China’s listed banks have shed around 35,000 employees this year and cut average salaries as they seek to reduce costs amid stagnant revenue growth.
Bank profits were essentially flat in the first half of the year as lenders struggled with shrinking net interest margins and rising bad loans. With top-line growth sluggish, lenders have turned to cost-cutting.
Of China’s 19 listed banks, seven reported declines in total employment at the end of June, compared with six months earlier. The group, which includes five of the six largest banks by assets, cut a total of 34,691 jobs in the period, according to Wind Information, which compiles data from the banks’ quarterly financial statements. For the full group of listed banks, employment fell by a net 20,791 workers.
Employment at China’s big banks has expanded virtually uninterrupted for the past decade, so the cuts could signal a turning point.
Bankers say some colleagues have left voluntarily in recent years to join financial institutions such as securities companies and peer-to-peer lenders that are seen to be on the rise.
The cuts come as western peers scale back more dramatically. Eleven of the biggest European and US banks cut almost 100,000 jobs in 2015, according to a Financial Times analysis.
“Banks are generally seeing more net interest margin and credit-cost pressure, so they need to control operating costs more tightly if they want to scrape out flat or marginally positive earnings growth,” said Hou Wei, Asia banks analyst at Sanford C. Bernstein in Hong Kong.
“In the short term, they’re using operating costs as a lever to smooth earnings growth a bit. But in the long term, this is a more structural trend. Banks are investing quite heavily in e-banking service.”
China Merchants Bank, the country’s sixth largest by assets, scaled back the most, with employment cuts equal to 10 per cent of its workforce. Ping An Bank shrank the most percentage terms: its loss of 6,301 employees equalled 20 per cent of its workforce. Total job losses at the seven banks that shed workers amounted to 2 per cent of their collective staff as of the end of 2015.
Salaries are also going down. Amid popular discontent over social inequality, China’s Communist party has ordered state-owned enterprises to reduce salaries for senior management.
Executives at Chinese banks have seen cuts of up to 60 per cent. The chairman of China Construction Bank, the country’s second-largest by assets, lauded his 50 per cent cut last year as “extremely correct”.
But the latest data show that cuts have extended beyond the ranks of senior management. Average compensation at the “Big 4” banks — a group that includes CCB along with Industrial & Commercial Bank of China, Agricultural Bank of China, and Bank of China — fell by three per cent on average in the first half of 2016 compared to a year earlier, according to Mr Hou’s calculations. In the private sector China Minsheng Banking Corp cut average pay by 22 per cent.
Beyond cost-cutting, the industry shift towards digital banking is also driving reductions in staff. According to Liao Zhiming, bank analyst at TF Securities in Beijing, more than 90 per cent of transactions at most lenders are now done online.
“As commercial banks’ IT systems and electronic banking — especially mobile banking — get perfected, the digital substitution keeps rising,” said Mr Liao.
Still, analysts don’t expect Chinese banks to close physical branches on a large scale. Central bank regulations require corporate and retail customers to appear in person at a bank branch in order to open a new account. That makes physical branches crucial tools for attracting stable, low-cost deposit funding.
Other relatively simple banking tasks such as foreign-exchange conversion and replacing lost debit cards also still require an in-person visit.
Source: FT
