What’s the importance of analyzing branch networks?
The first indicator we’ll analyze is the branch network. Knowing about branch networks is a giveaway. The larger number of branch networks means more reach of banks. However, it’s important that an increased number of branches shouldn’t come at a cost of inefficiency. This means branches should be self-sustaining. However, that’s not happening.
The need for reducing branches
Banks grew their branch networks at a fast clip from 2000 to 2010. Branch networks increased continuously to reach a peak of 99,550 in 2009. But there were many branches that merely increased operational expenses and added no meaningful benefits to their banks. As such, many branches had to be shut down in order to make banks more nimble and improve operational performance parameters. Over the last five years, more banks have been cutting down on the number of branches.
In 2003, there was a bank branch for every 3,300 people. At the end of 2014, this number stood at 3,350 people per branch.
Most states lost branches in 2014
Of the 50 states, only six reported an increase in the number of branches in 2014. These six states include Hawaii, Massachusetts, Montana, Nebraska, Rhode Island, and Wyoming. All other states reported a decrease in the number of branches. The largest percentage of branch losses were in Illinois, Pennsylvania, and Ohio.
Some banks focused more on reducing branches
Not all banks focused on reducing branches to the same extent. Bank of America (BAC) focused the most on reducing branches to increase its operational efficiency and have better economies of scale. This is in line with the new strategic thinking at the bank. Wells Fargo (WFC), JPMorgan (JPM), Citicorp (C), and other banks in the Financial Select Sector SPDR (XLF) have not focused so intensely on reducing branches. In fact, some have been increasing their branch count.