BANKS worldwide are closing down branches and slashing their usage of office space like never before in a sure sign that the coronavirus pandemic has brought about permanent changes to the financial world.
While changes are not confined to this industry, lenders have largely been quicker than most to adapt to the changes.
This week alone, Standard Chartered said it would shut down half its branches and slash office space worldwide by a third in order to save costs as global lockdowns have greatly reduced the need for physical branches and offices.
Across the Causeway, OCBC Bank said this week that it would review its current need for office space and could be reducing the number of its branches as well.
The Singapore lender will not be the first to do so in the city-state as its peer, DBS Bank, is said to be doing the same and has been reported to be vacating a number of floors it currently occupies at the Marina Bay Financial Centre.
In Malaysia, this trend is set to take place soon if it has not already, according to banks as well as industry observers.
OCBC Bank (M) Bhd CEO Datuk Ong Eng Bin says the bank “will certainly be looking at some amount of rationalisation” in Malaysia.
This is also partly due to the strides the bank has made in the digital space, Ong says.
“So where it makes sense for us to merge the operations of certain branches that are well-served by a single one, we will consider merging these operations and redeploying staff into other vital roles to take advantage of growth opportunities, ” he tells StarBizWeek.
That said, Ong says unlike the lender’s operations at group level in Singapore, the banking group in Malaysia does not have the luxury of a large number of branches. It has 42 spread across Malaysia.
“So we don’t anticipate closing branches the way it might be done in Singapore where we operate as a large local bank that is ubiquitous, ” he says.
With the rise of digital banking in Malaysia due to the adoption of smartphones and mobile Internet data plans, the bank does see consumers and businesses becoming less reliant on physical bank branches.
“With this, banks both locally and globally are moving to ensure that physical branches are located only where they are clearly viable for the longer term.
“The pandemic has also exacerbated a natural shift by customers from branch banking to omni-channel banking where they prefer to be served in a consistent manner across all channels, with an emphasis on mobile banking and Internet banking platforms, ” Ong adds.
Where office space is concerned, Ong says OCBC Malaysia is “certainly rethinking how we might optimise the use of our office space” given the positive response to, and adoption of, work-from-home options.
“But there is still some way to go before we put those plans into action.
“At this stage, it is clear that organisations in general will indeed need less space than they did, pre-pandemic, ” he adds.
“In summary, yes, we see the trend of fewer physical banking branches and also less office space becoming more and more of a reality even as companies streamline their strategies and digital adaptation, ” Ong adds.
AMMB Holdings Bhd group CEO Datuk Sulaiman Mohd Tahir says the banking group has over the last four years already reduced actual office space by some 21%.
“This focus on improving efficiency is carried forward through our Focus 8 Strategy, ” he tells StarBizWeek, adding that 40% of its workforce are currently working from home.
“Efficiency is the order of the day for any banking group as the entire sector is changing drastically and in order to be more efficient and improve our advantage in the sector, embracing digitalisation and improving efficiency is no longer a trend or a choice but our new reality, ” he says.
CIMB Group Holdings Bhd says where the bank is concerned, it is too premature to make comments on these areas at this point in time.
“However, since the start of the first movement control order in March 2020, CIMB has activated its business continuity plan by implementing measures that include split operations for both critical and non-critical operations to ensure all banking services remain operational and secure.
“We continue to closely monitor the Covid-19 pandemic and will make the necessary adjustments based on the situation, ” it tells StarBizWeek.
Inevitable for banks to close ‘uneconomic branches’
Meanwhile, most industry observers also share the view that the need for less branches and office space is set to gain traction.
Sunway University professor of economics Yeah Kim Leng says as digitalisation and financial technology accelerates in the post-Covid environment, it is inevitable that banks will close “uneconomic” branches, downsize physical asset holdings and migrate towards more online banking services.
“As shown by OCBC Singapore’s latest move, existing banks will also have to transform and prepare for competition against digital banks by adopting similar strategies that harness the convenience, safety and ease of remote banking, ” he tells StarBizWeek.
Similarly, he believes that the plethora of digital banking services that can be performed through phone or Internet banking is reducing the need for bank branches and face-to-face transactions, a trend that is being fast forwarded by the pandemic.
Likewise, Institute for Democracy and Economic Affairs analyst Carmelo Ferlito says he also believes that Covid-19 or more importantly, the movement restrictions which have been implemented to contain the spread of the virus, has worked as a catalyst for dynamics that were already in place.
“The trend for financial institutions to cut down their physical presence was initiated 15 years ago, albeit slowly.”
E-banking is a system that is very appealing to consumers as it is fast and requires no queues and parking, he says.
“Somehow, Covid-19 has accelerated or boosted this process and we may observe it continuing into the future.”
MIDF Research head Imran Yusof, who tracks banks, agrees to a certain extent.
“Actually we have observed banks consolidating their branch networks even before the Covid-19 pandemic, the pandemic may have sped up the process, ” he says.
Having said that, he thinks it is too early to speculate whether this trend will become the new norm.
“For the banking industry, we expect branch consolidation to continue to a certain extent. However, banks will still likely need a branch network to serve their customers. The question for each bank is what will be the optimum size of the network.
“Meanwhile, on office space, in general, we believe that we need to be out of the pandemic before we can make any meaningful assumptions on whether banks here will cut down on this, ” Imran says.
“While the pandemic has shown that it is possible to work remotely, banks may reverse their decisions as they might deem it necessary to have their workforce in the office.”