Five major banks to shut down 89 branches by early next year

By Lee Kyung-min

Korea's top five banks plan to shut down a combined 89 branches nationwide by early next year amid fast-deteriorating profit coupled with digitization, industry officials said Thursday.

Of the five, KB Kookmin plans to close 37, followed by KEB Hana closing 35. Shinhan and NongHyup will each shut down seven while Woori closes three.

The number of their branches has been on a steep decline over the past few years.

They had 5,093 in 2015, 4,726 in 2017 and 4,682 in 2019. This number will drop further to 4,593 in 2020.

The move seeking efficiency is a notable turn from four years earlier when they increasingly opened branches in line with the shared notion that the number of branches spoke to the market capitalization.

But a year after that, the banks came under growing pressure to streamline their corporate structures with dropping profit margins, when an industry-wide digitization initiative began to gain momentum.

Yet they were not able to reduce the number of branches drastically due to the financial regulator's guidelines that put much emphasis on equal access to financial services regardless of location.

“Things have changed,” an industry official said on condition of anonymity. “The cost to operate branches are substantial and some adjustments are inevitable given the unfavorable business environment including low interest and stricter lending rules. This is a problem not concerning only us but all of the banking industry.”

The collective streamlining efforts follow a shared concern that the business environment will be harsher in 2020 amid an overall economic downturn compounded by the government's stricter lending rules to curb the housing market.

The commercial banks have relied heavily on interest income paid by home-backed loan takers, but the demand fell sharply after Dec. 14 when the government banned such loan seekers with plans to buy homes worth over 1.5 billion won ($1.2 million).

“Given the new lending rule, banks are pressured to continue making profit. As finding a new source of growth is hard, the next best way is to cut corners where we can,” the official said.

Yet cutting the number of branches will not likely be a major source of user inconvenience amid digitization.

Around 50 branches set to shut down are in Seoul where already too many branches are set up. “Customers will have no problem finding a branch nearby, as a sufficient number of branches are in the city,” the official said.