Korean financial authority introduces stricter rules on bank branch closures

Automated teller machines on the street [Photo by Kim Ho-young]

South Korean lenders will be banned in principle from closing down branches from next month if they do not introduce alternative services for customers.

The Financial Services Commission (FSC) said on Thursday that the decision was made on Wednesday in a working group meeting with experts to improve the management and operating practices of banks.

“Banks are closing down branches to reduce costs amid digitalization but closures are adding inconveniences to customers,” said Kim So-young, vice chairman of the FSC. “We thoroughly reviewed the current procedures of a branch closure to identify whether they are legitimate because branch closures may limit elders’ access to financial services as the senior age group prefers physical branches.”

The number of bank branches in Korea fell to 5,800 at the end of last year from 6,094 at the end of 2021 and 6,709 at the end of 2019. The figures are a sharp decline from 7,673 in 2012.

The FSC will revise relevant laws and implement stricter rules on branch closures from May 1 to ensure the elderly‘s access to financial services. The average use of offline branches by all ages was merely 25.3 percent, according to the Bank of Korea, but the usage by the elderly aged 70 and older was 53.8 percent.

Banks should perform more thorough preliminary assessments for potential impacts of a branch closure under the new rules.

“Banks need to maintain their branch offices if a considerable impact on consumers is expected,” said Ha Ju-sik, a director at the FSC. “Before a closure, they should also hear opinions from customers.”

The FSC said branch closures are permissible when banks introduce alternative channels, such as joint branches or small-scale offices.

Automated teller machines (ATM), one of the alternative channels thus far, will not be used as an alternative service for a branch closure. Smart teller machines (STM) will be added to the alternatives only if they are assisted by human personnel. Banks should provide direct supportive services, such as favorable interest rates, for affected customers by branch closure under the revised regulations.