(The following statement was released by the rating agency)
CHICAGO, April 11 (Fitch) Fitch Ratings, Chicago 11 April 2013: A sharpened
focus on cost reduction by U.S. banks will continue to drive a decline in the
number of bank branches as well as a rethinking of branch operations in coming
years, according to Fitch Ratings. Facing a challenging revenue environment and
stricter capital requirements, U.S. banks will likely focus on branch network
rationalization as a critical aspect of cost restructuring efforts.
A number of large U.S. banks have cut the number of branches in recent years,
particularly as mobile banking options have expanded and the frequency of
customer branch visits has fallen sharply. Branch operating costs are a
significant component of a bank's total cost structure, given their large
staffing and real estate requirements. This is particularly true in
heavily-overbanked cities such as Chicago, where the ratio of branches to
customers remains extremely high.
We believe rationalization initiatives undertaken by banks with high
branch-related costs, will continue as the industry operating environment
remains tough. However, much of the rationalization process will involve a
redesign of branch footprints, functions and labor requirements rather than a
sole focus on branch closings. We think the branch of the future could look very
different, with a shift in emphasis to technology in place of direct contact
with bank personnel.
Despite their declining importance as a customer contact point, branches remain
important for U.S. banks in such areas as mortgage origination and investment
management, where a complete cut-over to digital relationships is unlikely.
Increased use of technology to expand customer touch points could ultimately
serve as a new growth model, with branches continuing to play a part in
solidifying customer relationships.
Successful execution of branch network rationalization will require significant
investment to outfit the branches of the future with customer interfaces that
can eventually drive savings in labor and real estate costs. We think the larger
U.S. banks are best positioned to complete this transition successfully. Higher
near-term capital costs, driven by technology investment, will likely be offset
by lower branch network operating costs over time.
For in-depth analysis of U.S. bank branch network downsizing, see the special
report 'U.S. Banks: Rationalizing the Branch Network,' dated Sept. 17, 2012, at
Justin Fuller, CFA
70 W. Madison
Chicago, IL 60602
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email:
The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
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U.S. Banks: Rationalizing the Branch Network (Witness the Incredible Shrinking
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