Banks drop ground-floor branch locations to cut costs

Customers sit at a branch of a KB Kookmin Bank branch in Seoul. Yonhap

By Anna J. Park

While about 70 percent or 80 percent of banks' suburban branches used to be located on the ground floor in the past, it now seems harder to find banks on the street level. Instead it's easier to find bank branches situated on the second floor of the building or higher, with cafes and other stores now more likely to greet customers on the main floor.

Recent statistics back up the easily observed phenomenon. According to statistics compiled by Rep. Yoon Doo-hyun of the main opposition People Power Party, more than half of the local branches of the country's four major banks ― KB Kookmin, Shinhan, Hana and Woori ― are now more often than not situated on the second floor or higher.

Out of 6,326 branches of 17 local banks in Korea, the number of the four major banks' branches is 3,256, of which 50.2 percent, or 1,637 branches are located on upper floors. If branches located on underground levels are included, then the number rises to 52.5 percent.

KB Kookmin Bank has the highest ratio of branches located on upper or basement levels; out of the bank's 954 regional branches, 64.3 percent or 614 branches are either located on upper levels or underground, instead of having traditional ground-floor branches. Shinhan Bank has the second-highest such ratio at 54.5 percent, followed by Hana Bank's 48.3 percent and Woori Bank's 40.3 percent.

Industry insiders point out that heightened competition among local banks as well as the fast transition to digital banking have both contributed to the change of bank locations. Various factors ranging from the emergence of internet-only banks in the country, building owners' preference for more commercial stores like cafes and the fact that banks are looking to increase cost efficiency, have all played a part in the trend.

Actually, seven out of 10 bank customers handle their banking services online as of the first half of 2021, according to a report published by the Bank of Korea. Only 6.1 percent of customers visited bank premises for transactions. Increased digitalization of banking services prompted banks to reconsider their reason for maintaining their branches.

This cost-cutting measure has turned out to have been successful in increasing cost efficiency, as banks can save huge amounts of monthly rent paid by branches nationwide.

On overage, rent for a first floor store is more than double of the second-floor stores. The four major banks spent 973 billion won ($811 million) and 984 billion won for rent respectively in 2017 and 2018. The figure significantly decreased to 212 billion won in 2020.