CHICAGO--()--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.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: U.S. Banks: Rationalizing the Branch Network (Witness the Incredible Shrinking Branch Network)