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Kookmin Bank to Close 55 Branches as Korean Margins Narrow

Kookmin Bank, South Korea’s largest by assets, plans to close 55 branches in January as the country’s lenders struggle with the lowest lending margins in four years.

The closures will cut costs at the Seoul-based bank, a unit of KB Financial Group Inc. (105560), as it focuses on meeting the growing demand for Internet banking operations, Kookmin Bank said in an e-mailed statement today. Employees at the shuttered branches will be moved to other outlets, the lender said, without providing an estimate for cost savings.

Kookmin Bank, which has 1,205 branches across South Korea, joins Standard Chartered Plc and Citigroup Inc. in trimming outlets in the country as profits decline and lending margins narrow amid central bank interest-rate cuts to stimulate economic growth.

“Smaller branch networks will be a trend for Korean banks,” Yoo Sang Ho, an analyst at HI Investment & Securities Co., said by phone today. “To protect earnings, it’s inevitable for banks to tighten their belts to reduce costs when it’s hard to boost top-line revenue.”

KB Financial shares rose 0.8 percent to 40,000 won at the close of trading in Seoul, taking its gain this year to 5.5 percent. The benchmark Kospi Index (KOSPI) lost 0.7 percent today.

Combined net income at 18 lenders in the nation dropped to 1.8 trillion won ($1.7 billion) in the third quarter from 2.4 trillion won a year earlier, according to Financial Supervisory Service data. The average net interest margin stood at 1.81 percent, the narrowest level since the second quarter of 2009, the data show.

Standard Chartered

Standard Chartered, the U.K. bank that makes three-quarters of earnings in Asia, said Nov. 11 it plans to trim about 25 percent of its Korean branches as it cuts back in less profitable markets. The number of branches at Citigroup’s Korean lending unit dropped to 196 as of September from 218 at the end of 2012, according to the bank’s regulatory filings.

The total number of domestic branches at seven nationwide banks including Kookmin dropped 0.1 percent from a year earlier to 4,693 at the end of June, according to data on the FSS website.

South Korean banks have been keeping too many branches open, relying heavily on retail banking even as population growth is set to peak and fewer people visit lenders’ physical outlets, Yoon Suk Heun, a finance professor at Soongsil University in Seoul, said by phone.

Unions, Politicians

“Neither trade unions nor politicians will accept the social cost of cutting jobs, as pressure is mounting for preserving employment,” said Yoon. “It won’t be easy for banks and other firms to aggressively cut staff in South Korea.”

President Park Geun Hye, who took office in February, pledged to boost the employment ratio for people from 15 to 64 years old to 70 percent during her five-year term. She reiterated on Aug. 15 that her administration will focus on invigorating economy and creating jobs.

The ratio was 65.2 percent in October, 0.6 percentage points higher than a year earlier, Statistics Korea said Nov. 13.

Three calls to the office of Kookmin Bank’s labor union representative went unanswered.

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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