SME lending at risk as bank branches close

Britain’s biggest banks HSBC, Barclays, Royal Bank of Scotland and Lloyds Banking Group have incrementally ramped up their online and mobile offerings in a bid to overshadow increasing branch closures across the UK.

Since 1989, the UK has lost more than 53 per cent of its bank branches, with UBS predicting the closure of a further 50 per cent in the next ten years.

There are now currently 1,500 communities that have no bank remaining, and a further 840 communities precariously placed with only one bank branch left.

Recent research from campaign group, Move Your Money suggests that post codes that lose a bank branch suffer an average 63 per cent drop in business lending growth. Additionally, post codes that lose their last bank suffer even more, seeing their business lending drop by 104 per cent on average – meaning that banks are actually withdrawing money from those areas.

It was only from 2013 that the impact of branch closures on SME lending has been monitored by the British Bankers’ Association (BBA).

Using this data, Move Your Money found that losing the last bank in town actually leads to an average of £1.6 million less in SME lending only a year later.

Given that these are already some of the poorest areas with higher rates of business failure than the UK average, these branch closures drive cycles of local economic depression and stagnation, according to the report.

“Given the economic and financial chaos caused by the Brexit vote, it’s now more important than ever that banks keep lending to small businesses and keep local bank branches in rural and poorer areas open to achieve this,” launching the research, Fionn Travers-Smith, campaign manager for Move Your Money, said.

“The Government must now intervene to ensure adequate access is provided for all, not just the rich, by strengthening the Access to Banking Protocol, and by recognising the case for public provision of critical banking services.”

Just yesterday, state-backed Lloyds Banking Group issued a statement on it axing 640 jobs and shutting 23 branches across the UK, as part of a three-year plan to make 9000 job cuts and close 150 branches while also investing an additional £1 billion into strengthening its digital channels. According to the Move Your Money report, these bank closures are less in response to falling demand, and more insidious in intentionally targeting poorer and rural areas for closures.

Earlier this year, financial technology firm Temenos examined retail banking worldwide, which revealed that half of retail banks around the world believe we will see an end to bank branches by 2020, prompted by projections of fully automated functions within five years.

According to the FinTech firm’s chief marketing and strategy officer, Ben Robinson, banks are aggressively investing into digital channels in a bid to stay competitive post-recession. “For traditional banks, profits still haven’t recovered from when they were hit by the need to rebuild balance sheets after the 2008 economic crisis,” he said, citing fierce competition from the likes of Apple Pay, Google and PayPal with their responsive digital services.

“Customer retention is falling as customers migrate to real time, cheaper digital services; and customers increasingly shop around for better costs and services,” Robinson added.

Last year, the BBA found that UK customers used mobile devices to check their accounts 895 million times in 2015, more than the 427 million branch interactions. By 2020, the association forecasts that customers will use their mobile to manage their account 2.3 billion times – more than internet, branch and telephone banking put together.

With mobile penetration in the UK on the rise, investing in digital channels while cutting costs and inefficiencies arising from bank branches may be the best chance for banks to stay agile and retain customers.

“When it comes to analytics and automation, some banks are using the savings gained from digitisation to redeploy staff to look for business opportunities and create or add value elsewhere. They are also finding they can offer a more consistent and faster service,” Robinson explained.

For Robinson, the facts say it all. “JP Morgan, for example, says its mobile app now accounts for 58 per cent of deposits, helping cut costs per deposit by half. As a result it is closing 300 branches by the end of 2016,” he added.

“KBC, the Irish bank, recently revealed that its digital system had halved the time it took to set up a new customer to less than 12 minutes, helping to generate a 20 per cent jump in deposits and a 10 per cent rise in customers.”