SEOUL: Korea Exchange Bank (KEB) said Wednesday its time deposit reserves declined by 3 trillion won ($2.6 billion) over the past year as the bank’s union continues to protest against the planned merger with Hana Bank.
“Affected by the union’s prolonged objection since 2012, KEB employees couldn’t focus on improving profits. As a result, earnings got worse and consumer confidence in the bank and its products nearly hit rock bottom,” a bank official said, asking not to be named.
In February 2012, Hana Financial acquired a controlling 51.02 percent stake in KEB for $3.8 billion from Dallas-based Lone Star Funds. Hana Financial, KEB and its union then agreed to complete the integration between Hana Bank and KEB by February 2017. But now, management at Hana and KEB want integration to occur by September.
The banks’ management said the current two-bank system does not guarantee profitability and survival over the long term as the banking industry faces low growth and low margins since the 2008 financial crisis. They said an earlier-than-expected merger is the solution.
But KEB workers have been against the move saying it may result in redundant job cuts.
After years of an internal battle, KEB’s time deposit reserves plunged 3 trillion won over the past year to 28.46 trillion won at the end of June, the bank said.
“Declining interest rates didn’t allow the bank to aggressively sell time deposit products which offer relatively high rates,” a KEB spokesman said.
The Bank of Korea cut the benchmark interest rate last month to a record low of 1.50 percent after three cuts since August of last year to support growth. The central bank and the finance ministry have recently lowered Korea’s growth outlook for this year to 3.1 percent from their previous forecasts of 3.4 percent and 3.8 percent, respectively.
Making things worse, Hyundai Motor, one of KEB’s major customers, reportedly withdrew some of its deposits to finance its project to develop the former Korea Electric Power Corp. (KEPCO) headquarters building in Samsung-dong, southern Seoul into its headquarters. Hyundai bought the KEPCO building for 10.55 trillion in September last year.
In a last-ditch effort to complete the two bank’s integration this year, chiefs of Hana Financial, Hana Bank and KEB on Monday gave a briefing to KEB’s unionized workers on KEB’s poor performance and the future, KEB said.
“If profitability worsens, there won’t be an increase in wages, any promotions and addition to workforce until the bank is put back on track,” KEB President & Chief Executive Kim Han-jo told employees, according to the spokesman.
The CEO warned of a growing need of restructuring at KEB if the merger is delayed further.
If Hana Bank and KEB become a merged entity this year, they receive an exemption of 75 percent in registration license tax. If the merger fails this year, Hana and KEB have to pay 140 billion won and 370 billion won in the tax next year, KEB said.
