China’s state-owned banks cut thousands of jobs as profit growth slows

PUBLISHED : Tuesday, 06 September, 2016, 3:49pm
UPDATED : Tuesday, 06 September, 2016, 3:49pm

China’s biggest banks have joined their western peers in eliminating thousands of jobs as the nation’s banking industry faces its most challenging year amid a slowing economy and top-down financial reforms.

The top four national banks, which reported negative to flat net profit growth for the first half of this year, reported a combined total of 22,260 jobs that have been eliminated.

Bank of China said its headcount at the end of June 2016 has decreased by 6,881 to a total of 303,161 employees, compared to the end of 2015. Agricultural Bank of China lost 4,023 staff, bringing its total to 499,059 while Industrial and Commercial Bank of China cut back by 7,635 to 458,711. China Construction Bank also shed 6,721 staff to 362,462. The four banks are the nation’s biggest banking sector employers. The trend is mirrored in the second-tier joint stock banking sector.

Different banks are calling the measures by different names, albeit some euphemistically. Agricultural Bank referred to its attrition as “human resource reform”. BOC referred to the downsizing as “adjusting its structure, exploring its potential, and innovating its line with the group’s development strategy and priorities”. CCB did not make a direct reference or provide an explanation in its report. Only ICBC directly referred to its measures as an exercise in “strict cost controls”.

“China’s banks won’t openly call it ‘redundancy’ because they are state-owned,” said Shujin Chen, research director at DBS Vickers. “Instead, the banks now take to natural attrition to control staff costs. This means when employees resign they won’t be replaced. The shrinkage usually would not exceed 1 per cent of the payroll.”

China’s banks won’t openly call it ‘redundancy’ because they are state-owned. Instead, the banks now take to natural attrition to control staff costs
Shujin Chen, research director at DBS Vickers

Employment in the banking sector saw strong growth until 2013 and it was only last year that individual banks started taking cost control measures, according to Chen. “This year, the trend has become obvious. For the people left behind the pressure to perform is enormous.”

Chen said that in cities like Shanghai pay levels are basically flat, while across the sector, pay is actually dropping. “Any pay rise that happens now is done in a very conservative scale. You sometimes see a situation where a bank president may be making less than a branch manager or division head. The cost cuts have resulted in many, particularly in senior management, leaving the industry,” she added.

Between 2012 and 2015, data from the 16 listed mainland banks’ annual reports showed that the core banking sector was seeing continuous growth in employment. Total staff employed by the sector was 1.75 million in 2012, reaching a peak of 1.87 million at the end of 2015.

Meanwhile, second-tier banks adopted different strategies to control costs.

Although China Merchants Bank cut its payroll by 7,768, reducing staff costs by 2.8 per cent to 15.9 billion yuan, Minsheng Bank cut costs a different way. While it reduced head count by a more modest 844 to 58,666, Minsheng slashed wages by 22 per cent, bringing staff costs down to 8.7 billion yuan.

“Renumeration at Minsheng has sharply dropped as it is a very market-based bank. For their front-line staff, their pay package is now probably 50-50, with a fixed salary component while the rest would be performance based,” said Chen, who believes it could provide a model for the state-owned sector in its continuing restructuring efforts to boost efficiency.

Despite the current cut backs amid a difficult year, there may be a silver lining for bank staff because over the longer term the mainland Chinese finance sector will provide better employment opportunities.

Chen explained that a mid-tier senior manager in Shanghai would make more money than an equivalent in Hong Kong because the client base is on the mainland. “Last year, the [banking] sector was still contributing 9 per cent of the makeup of China’s GDP growth,” she said.

Longer term, Shanghai has hopes to raise the GDP contribution from its financial services sector to as much as 20 per cent, according to its vision document for the year 2040.