[Relocation of Financial Public Institutions] ④ Subpar Compensation, Personnel Expenses Cap, and Regional Relocation... A Triple Whammy for Policy Banks

When Commercial Banks Saw 16% Pay Growth, Policy Banks Managed Just 6.5%
Real Average Salary at Policy Banks Down 6.4% When Adjusted for Inflation
Average Tenure Shortened Simultaneously at All Three Policy Banks
Personnel Expense Cap and Potenti

There are calls to strengthen the competitiveness of state-run banks by first revising rigid regulations such as the total labor cost cap, as well as improving compensation and benefits to ensure they do not lag behind private financial institutions in the race for talent, rather than rushing headlong into relocating their headquarters to regional areas. Given that the competitiveness of the financial industry is determined by the concentration of people, information, and capital, some argue that pushing for relocation without first establishing a robust foundation for attracting and retaining top talent could actually weaken policy finance capabilities.

According to the financial sector on August 18, while the average compensation at the four major commercial banks increased by 16.4%, the average compensation at the three major state-run banks—Korea Development Bank, Korea Export-Import Bank, and Industrial Bank of Korea—rose by only 6.5%. Considering that consumer prices climbed by 13.8% during the same period, the real average compensation at state-run banks actually fell by 6.4%. On top of this, as state-run banks have recently been discussed as potential candidates for relocation to regional areas, there is growing concern internally about instability and the risk of talent outflow.

The average compensation per regular employee at Korea Development Bank, Korea Export-Import Bank, and Industrial Bank of Korea rose from 108.88 million won in 2021 to 115.93 million won in 2025, a cumulative increase of only 6.5% over four years. By institution, Korea Development Bank's average compensation rose 3.7% from 113.7 million won in 2021 to 117.9 million won in 2025. During the same period, Korea Export-Import Bank increased 8.7% from 105.23 million won to 114.44 million won, while Industrial Bank of Korea climbed 7.2% from 107.72 million won to 115.44 million won.

Compensation Gap Reversed in Four Years...Real Pay Down by 6.4%

During this time, compensation growth at the four major commercial banks far outpaced that of the state-run banks. Based on a simple average of the per-employee compensation reported by KB Kookmin Bank, Shinhan Bank, Hana Bank, and Woori Bank in their business filings, average pay jumped 16.4% from 105.5 million won in 2021 to 122.75 million won in 2025. This is 9.9 percentage points higher than the average increase at the three state-run banks.

As a result, the compensation gap between state-run and commercial banks has been flipped. In 2021, the average compensation at the three state-run banks was 3.38 million won higher than at the four commercial banks, but by 2025 it is projected to be 6.82 million won lower—a reversal of 10.2 million won over four years.

The weakening of compensation competitiveness at state-run banks becomes even starker when adjusted for inflation. According to the Ministry of Data and Statistics, the consumer price index rose 13.8% between 2021 and 2025. Reflecting that, the real average compensation at the three state-run banks actually declined by about 6.4% over four years. By institution, the decline in real compensation was 8.8% at Korea Development Bank, 5.8% at Industrial Bank of Korea, and 4.4% at Korea Export-Import Bank. Although nominal compensation increased, the real purchasing power of that compensation has fallen below 2021 levels.

Average Tenure Shortened at All Three Banks...Warning Signs for Organizational Stability

The average years of service for employees at all three institutions also declined. The average tenure of regular employees at Korea Development Bank shortened by 14 months, from 199 months in 2021 to 185 months in 2025. At Industrial Bank of Korea, the average dropped by 14 months as well—from 209 to 195 months—while at Korea Export-Import Bank it decreased by 4 months, from 155 to 151 months.

It is difficult to conclude solely from the shorter average tenure that employee departures have increased, since factors such as expanded new hiring or retirements can also reduce average years of service. However, with compensation competitiveness weakening and discussions of regional relocation repeatedly resurfacing, there are growing reports internally that more staff are contemplating moves to private-sector financial firms.

An employee who left a state-run bank to join a commercial bank said, "While wage competitiveness is steadily falling, many colleagues chose their employer based on a sense of pride in their public mission and job stability. However, with repeated talk of regional relocation, anxiety about the sustainability of our current living foundations grew, so in the end I decided to make the move."

Government-Set Raises Regardless of Profit...Total Labor Cost Cap Restricts Compensation

The total labor cost cap is cited as a structural factor restricting compensation competitiveness at state-run banks. Under this system, public institutions must manage their permitted aggregate labor expenses for the year and pay wages and allowances within limits set by government budget guidelines.

Even if institutions differ in profitability, workload, pay disparities with private financial firms, or needs to secure specialized professionals, the basic annual wage increase rate is dictated by government guidelines. Even if a policy finance institution generates large profits through its business operations, it is difficult for those gains to translate into employee compensation freely within this structure. If the institution exceeds its labor cost cap, this can trigger adjustments to the following year's labor costs or impact management evaluations, so there are clear limits to raising pay autonomously.

In the case of Industrial Bank of Korea, following an issue raised by the President last December, the matter of unpaid allowances came to light. This May, the Financial Services Commission approved an exceptional application of management evaluation regarding the total labor cost cap. As a result, 83 billion won in unpaid allowances accumulated through last year could now be paid. With the Financial Services Commission granting an exception for this amount from the labor cost cap, the long-standing issue of unpaid allowances has at least been settled for now. However, one Industrial Bank employee said, "It appears the problem only got resolved temporarily because it was exceptionally brought up by the President. But unless the structural issue of the labor cost cap limiting pay raises is addressed, this will not be a lasting solution."

Lagging Compensation, Now Possible Relocation...A "Triple Hardship" for State-Run Banks

Tensions are rising again at state-run banks, with the government expected to present the second phase national institution relocation plan as early as the end of this month. While Korea Development Bank, Industrial Bank of Korea, and Korea Export-Import Bank have not yet been finally designated as targets for relocation, a number of local governments have named them as desired anchors and they are being cited as major candidates. Moving state-run banks would require legislative amendments, but a broad consensus for regional relocation among politicians means the legislative process is unlikely to present a major obstacle.

Concerns about regional relocation have continued within the financial sector. This is because commercial communication with banks, insurers, and securities firms—all headquartered in Seoul—is frequently required, and regional moves could make it harder to secure specialized talent. Labor unions at the three state-run banks held their first joint resolution rally on August 11 to declare their opposition to relocation. They argue that, with the compensation gap with private firms widening and growing difficulties attracting and retaining specialist talent, relocation of headquarters would trigger an exodus of young staff and key personnel.

On the 11th, NH Nonghyup Branch held a "Full-Force Struggle Resolution Rally to Prevent Local Relocation" alongside the Korea Development Bank Branch, Industrial Bank of Korea Branch, and Korea Export-Import Bank Branch on Uisadang-daero next to the Korea Development Bank headquarters in Yeouido, Seoul. Photo by Yonhap News Agency

Policy Finance Can Only Compete If Allowed to Offer Competitive Salaries

Experts and financial sector officials stress that the competitiveness of state-run banks ultimately stems from the expertise, information, and networks of specialized professionals; therefore, rigid caps on total labor costs should be fundamentally revised. Areas such as large-scale industrial finance and overseas project finance require advanced specialization, but the inflexible compensation framework is making it difficult to attract and retain talent against private-sector financial institutions. In particular, if regional relocation becomes a reality, many believe compensation levels will have to be raised significantly to retain existing staff and attract new top talent.

An industry source said, "The competitiveness of the financial industry lies in the accumulated information and human networks established by high-level talent. For state-run banks to secure and maintain such human capital, regulations on the total labor cost cap for policy finance institutions must be relaxed, and rewards commensurate with expertise and performance should be permitted." Professor Yang Junseok of the Department of Economics at Catholic University also emphasized, "To recruit highly capable professionals into the field of policy finance, you have to offer salaries befitting their abilities. Especially if regional relocation materializes, the scope for exceptions from the labor cost cap should be greatly expanded and compensation strengthened if state-run banks are to remain competitive."

There are also calls to take account of the clustering effect of the financial industry during the relocation process. Professor Yang noted, "In cities like New York, London, and Tokyo, clustering financial institutions in one place facilitates information exchange and network formation. Since state-run banks need to frequently interact with executive government agencies and the National Assembly, scattering them across regions would create major inefficiencies." He continued, "Maintaining headquarters in Yeouido is the most efficient option, but if relocation is truly unavoidable, consolidation either in Sejong—where government agencies are concentrated—or in Busan, which already houses many financial institutions, might be considered."

The need to prevent the outflow of specialized professionals is also being highlighted in order to upgrade the function of state-run banks. Kim Daejong, Professor of Business Administration at Sejong University, stressed, "State-run banks should not simply be lending channels for domestic businesses. They must be scaled up as global policy finance institutions that provide long-term funding to strategic industries of the future such as semiconductors, artificial intelligence (AI), batteries, biotech, defense, and shipbuilding, as well as engage in overseas project financing, acquisition finance, export finance, and venture investment. As long as core financial professionals remain concentrated in the capital area, measures must be taken to realistically prevent the departure of top talent before pursuing relocation."

This content was produced with the assistance of AI translation services.