Why are banks closing branches?

With the increased uptake of mobile and agency banking, some commercial banks have started scaling down on their branch network. The move is seen as a cost-cutting measure on the part of the financial institutions, according to experts. The latest to announce branch closure is GTBank Rwanda. Last week, the bank published a media notice, informing its customers in Kabarondo in Eastern Province and Ruhango in Southern Rrovince that it would be closing the two branches in June this year. GTBank managing director Veracruz Bayo said the move was guided by their strategy to windup unprofitable outlets. “The Kabarondo branch has had low business for some time now…in fact the two branches that will be affected are not doing well,” Bayo said. He, however, added that the bank will use other channels to serve clients in those areas, including mobile banking and agent banking. Bayo said they will focus on their branches in Kayonza and Muhanga districts, “where businesses are getting better. He added that customers in Kabarondo will be served by Kayonza branch, while GT Bank Muhanga branch will serve those in Ruhango. The closure will not affect client accounts and other details. There were other banks that closed about five outlets industry wide in favour of mobile and agency banking, as well as ATMs last year, sector observers say. Commenting on the development, Maurice Toroitich, the chairman of the Rwanda Bankers Association, said banks close non-performing branches to reduce operational costs. “When a branch is not generating income, it doesn’t make economic sense to keep it running,” he said. He said last year commercial banks, like EcoBank, among others, closed some of the branches due to unprofitability. “Upcountry branches are difficult…If a branch is not performing for a long time, you have to decide whether to continue carrying the losses or not because this affects your general performance as a financial institution,” Toroitich explained. Toroitich noted that banks that close branches usually leave Automated Teller Machines or agents in the area to serve customers. In June 2015, GTBank was ranked seventh, with 5.3 per cent of the market share compared to market leaders, Bank of Kigali’s 34.2 per cent. Its loan book was at 5 per cent while customer deposits were 5.4 per cent of total industry over the reporting period. According to the central bank the local financial sector continues to expand in assets and deposits. The sector’s total assets went up by 28.3 per cent between December 2014 and December 2915, increasing from Rwf1,803 billion to Rwf2,133 billion, a statement released after the central bank’s quarterly financial stability committee and monetary policy committee meetings on Monday indicates. Deposits expanded by 15.5 per cent from Rwf1,233 billion to Rwf1,425 billion over the same period. The industry’s non-performing loans rose to 6.2 per cent from 6 per cent in December 2014 and 7 per cent in December 2013. business@newtimes.co.rw

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Why are banks closing branches?