Will the Financial Supervisory Service Pressure Lead to Stricter Bank Branch Closure Procedures?

Recent Acceleration in Bank Branch Closures
Joint Procedures for Bank Branch Closures Entrusted to Self-Compliance
Advance Notice Revised from 1 Month to 3 Months, Content Amendments Inevitable

[Asia Economy Reporter Park Sun-mi] As financial authorities continue to issue messages urging restraint on bank branch closures, the joint procedure for bank branch closures (hereinafter referred to as the joint procedure), which was previously left to voluntary compliance, is poised to exert pressure on banks with mandatory force.

According to the financial sector on the 31st, the joint procedure, which banks currently comply with autonomously before closing branches, is undergoing content revisions in line with the financial authorities' atmosphere of discouraging branch closures. A related official said, "Discussions are ongoing both internally and externally regarding the supplementation of the joint procedure established last June," adding, "It will take some more time to see how the content will be supplemented, but it is expected that an external evaluation committee will conduct an impact assessment of branch closures and that mandatory notification to customers three months prior to closure will be added."

It has been suggested that local governments and public institutions, which are well acquainted with the circumstances of the area and can easily gather opinions from various sectors, may participate in the impact assessment of branch closures. Additionally, there is ongoing discussion about expanding the mandatory notification period to customers of closing branches from the current one month to three months. Many countries, including the UK, Australia, and the US, already require a minimum three-month prior mandatory notification period when closing bank branches.

The Financial Supervisory Service recently summoned executives of major banks to assess the current status of branch closures and received reports on whether the joint procedure is being properly followed. This comes about a year after the Korea Federation of Banks prepared the implementation plan for the joint procedure. Banks interpret the financial authorities’ full-scale investigation of the joint procedure, which was created as a voluntary regulation, as a step toward imposing mandatory compliance.

An industry insider said, "Since Financial Supervisory Service Governor Yoon Seok-heon recently publicly warned that the pace of bank branch closures is excessively fast, banks have no choice but to be cautious about closing branches," adding, "Banks that find some branch closures unavoidable for management rationalization are inevitably in a difficult position."

The joint procedure prepared by the Korea Federation of Banks last June includes key points such as ▲ conducting internal analysis and impact assessment of the target branches after deciding to close branches, confirming customer numbers, age distribution, and the existence of alternative means ▲ selecting and operating alternative means suitable for the characteristics of the area and customers ▲ providing prior notification at least one month before the branch closure date. Initially, financial authorities planned to establish a 'Model Code for Bank Branch Closure Procedures,' but due to opposition from the banking industry claiming it would undermine operational autonomy, they retreated to a joint procedure implementation plan with less mandatory force.

The reason the joint procedure is undergoing content supplementation is due to the rapid increase in the number of branch closures as banks autonomously decide on closures amid continuous regulatory easing, raising concerns that vulnerable groups may be excluded from financial services. The number of domestic bank branches has been decreasing from 7,280 in 2016 to 6,953 in 2018 and 6,904 in 2019. In particular, the four major commercial banks?Shinhan, Kookmin, Hana, and Woori?closed 126 branches in the first half of this year, which is 1.5 times the total number of branches closed last year, which was 88.

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