One of the main questions engaging most of Israel's banks at present is cost-cutting. Supervisor of Banks Dr. Hedva Ber has instructed the banks to present her with a detailed streamlining plan by the end of the year, and in return promised them to relax the capital requirements in all matters pertaining to paying for those plans.
At the end of last week, Bank Leumi (TASE: LUMI) announced that it had reached agreement on an early retirement plan for 700 employees, who would receive 270% compensation, at a cost of NIS 400 million to the bank. Next in line to present such a streamlining plan is Israel Discount Bank (TASE: DSCT), which is expected to complete its early retirement plan for several hundred workers in the coming weeks. Personnel cuts are a key element in the banks' cost-cutting, but not the only one. Another, and perhaps complementary, part is closing down branches, a measure begun by the banks in recent years. It appears that this trend can be expected to pick up steam in the coming years as well.
A check by "Globes" revealed that the number of bank branches fell by 58 to 1,098 in 2014-15 a 5% drop. This figure is net, and also includes the opening of new branches. This is not the end of the story; expectations are that dozens more branches will be closed in the coming years. Bank of Israel figures presented to the Knesset at the end of last year showed that 77 branches had been closed in 2014-2015. The trend in closing and opening branches is similar at most of the banks. Bank of Israel figures show that 85% of the branches closed were in the big cities, while 77% of those opened were in the outlying areas and medium-sized towns.
Small and cheap
In the past, the banks regarded deployment of branches as an important tool for increasing their market share, and opened more and more branches each year. This idea has changed in recent years, with the banks switching to retrenchment dictated by the streamlining plans they have implemented and the change in public taste away from visiting branches and towards technological channels. Closing branches saves on a series of expense items, including real estate, municipal property taxes, and personnel. The banks say that each branched they close down saves at least NIS 1 million a year. Even in cases in which a bank opens new branches, the ones it opens are cheaper to maintain than the old branches it closes down. The new branches are smaller, with fewer personnel than in the past. For example, Discount Bank's financial statements indicate that the average branch size at the end of 2015 was 540.2 sq.m., compared with 553.5 sq.m. at the end of 2013.
Cost-cutting at branches is not confined to closing branches. Some of the banks (especially Bank Hapoalim (TASE: POLI) and Bank Leumi), are also cutting the number of teller windows and cashiers and switching to automatic machines.
A global trend
The trend towards closing down branches is not always welcomed by customers. Certain customers, especially the older ones and those in areas where there are not many bank branches, look askance at the closing of their branch. Customers' complaints have also reached the Knesset, which held a discussion on the matter about six months ago.
Cost-cutting and closing branches, however, are not exclusive to the domestic market. There is a trend towards closing down branches in various places around the world, combined with a switch to working through digital channels. Various global media reports indicate that the Bank of America has begun a plan to close down 20% of its branches. Deutsche Bank announced a major cutback in its branches, and the major banks in Australia are also on a similar trend. The branch-closing trend in Israel is being led by the largest banks: Bank Hapoalim and Bank Leumi. The number of Bank Leumi's branches dropped by 17 to 222 in 2014-2015. The bank merged 16 branches in 2015, and plans to merge 16 more this year. Managed by CEO Rakefet Russak-Aminoach, Bank Leumi is scheduled to launch Pepper, its Internet bank, this year. Assuming that the bank succeeds in transferring some of its own customers to it, this is likely to accelerate the trend towards closing down its branches.
Managed by CEO Zion Kenan, Bank Hapoalim has been closing and merging branches at a high rate for several years. Last year, the bank merged 16 branches, and the number of its branches fell by 19 to 245 in 2014-2015. At the same time, while it is closing down branches, Bank Hapoalim is also opening new branches, mainly in the Arab sector, a market segment that the bank has marked as a growth engine. The bank opened six new branches in Israel last year, half of them in the Arab sector. The bank has doubled the number of its branches in this sector in 26 in recent years. Bank Hapoalim is expected to continue merging branches, but the speed at which the number of it branches decreases is expected to slow, given the bank's plans to open more digital branches.
Another bank that has marked the Arab sector as a strategic target is Mizrahi Tefahot Bank (TASE:MZTF). Managed by CEO Eldad Fresher, Mizrahi-Tefahot Bank opened two branches in the sector last year (out of three new branches nationwide). Mizrahi-Tefahot differs from other large banks; it is the only one increasing the number and size of its branches. Its strategy puts less emphasis on technology and more on human service. The group had 177 branches at the end of 2015, the same number as at the end of 2013, but the reason lies in individual cost-cutting during these years, in which several branches located close to each other were merged, while at the same time new branches were opened. Looking ahead, it is likely that the number of the bank's branches will rise in the coming years. For example, the bank plans to open four new branches in 2016.
Another bank stressing the closing down of branches is Discount Bank. Managed by CEO Lilach Asher-Topilsky, it has quite a large number of branches - 212 (including subsidiary Mercantile Discount Bank). Discount Bank began closing branches soon after Asher-Topilsky became CEO in 2014. By the end of 2015, the number of its branches had dropped by 13, and the bank is expected to merge 10 branches this year. Discount Bank is currently working on a new streamlining plan, to include both early retirement for workers and closing down branches.
First International Bank of Israel (TASE: FTIN) has also closed a series of branches in the group's various companies. The number of its branches fell by nine to 172 in 2014-2015, a 5% drop. This measure is in addition to another cost-cutting measure implemented by the bank last year, which included consolidation of subsidiaries, Bank Poalei Agudat Israel and UBank into First International Bank. First International Bank plans to continue its cost-cutting at its branches, to include closing branches and reduction of spaces in the branches themselves, while eliminating duplication of branches from the group located close to each other.
Published by Globes [online], Israel business news - www.globes-online.com - on June 5, 2016
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