Chinese banks ramped up the cull of brick-and-mortar branches this year as the coronavirus outbreak hastened the country’s shift to digital finance.

More than 2,800 bank outlets closed in 2020, bringing the total number shuttered in the past two years to over 6,000, according to figures the China Banking and Insurance Regulatory Commission released Monday. Large, state-owned lenders shut down more locations than commercial banks operating in rural areas.

“State-owned and joint-stock banks set up more outlets than needed in this era of staking claims to markets,” a banking sector analyst told Yicai Global.

Such banks overestimated demand for in-branch tiller services amid a financial technology boom in China, and COVID-19 led to an even greater use of online and mobile banking.

“More companies and individuals prefer online financial transactions and are relying much less on brick-and-mortar outlets with the development of digital finance, especially since the COVID-19 outbreak,” the analyst said.

The cost of keeping branches open is high. One state lender spends more than 100,000 yuan ($15,300) a year on each multifunction super-counter, as well as rent, electricity, and labor, according to a branch manager in Southwest China. Revenue cannot cover costs if a branch has little footfall, said the manager, or if competition between financial institutions is strong.

“Some outlets have very few clients a day, so they just open two or three windows and finish most of their business in the morning,” a staffer at a state-owned lender said. “Low salaries for counter staff are also unattractive to young people.”

Banks are likely to continue downsizing their outlets, but online services cannot replace all branch functions, Luo Zhenxin, a postdoctoral student researching finance at Peking University, told Yicai Global. Seniors, for example, are used to physical outlets, and face-to-face service is better for high-net-worth individuals, Luo said.

Some banks are still opening branches in economically developed counties or townships to promote inclusive finance. This meets both regulatory requirements and lenders’ own need for growth, another bank employee said, adding that “we must do business that we dared not do before to lure more clients in the face of intense competition.”

This is an original article written by Tang Shihua of Yicai Global, and has been republished with permission. The article can be found on Yicai’s website here.

(Header image: People Visual)