Shrinkage in the Number of Bank Branches Accelerates
In a significant shift, the number of bank branches in Germany has witnessed a sharp decline over the past year, with the trend being primarily driven by digital transformation and changing consumer behaviour.
The decline, which saw a 2.8% reduction in 2023 alone, is attributable to the increasing use of online banking and digital financial services, automation and AI, demographic and economic shifts, and a long-term structural decline.
Over the past few decades, the number of branches has fallen significantly, from approximately 60,000 branches 25 years ago to just under 19,000 in 2023. This decline is evident in the closure of around 560 branches in 2023.
Specific banks and savings banks have been affected the most, with substantial numbers of branches being closed and jobs cut as part of restructuring efforts. For instance, TSB, though UK-based, has closed 36 branches and laid off employees, reflecting a broader trend in the banking sector. Similarly, Metro Bank has announced significant layoffs, with plans to let go of 1,000 employees.
The trend is not exclusive to Germany, as it is widespread among banks and savings banks, with the largest institutions bearing the brunt of closures due to the inefficiencies of maintaining large physical networks in a digital age.
Despite the challenges, there have been some positive developments. Ten new entries were recorded, primarily foreign banks establishing a presence in Germany. The Bundesbank counted 1,368 credit institutions at the end of the year, marking a decrease from the previous year.
Cooperative Volks and Raiffeisen banks have 6,402 branches, while savings banks have the most branches nationwide, with 6,926, accounting for 38.8% of the total. However, savings banks closed 178 branches last year, and large banks were responsible for closing 1,280 branches.
The weak earnings situation of individual banks in the low-interest phase is also contributing to the decline. The branch business is labor-intensive and is being reduced due to these closures. The decline in bank branches is a continuing trend in Germany.
In conclusion, the digital disruption, consumer migration to online banking, and economic/demographic pressures are behind the steady decline in German bank branches, with the largest institutions bearing the greatest impact. As the trend continues, it will be interesting to observe how the banking sector adapts and evolves in response to these changes.
The decline in bank branches is primarily attributed to the increasing use of online banking and digital financial services, as evidenced by the 2.8% reduction in 2023 alone. Moreover, the branch business being labor-intensive and the weak earnings situation of individual banks in the low-interest phase further contributes to this structural decline in the finance sector.
