700 Bank Branches Closed in 5 Years... Financial Authorities Urge Against Shutdowns

Concerns Over Financial Service Exclusion for Elderly
FSS Delays Branch Closures
Commercial Banks Say "Non-Face-to-Face Transactions Are the Trend"

[Asia Economy Reporter Jo Gang-wook] The number of bank branches operated by domestic banks has decreased by about 700 over the past five years. This is due to the downward trend in banks' net interest margin (NIM) amid an ultra-low interest rate environment and the spread of non-face-to-face transactions such as internet and mobile banking. The impact of the novel coronavirus infection (COVID-19) is expected to accelerate this trend further. However, conflicts with the banking sector are showing signs of reigniting as financial authorities intervene beyond recommended levels.

External Expert Review Required for Bank Branch Closures...Concerns Over Political Interests Involvement

According to the financial sector on the 12th, the Financial Supervisory Service (FSS) plans to revise the current voluntary regulation for banks, the 'Joint Procedure on Bank Branch Closures,' as early as the end of this year. The revision aims to require the participation of external experts in reviewing branch closures and to notify financial consumers three months prior to the closure. The banking sector is concerned that if political interests intervene, banks' decision-making could be swayed by outsiders.

An FSS official explained, "We are currently working on revising the joint procedure related to bank branch closures and will announce it once finalized," adding, "As the pace of branch closures accelerates due to digital transformation, the exclusion of the elderly is becoming more severe."

Bank Branches Reduced by About 700 in Five Years...Acceleration in Reduction Speed

According to the FSS, as of the end of June this year, the number of bank branches in South Korea stands at 6,592. Compared to the end of 2015 (7,281 branches), this represents a 9.5% (689 branches) decrease. During this period, commercial banks closed 629 branches, accounting for 91.3% of all closures. Regionally, closures in metropolitan areas such as the Seoul Capital Area and major cities accounted for 89% of the total, rather than vulnerable areas like rural farming and fishing villages.

The financial authorities are concerned that the pace of branch reductions is gradually accelerating. This is because the rapid decrease in branch numbers may cause difficulties for the elderly in using banks. Up to the first half of this year, 117 branches have been closed. Additionally, about 40 branches and sub-branches of KB Kookmin, Shinhan, Woori, Hana, and SC Jeil Banks are scheduled to close this month. This means that over 150 branches have disappeared annually over the past five years.

Concerns Over Insolvency Due to COVID-19...Cannot Ignore Deterioration in Management

However, the banking sector acknowledges these points but argues that it is an "unavoidable reality." They face a situation worrying about insolvency beyond a 'cold wave' due to intensified competition from big tech companies like Naver and Kakao entering the financial industry, contraction of the private equity fund market, and large-scale financial support amid the COVID-19 pandemic.

An official from a commercial bank said, "In a situation where bank profits are rapidly declining, maintaining branches that customers do not visit only means neglecting worsening management," adding, "With financial authorities demanding COVID-19 financial support and even deferring interest repayments again, we have no choice but to close branches and sell assets to secure funds."

Need for Joint Response Through Bank Sector Consultation Including Draft Method Introduction

Experts point out that the reduction of bank branches should be interpreted as a survival strategy to respond to changing times. However, from the perspective of inclusive finance, they recommend joint responses through bank sector consultations, such as introducing a 'draft method for branch closure procedures.'

Lee Dae-gi, Senior Researcher at the Korea Institute of Finance, said, "The reduction of bank branches and the resulting workforce restructuring are part of banks' survival strategies to respond to long-term low growth and low interest rates and the rapid spread of digitalization," adding, "If maintaining an appropriate number of branches is necessary, it is possible to consider introducing a draft method for branch closure procedures through bank sector consultations, as well as operating joint branches and bank agency systems."

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