Commercial banks are scaling back their operating networks and hiring amid a retreat in earnings.

First-tier lenders’ lower profitability is mainly attributable to soured loans from growing corporate insolvency and the reduced margin between their deposits and loans, according to research analysts.

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 in 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, with low profitability.

Korea Exchange Bank slimmed down its workforce for its headquarters in downtown Seoul by 315 individuals over the past year. Woori Financial Group also slashed its headquarters staff to 90 from 170 in a year.

The banking sector recruited 901 workers for the first half, down 47 percent from 1,693 a year earlier. The banking industry opens new positions twice every year.

The downsizing of branch networks and reduced hiring came as banks saw their profitability worsen as interest income shrank on the low-rate policy and the recent bankruptcy of some major companies ― STX Group and mid-sized builder Kukdong Engineering & Construction ― forced them to set aside massive loan losses.

According to the Financial Supervisory Service, Korean banks saw their three major indices for profitability mark a three-year low in 2012.

The banking industry reported its worst performance on return on assets (0.49 percent), return on equity (6.41 percent) and net interest margin (2.1 percent).

The weakened profitability invited a retreat in yearly net profit. The local banks posted 9 trillion won in collective earnings, compared with 11.8 trillion won in 2011 and 9.3 trillion won in 2010.

In particular, their quarterly earnings continued to fall last year ― 3.3 trillion won in the first quarter, 2.1 trillion won in the second, 2 trillion won in the third and 1.5 trillion won in the fourth.

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