Despite online transactions continuing to
rise, branches remain vital to consumer banking. Branch density is
lowest in some of the most dynamic emerging economies, including
Indonesia and India, according to research from
RBI, while key countries in western
Europe such as Spain and Italy remain clearly over-branched.

Judged by the number of branch roll-outs, expansion plans and
revamp initiatives instigated by banks around the world, branches
remain strategically important to the retail financial services
industry despite the ongoing momentum behind internet and mobile

In Western economies, especially in western
Europe, the branch remains a vital customer contact, sales and
service channel.

In a report published earlier this year called
Living With New Realities (see RBI 608), Boston
Consulting Group concluded the branch remains as important as ever
in the distribution mix.

The rise of direct banking, fuelled at first
by the advances in technology which enabled the roll out of
superior mobile and internet banking operations, will undoubtedly
continue through 2009 as financial institutions look for low-cost
methods of boosting market share.

But for BCG, “there is no substitute for a
physical presence” when it comes to the key challenge for retail
banks: gathering deposits.

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Ignoring postal banks and post office
distribution networks – both becoming ever more significant rivals,
and complements, for the commercial banking industry (see RBI
) – the number of branches in countries still varies
enormously around the world.

According to figures from the European Central
Bank and RBI, Spain has the most branches per one million
residents while, of a selected 20 countries, Indonesia has the
least. The average figure is 261 branches – around the branch
density ratios found in Australia, the UK and The Netherlands.

Significant emerging

Indonesia has remained one of the more
significant emerging markets over the past 12 months, as evidenced
by HSBC’s completed purchase of 90 percent of Bank Ekonomi at the
end of May. The deal will double HSBC’s presence in the country to
207 outlets in 26 cities.

According to HSBC, Indonesia’s GDP is forecast
to grow by 2.5 percent this year and by 4.5 per cent in 2010 –
“bucking the global downturn and demonstrating the country’s
emerging strength”.

Separate research from Morgan Stanley
published in the middle of June said that Indonesia’s economic
growth may accelerate to 7 percent in 2011, providing a strong case
for its inclusion in the so-called BRIC economies along with
Brazil, Russia, India and China.

Domestic Indonesian banks are also upping
their game. Bank Rakyat Indonesia, the country’s third-largest
banking group, has said it will add 4,000 new ATMs this year to its
network as well as up to 1,500 branches (see RBI 610).

In contrast, from figures published by the
European Central Bank for 2007, it is clear that the western
European countries of Spain, France and Italy remain significantly
overbranched on a global basis.

Spain in particular is facing a looming
challenge over its financial infrastructure in the wake of a
recessive economy and decreasing demand for banking products.

Perhaps the most interesting aspect of the
Spanish banking market, however, is that while it has too many
branches, the cost-income ratios for Spanish banks are low –
according to an RBI survey of the Spanish market in
February, the majority of institutions posted cost-income ratios of
around 35 percent in 2008 (see RBI 607).

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