Banks shut over 1,000 branches in South Korea amid digital transformation shift

The number of offline bank branches in the country has decreased by more than 1,000 over the past five years. The top five commercial banks (KB Kookmin, Shinhan, Hana, Woori, and NH NongHyup) led the decline in branches, with KB Kookmin Bank closing more than 250 branches during this period. Banks cite digital transformation as the main reason for branch closures, but consumers have shown a lukewarm response, stating that only the convenience of use has worsened.

According to the Korea Institute of Finance, as of the end of last year, the number of offline bank branches among the 17 banks in the country was recorded at 5,628. Compared to the end of 2019 (6,708), the number of branches decreased by 1,080. This represents a disappearance of 16.1% of all branches. The annual decline in branches, once around 300, dropped to 53 in 2023 and then rose again to 116 last year.

The closure rate of branches by the five major commercial banks, which had branches nationwide, was particularly steep. Kookmin Bank closed 251 branches over five years, the highest among all banks. Just in 2019, Kookmin Bank and NH NongHyup Bank had more than 1,000 branches each. While NongHyup Bank reduced only 72 branches over the five years, maintaining over 1,000 locations, Kookmin Bank's branches decreased to 800. During the same period, Shinhan Bank closed 191 branches, Woori Bank closed 190, and Hana Bank closed 122 branches.

Banks cite digital transformation as the reason for branch closures. They explain that the use of branch services has declined due to an increase in consumers using mobile banking and the diversification of application (app) services. However, still, one in three financial consumers visit a bank branch at least once a month. According to data released by Hana Financial Research Institute in January, when asked about their frequency of visiting bank branches, 34.4% of over 1,500 respondents reported visiting a branch at least once a month.

Moreover, while banks are accelerating their digital transformation, they are not meeting all consumer demands. In the same survey, the most common reason consumers cited for visiting a branch was "to handle tasks available at the branch" (33.2%). This was followed by "joining deposit accounts" (26.2%) and "loan consultations/applications" (16.7%). The demographic of branch visitors is evenly distributed across younger generations and older adults. Consumers feel that branches are still necessary, regardless of age.

Kang Hyung-gu, vice president of the Financial Consumer Federation, noted, "It is essential to visit branches to handle important tasks such as verifying collateral and check transactions," and added, "While banks are accelerating their digital transformation, someone still needs to visit the counter, but consumer convenience has not significantly increased." Kang argued, "Since banks have some characteristics of public goods, they should consult with local customers and communicate to find alternatives rather than recklessly eliminating branches."