Korea’s commercial banks saw their profitability sharply worsen this year due mainly to a retreat in their earnings on interest, data from the Financial Supervisory Service showed Monday.

Regulatory officials at the FSS revealed that the two major profitability indices ― return on asset and return on equity ― for the first-tier banking industry this year have dropped to their lowest levels since 2003.

For the first nine months of this year, the banking sector posted 0.32 percent in collective ROA, compared with 0.47 percent in 2012 and 0.66 percent in 2011.

Their combined ROE stood at 4.08 percent during the January-September period, down from 6.17 percent in 2012 and 8.4 percent in 2011.

The ROA of 0.32 percent and ROE of 4.08 percent marked the lowest since they stood at 0.17 percent and 3.41 percent in 2003 when the credit card fiasco hit the financial market.

In addition, banks reported a sagging net interest margin of 1.81 percent during the third quarter of this year, its lowest level since 1.72 percent in the second quarter of 2009.

“Banks’ interest income has been in a downward trend due to the narrowed gap between lending and deposit rates amid the protracted low-rate era,” an official said. “The situation dealt a blow to their overall profitability.”

Their retreat in earnings is being linked to scaling back their operating networks and hiring.

As an emergency remedy, major banks have slashed the number of branches through mergers or closures. Manpower restructuring due to branch integration is also expected across the industry.

Shinhan Bank saw its number of branches nationwide fall to 937 as of June, compared with 949 at the end of 2012.

The bank also cut the hiring of new staff by 50 percent to 200 employees in the first half of 2013 from 400 employees over the same period last year.

Woori Bank and NongHyup Bank also joined the move by shutting down three and five branches, respectively.

Korea Exchange Bank slimmed down its workforce at its downtown Seoul headquarters by 315 staffers over the past year.

Woori Financial Group, the largest financial firm in the nation, also slashed its headquarters staff to 90 from 170 over the past year.

By Kim Yon-se (kys@heraldcorp.com)