Instead of closing branches, banks need to redesign them to deliver service at lower cost and develop selling opportunities, a study by the the Boston Consulting Group says.
Banks closed 18 per cent of their branch networks between 1981 and 1991, and BCG estimates that there is one bank or building society branch for every 3,000 people in the UK.
Figures from the Annual Abstract of Banking Statistics show that the Big Four clearing banks - Midland, Barclays, National Westminster and Lloyds - together cut 1,145 branches from their combined total of 10,077 between 1988 and 1991.
The BCG study found that closing branches does not necessarily yield higher returns. Banks lose revenue because they typically keep only 50 to 70 per cent of customers of closed branches.
Fewer branches also mean the bank cannot recruit as many new customers in the area it leaves, or sell as many insurance and pension products to customers.
BCG estimates that closing the smallest 20 per cent of a typical bank's branches will probably save only 2 per cent of total branch network costs.
But redesigning branches can help banks to cut costs by as much as 15 per cent by removing paperwork, centralising decision-making and focusing more attention on service.
However, Chris Ellerton, banking analyst with Warburg Securities, said technology had given banks the ability to close branches and move customer accounts efficiently without losing so many customers. Branch closure was practical if the branch was unprofitable, he said.
Many leading banks are both closing and redesigning branches. National Westminster will close 140 branches this year, and is reshaping them to provide specialised services rather than cater to all customers, its chairman Lord Alexander said last week.
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