September 17, 2012 / 2:22 PM / 5 years ago

TEXT-Fitch: U.S. banks to scale down, transform branch networks

Sept 17 - Fitch Ratings expects that U.S. banks will transform their branch
networks amid ongoing increases in technology use and changing customer
behaviors, according to new report.

Fitch expects both fewer numbers of branches and different types of branches to
inhabit the banking landscape going forward. The elevated cost structure of most
banks is prompting them to re-think and rationalize expenses, particularly
branch networks, which is one of the most significant expenses for the sector.

As society's demographics change, younger individuals are interacting with their
bank through various channels other than the traditional bank branch. The growth
of internet banking, mobile banking, and ATMs, to name a few, allow banks to use
technology to create additional touch points with their customers.

Fitch expects increased technology spending over the near to intermediate term
by the banks to improve efficiency and streamline operations. While over the
near term these additional technology expenses may offset cost savings from
culling bank branches, longer term it should improve earnings and, therefore,
returns to shareholders.

From a credit standpoint, Fitch views the reductions in costs, and therefore
improvement in earnings, as the biggest near-term positive. Fitch further
believes the larger banks with more resources should benefit to a greater degree
from both a technology spending and cost-savings perspective.

Banks unable to adapt their branch models quickly enough may suffer declining
market share and customer attrition. Additionally, the increased use of
technology makes it easier for customers to move funds from one bank to another,
which could have the unintended impact of increasing customer attrition rates
and decreasing the stickiness of deposits.

The full report 'U.S. Banks: Rationalizing the Branch Network' is available at
'www.fitchratings.com'. The report provides an analysis of various options banks
have to restructure and enhance their branch networks.

Applicable Criteria and Related Research: U.S. Banks: Rationalizing the Branch
Network (Witness the Incredible Shrinking Branch Network)

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