KfW Research: The cutback in the number of bank branches in Germany continues

• A quarter of branch offices have been closed since 2000
• The main driver is the digital transformation with innovative technologies, new competitors and changing customer behaviour
• German branch density is average when compared with other European countries

The thinning out of the branch network of German banks has continued to accelerate in past years: as evidenced by an analysis from KfW Research together with the University of Siegen, a quarter of all branch offices have closed since the turn of the millennium – an average of 680 per year and thus a total of 10,200 locations across Germany within 15 years. All types of credit institutions (cooperative banking institutions, credit banks, savings banks) are cutting back to a similar extent. Rural regions are somewhat more strongly affected than cities (-27% and -23% of the branch offices respectively). A major driver of this development is digitalisation, which has taken hold of the whole banking market: innovative technologies, new competitors and changing requirements from customers create pressure on sales departments to adapt – away from the branch network and toward online offers.

Recently, the speed at which cutbacks are happening has increased significantly. In 2014 and 2015 alone, 2,200 branch offices were closed. However, this thinning out is far from excessive. The German banks are not alone in their branch cutbacks; the banking markets of other European countries are also undergoing a similar structural transformation. Overall, Germany matches the European average with regard to branch density with an average of 3.5 branch offices per 10,000 residents (the average for EU member states: 3.7 branch offices per 10,000 residents).

The trend towards consolidation is expected to continue in the years to come, both across Europe and in Germany. In addition to cost pressure and the reduction of excess capacity, e.g. due to mergers or in regions with a significant decline in population, digitalisation in the banking sector is a key factor for this. On the one hand, it fosters the sustainable change of business processes in the banking sector due to innovative technological possibilities, and on the other hand, it functions as a catalyst for changing customer behaviour: constant accessibility, real-time advisory services, mobile capability or customised offers are being demanded by an increasing number of bank customers – also in the area of corporate clients.

"If the banks continue the current speed of cutbacks, more than half of the branch offices that existed at the turn of the millennium will be closed in 2035," said Dr Jörg Zeuner, Chief Economist of KfW Group. Especially for SME sector corporate clients who demand consulting-intensive financing(s), proximity to bank advisors will remain important, though. "As long as the banking services that are important for mid-sized companies remain intact as the number of branch offices decreases, the effects of this change process will remain manageable for Germany as a business location," said Dr Zeuner.

The full study by KfW Research is available at www.kfw.de/fokus

About the data base:

Together with the University of Siegen, KfW Research has been analysing the changing branch density of cooperative banking institutions, credit banks and savings banks in Germany for years (information about Postbank is not included as it is not available). The analysis is based on information from the Hoppenstedt Banken Ortslexikon (a gazetteer containing bank statistics). This data source makes it possible to geographically locate branch offices over time and thus goes beyond information from Bundesbank. The analysis only includes regular, staffed bank branch offices that are open full time. The current study examines the change process from 2000 to 2015.