Relay Closure of Bank Branches... Analyzing the Real Cause (Comprehensive)

FSS's Remarks on Strengthening Supervision Prove Hollow
Five Major Banks Close 191 Branches in One Year
Retail Bank Branch Closures Accelerate in Second Half

[Asia Economy Reporter Kim Jin-ho] Since the COVID-19 pandemic, non-face-to-face transactions have become more commonplace, accelerating the closure of branches by commercial banks. The financial authorities' recommendation that rapid branch closures are undesirable seems to have been ignored. Major banks have announced plans to consolidate and close at least 100 branches in the second half of this year.

According to the Financial Supervisory Service's Financial Statistics Information System on the 29th, as of the end of March this year, the number of branches of the five major banks (NH Nonghyup, KB Kookmin, Shinhan, Woori, and Hana Bank) was 4,398, down by 191 from a year earlier. This decrease is about twice the reduction of 96 branches recorded from March 2019 to March 2020.

Former FSS Governor Yoon Seok-heon stated at an executive meeting last July that "reducing the number of branches in a short period is undesirable" and announced plans to strengthen management and supervision. However, major commercial banks appear to have accelerated branch closures regardless.

In particular, after former Governor Yoon's remarks and the FSS's announcement to prepare guidelines related to branch closures, major banks hurried to close branches. In the second half of last year alone, 139 branches disappeared, which is seven times more than the 21 branches closed during the same period in 2019.

Despite the financial authorities' verbal warnings, banks have pushed ahead with branch closures mainly due to the normalization of non-face-to-face transactions triggered by COVID-19. The intensifying competition in mobile banking and the preference for non-face-to-face transactions during the pandemic have made digital innovation and the activation of non-face-to-face transactions essential rather than optional for major commercial banks.

In fact, for some commercial banks, the proportion of non-face-to-face transactions for credit loans and installment savings products approached 70-80% in the first half of this year. This indicates an environment where customers can perform all deposit and loan transactions without visiting a bank branch.

For example, one bank reported that the non-face-to-face ratio for installment savings reached 89.2% in the first half of this year. Nine out of ten newly opened savings accounts were subscribed to non-face-to-face. A banking industry official said, "All transactions at banks can now be conducted through mobile banking and other non-face-to-face channels," adding, "Maintaining branches, which incur high operating costs, is burdensome and inefficient amid this trend."

Branch closures by major commercial banks are expected to accelerate further in the second half of this year. The five major banks have already confirmed plans to consolidate and close over 100 branches.

Shinhan Bank alone has confirmed the consolidation and closure of 62 branches in the second half. Since there is still time until the end of the year, additional branch closures are likely. This would reduce Shinhan Bank's total number of branches to below 800. Woori Bank plans to consolidate 23 branches in the second half. Hana Bank has announced plans to consolidate seven branches initially, with expectations of more closures in the future. KB Kookmin Bank and Nonghyup Bank are reportedly in similar situations.

As banks accelerate digital transformation, workforce reductions are also progressing rapidly. Major commercial banks are increasingly adopting on-demand recruitment instead of traditional large-scale open recruitment. Banks hold voluntary retirement programs twice a year to reduce staff.

Meanwhile, concerns have been raised that accelerated branch closures may marginalize elderly and other vulnerable groups in accessing financial services. The financial authorities have suggested policies to activate unmanned branches and counter partnerships, especially in areas with many financially marginalized residents.

However, the banking sector holds a negative view toward so-called joint branches, such as counter partnerships. There is significant resistance to the unclear responsibility in case of financial accidents and to the comparison of bank products in a shared space. A financial industry official said, "If problems arise in managing joint branches, it may be difficult to resolve them smoothly," adding, "Unmanned branches using smart ATMs are considered a practical alternative."

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