The number of branches for commercial banks is sharply declining due to the increase in non-face-to-face transactions such as artificial intelligence (AI) tellers and mobile banking, but the number of branches in credit unions such as NongHyup, Saemaeul Geumgo, Shinhyeop, and Suhyup has actually increased. It is explained that mutual financial institutions, which are operated based on local economies, maintain branches despite somewhat bearing operating cost losses, as this is more positive for their business due to the characteristics of their main customers.
According to the financial sector on the 27th, as of the third quarter of this year, the number of branches of Shinhyeop, NongHyup, and Suhyup increased compared to the end of the previous year. NongHyup rose from 4,867 to 4,877 branches, and Suhyup increased from 516 to 527. Shinhyeop maintained 1,694 branches, unchanged from the previous year. The number of branches for Saemaeul Geumgo, which stood at 3,264 last year, slightly decreased to 3,257, but over the past six years, it has increased the number of branches by almost 100.
During the same period, the number of branches for commercial banks decreased. Woori Bank saw the largest decline, dropping from 711 to 684, while Shinhan Bank decreased from 722 to 702. Hana Bank and Kookmin Bank each gained 5 and 3 branches, respectively, but they have shown a net reduction trend from 2018 to last year. Since last year, financial authorities have emphasized social responsibility and put a brake on the reduction of bank branches, but the number of branches for commercial banks remains on a decline.
The main reason commercial banks are reducing their number of branches is the digitalization of financial services. Most financial transactions can already be conducted without face-to-face counters, and financial consumers are accustomed to mobile banking.
The problem is that mobile financial services are still difficult for elderly consumers. Financial authorities are also concerned about financial consumers being left out due to the rapidly decreasing number of bank branches. On the 26th of last month, Lee Bok-hyeon, head of the Financial Supervisory Service, noted, 'We need to reflect on whether the financial sector has sufficiently considered its responsibility to ensure access to finance during the disappearance of over 1,000 domestic bank branches over the past five years,' and ordered the entire financial sector to introduce services for seniors.
Despite this atmosphere, the reason mutual financial institutions are not reducing the number of branches, but rather increasing them, is that most of their main customers, the members, are elderly individuals. The majority of mutual finance customers belong to the 50s and older age group and tend to avoid non-face-to-face transactions.
According to each central association of the unions, the ratio of customers aged 50 and older at Shinhyeop is 57%, while at Saemaeul Geumgo, it is 50%. Other mutual financial institutions are in a similar situation. Although elderly customers have the disadvantage of decreasing both deposits and loans, they have the advantage of high loyalty; once they become a primary customer, they tend not to move easily. Accordingly, mutual financial institutions are strengthening their businesses related to elderly customers, including attracting pension clients, providing inheritance products, and offering tax and financial consulting services.
Additionally, due to the nature of mutual finance, they continue to operate with small-scale branches located in various local areas rather than in Seoul and the metropolitan area. Unlike banks where all branches are affiliated with the headquarters, each mutual finance association operates as a separate legal entity with independence. The chairpersons operating cooperatives in small towns or marginalized areas are mostly long-time residents with attachments to their regions, and it is often reported that they do not close branches even when they incur losses. In fact, about 20% of mutual financial institution branches are located in town and village units.
However, the aging of the mutual financial institution customer base could negatively impact profitability in the long term, a point that is consistently raised. Although the total number of cooperatives and their assets are much larger in non-metropolitan areas where elderly customers are abundant, profitability is significantly lower compared to the metropolitan area. A mutual finance official explained, 'To diversify the age range of customers and secure younger clients, we are considering various methods including digitalization, high-interest products, and complex branches in the metropolitan area.'