[THE INVESTOR] Bank of Korea’s cut in the benchmark rate has lowered commercial banks’ interest rate offering on deposits to a record-low level.

Commercial banks say they -- as well as depositors -- are also suffering low profitability as a result of the BOK’s all-time low base rate of 1.25 percent. Over the past two years, the central bank has lowered the rate by 125 basis points from 2.5 percent in July 2014.

A savings product offered by a commercial bank provides customers with only a 0.01 percent rate per annum. Customers can gain 1,000 won (86 cents) a year on a deposit of 10 million won– but in practice this is just 846 won, as the income tax is levied.

The low rate era has created the situation in which customers will see all the interest they make on a deposit of 10 million won be used up in a single use of an automated teller machine. Some banks charge ATM service fees of up to 1,000-1,200 won when a customer transfers money to another bank.

Starting this month, when customers at a major bank wire more than 5 million won to an account at another financial firm, they will have to pay a service charge of 4,000 won, compared with the previous 2,500 won.

In addition, customers should pay fees of between 3,000 won and 5,000 won on overseas remittances via the Internet or mobile phones, which were hitherto free of charge.

The move is understandable in a way, given banks’ desperate struggle to overcome weakening profitability amid prolonged low interest rates. The first-tier banking industry is downsizing its operations by scaling back their workforces and branches nationwide. They also face a critical challenge from the coming “big bang” involving Internet-only banks and “fintech,” or financial technology, which may greatly replace the present face-to-face business at offline branches.

But local banks should not pursue high service fee-based operations any longer. The high service charges based on ATM use and money transfers are simply inviting public criticism. Instead, they have to push forward diversifying financial products.

Beyond the saturated loan issuance market, investment banking could be one of the several priorities for globalization in the coming years.

As the banking sector has been quite conservative, introducing investment banking services by benchmarking global investment banks was a kind of barrier.

But the Capital Market Integration Act came into effect in the local market in 2009 and financial regulations were eased. Korean banks are allowed to acquire securities firms or setting up their own securities units to generate investment banking business.

Through the high-skilled investment banking sector, lenders are empowered to help enterprises raise cash by issuing and selling securities in the capital market, as well as offering low-key information on mergers and acquisitions.

A model can be found in KB Kookmin Bank, which took over Hannuri Investment & Securities from U.S.-based J.D.K. Investment Corp. in a bid to bolster the investment banking segment. Woori Bank and Shinhan Bank are also increasing their investment banking staff.

The workforce restructuring is unavoidable. However, the sufficiency and specialization of the trained manpower will determine each player’s future.

(theinvestor@heraldcorp.com)