Regulator to restrict banks from shutting down branches

Pedestrians pass by a bank in downtown Seoul, Monday. Yonhap

By Lee Yeon-woo

The Financial Service Commission (FSC) has announced that banks are no longer allowed to shut down their branches without first preparing measures to alternatively offer the same level of service to customers. Additionally, banks should collect feedback from customers during the closure process to ensure their needs are being met. The new restrictions will take effect from next month.

“With the accelerated digitalization in the industry, banks are reducing the number of branches for cost efficiency,” FSC Vice Chairman Kim So-young said at the meeting on improving management and operation of the banking industry, Thursday. “However, it can lead to inconvenience for customers, especially for senior citizens who frequently visit branches in person. We have implemented measures to minimize the negative impact on them.”

According to the Financial Supervisory Service (FSS), 17 banks, including commercial, local and specialized banks, operate 5,855 branches as of last September. That is 340 less than a year ago.

In particular, the FSC has requested that banks prepare procedures to hear customers' opinions about branch closures before making any decision. This approach has been adopted by banks in other countries such as Australia, Canada, the United Kingdom, and the United States, where they collect feedback from local residents, if requested, about the closure of branches.

If the feedback from customers suggests that the closure of a branch will have a significant impact, banks should consider maintaining the operation or preparing alternative measures to ensure that customers can still receive financial services.

These measures can include scaling down branches instead of shutting down, operating joint branches with other banks and establishing temporary banks that can move around. Banks should also evaluate the after-effects of branch closures.

For senior citizens, digital financial education should be conducted both before and after branch closures. Banks should also establish an "elderly mode" on their website or application, which utilizes larger fonts and a simpler design and provide education on how to use online services.