typically, the DB type, where companies entrust funds to financial institutions, is managed conservatively by allocating a large portion to deposits to guarantee principal and interest. However, the retirement pension yields of the five major commercial banks in the second quarter were also poor for the DB type. They ranged from 0.86% to 1.41%, below the 1.47% to 1.66% during the pandemic. Even the highest yield from Hana Bank did not exceed the second quarter benchmark interest rates (April 1.50%, May 1.75%). NH Nonghyup Bank (0.90%) and KB Kookmin Bank (0.86%) did not even reach 1%.

An expert in retirement pensions from the financial sector explained, “When retirement pensions are placed in products such as deposits and savings, the benchmark interest rate hikes are not applied in real time, causing a timing gap. Also, since funds are not placed 100% in deposits but also in stock-type funds, they cannot be free from the recent stock market decline impact.”