Indonesia to lead massive reduction of bank branches in South-East Asia


A customer (left) is attended by a Bank BCA teller in its branch on Jl. Sudirman in Yogyakarta on Sept 13. The bank has remained operational amid the pandemic by implementing health protocols. - JP

JAKARTA (The Jakarta Post/Asia News Network): Indonesia is projected to lead a significant reduction of bank branches in South-East Asia (SEA) over the coming 10 years as customers shift from physical to digital banking services, according to Roland Berger.

The Munich-based management consultancy estimates that the number of bank branches in SEA will shrink by 18 per cent in the next decade. That figure is equivalent to some 11,000 branches being shut in the region, with almost 7,000 located in Indonesia.

Thailand and Malaysia will follow Indonesia, while Singapore and Brunei have already seen such a trend since 2010.

By contrast, the number of branches is expected to continue growing in Vietnam, Laos, Cambodia and Myanmar given the underdeveloped banking sector in those countries.

“They [banks] need to address the upcoming challenges of the decline of the branch role sooner rather than later, preparing for a redesigned, repurposed and reduced network,” wrote Philippe Chassat, senior partner at Roland Berger and co-author of the study.

“Failing to do so will profoundly impact retail banks’ profitability, leaving oversized branch networks underutilised." Read also: Indonesia sharpens legal framework for digital banking Increased access to technology, a demographic shift in the banking customer base, significant overall economic uplift and supporting digital economy policies and government incentives are cited as driving the shift.

The study estimates that more than two-thirds of banking customers will prefer digital banking services to physical branches.

Aviliani, the head of policy at the Indonesian Banks Association (Perbanas), noted that Indonesia had the most branches in the region because of a massive expansion that started in the 1990s.

Thus, it was natural that the country would also see the largest reduction in branches. She said consumers had shown a growing preference for digital banking services in the past few years alongside a demographic shift, higher phone ownership and increased internet usage.

The Covid-19 pandemic that forced people to limit physical interactions and spend more time at home had contributed to the shift.

“So, it was accelerated by two factors, the rising number of millennials and the pandemic,” Aviliani told The Jakarta Post on Friday Sept 10).

However, Aviliani said she expected the closure to be uneven, whereby banks would concentrate the closure on big cities but retain branches in rural areas, as more customers there lacked internet access and maintained a high appetite for cash transactions.

Meanwhile, she predicted, the shift to online services, including to digital banking, would mainly come from retail customers, while many corporate customers would prefer conventional banking services, hence requiring banks to keep some of their branches.

Vera Eve Lim, director at Indonesia’s largest private lender Bank Central Asia, said on Wednesday that the transaction value from mobile and internet banking had surpassed that of branches for the first time in 2020, which also marked the beginning of the pandemic.

From the first half of 2017 to the first half of 2021, the value of mobile and internet banking services rose from 34 per cent of all transactions to 54.4 per cent, while that of branch services fell from 56.9 per cent to 39.2 per cent.

The difference is even more pronounced with regard to the number of transactions, where mobile and internet banking accounted for 86 per cent of all transactions in the first half 2021, growing rapidly from just 59.3 per cent in the same period of 2017.

Meanwhile, the transaction volume at branches has been falling.

“This is the new normal; you can see how consumer behaviour has changed,” Vera said in a public presentation held by the Indonesia Stock Exchange (IDX).

Similarly, Y.B Hariantono, IT and operations director at state-owned Bank Negara Indonesia (BNI), described a trend of rapid growth in mobile banking transactions.

“The value of transactions in mobile banking has neared that of ATMs. By the end of the year, the value of digital, mobile banking transactions will surpass or at least match that of ATMs,” Hariantono said during an online discussion on Tuesday.

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