Covid switch to digital banking underpins BoI plan for branch closures

Bank has reached tipping point between online and offline banking, chief executive says

Bank of Ireland  reported it made a net loss of €742 million for 2020.

Bank of Ireland reported it made a net loss of €742 million for 2020.

 

Bank of Ireland has cited a seismic shift to digital banking during the Covid pandemic as it announced plans on Monday to close 103 branches on the island of Ireland from September, prompting criticism from unions and politicians.

The bank, which stands out among Irish financial institutions as not having carried out a large cull of branches following the financial crash, is cutting its network in the Republic by 88 branches, or a third, to 169, with its high-street presence in the North set to be cut by more than half to 13 locations.

It will bring the total level of branch closures across banks and building societies in the Republic since the onset of the financial crisis to more than 500, with a further 88 under threat as Ulster Bank’s plan to wind down in the coming years.

Bank of Ireland has signed a deal to allow personal and business customers use their local An Post office for certain services, including cash withdrawals and cash and cheque lodgements. AIB and Ulster Bank have similar partnerships with An Post.

About a quarter of the 200 employees affected in the Republic had opted to take part in a group-wide redundancy programme late last year, where most of the exits are due to take place in 2021. Group chief executive Francesca McDonagh told reporters the remainder would be offered a “range of options” including transfers to other branches or different parts of the business where working from home is an option, as well as voluntary redundancy. She said that there would be no compulsory departures.

Loss

The branches set for closure in Northern Ireland also have 120 staff. The announcement came as Bank of Ireland a smaller-than-expected loss for last year and raised the prospect of returning to shareholder dividends and possibly launching a share buyback programme next year, if the bank returns to profit in 2021, aided by cost cutting.

Ged Nash, Labour’s finance spokesman, described the announcement as a “kick in the teeth for loyal customers and staff”. “There is no doubt that Bank of Ireland is exploiting the Covid-19 crisis to drive down its costs,” he said.

Sinn Féin finance spokesman Pearse Doherty said: “Bank of Ireland has attempted to justify this announcement based on a fall in branch visits over the past 12 months. This is hardly surprising given the entire population has had its movements significantly restricted in response to a public-health emergency.”

Financial Services Union (FSU) general secretary John O’Connell said the closures would affect vulnerable people the most.

“We cannot allow Bank of Ireland to withdraw a vital service from the elderly, from people with no internet access, from people with literacy problems at this time of increased anxiety,” he said. “The FSU have called for a moratorium on branch closures at least until the end of 2022.”

Ms McDonagh said: “For many years, the trend to digital banking has been evident, with customers using branches less and less. Technology is evolving, and customers are using branches less, year on year on year. Covid-19 has accelerated this changing behaviour, and we’ve seen a seismic shift towards digital banking over the past 12 months.”

Bank of Ireland said in November that 1,450 full-time-equivalent roles would be cut by the end of 2021 as a voluntary redundancy offer launched after the summer was oversubscribed. The programme has cost €189 million, within a €250 million restructuring budget set in 2018 and will cut its annual staff bill by €114 million when completed.

The bank had almost 9,800 employees at the end of 2020, down from 10,440 a year earlier. It aims to reduce its headcount to below 9,000 in the coming years.

Strategic review

The decision to cut back the network in Northern Ireland to 13 from 28 follows on from a strategic review of the bank’s operation in the North since the middle of last year. The reduction in the Republic is coming at a time with Ulster Bank is exiting the market, threatening the future of its 88-strong branch network. Permanent TSB is looking at Ulster Bank’s locations as part of talks to acquire a large part of the UK-owned bank’s loan and deposit books.

Ms McDonagh said that three out of four customers of the locations set for closure have not set foot in their local branch in the past year.

“We’ve now reached a tipping point between online and offline banking. Our mobile app is our most popular way to bank, with almost half a million customer logins every day and traffic up by a third in the past two years. Seven in 10 personal customer product applications are made digitally, and we expect this to grow to over eight in 10 by the end of this year.”

In contrast, the number of people visiting branches has sharply declined, and is now just over half of what it was in 2017, she said. Footfall at the branches which are closing is down even more, 60 per cent over the period. The decline has been fuelled by the pandemic.

Bank of Ireland, which is 14 per cent Government owned, reported on Monday it made a net loss of €742 million for 2020, after setting aside €1.1 billion of provisions for an expected surge in losses resulting from the Covid-19 pandemic.

Still, the charge was at the lower end of the €1.1 billion to €1.3 billion range it had predicted in the middle of 2020, and the bank forecast that its provisions for this year would be “materially lower”. The full-year loss compared with a profit of €386 million for 2019. The bank’s underlying pretax loss of €374 million, which includes loan-loss provisions but excludes certain once-off costs, was much better than the consensus view among analysts of a shortfall of almost €600 million.

The economic shock resulted in a 2 per cent decline in net interest income, to €2.1 billion, as a result of a drop in new lending and the ongoing squeeze of ultra-low interest rates internationally, as the European Central Bank charges negative rates of as much as minus 0.5 per cent for excess cash banks store with it.

Business income, including share of associates and joint ventures, dropped 21 per cent for the year, notwithstanding a 12 per cent increase in the second half from the first six months.

Meanwhile, Social Democrats co-leader Róisín Shortall TD said the branch closures “will further sever the connection between banking and the communities they serve”.

“There are concerns about what impact they will have on local business, local lending, and indeed vulnerable customers who may have particular needs and for whom online banking is not an option,” she said.

Business Today

Get the latest business news and commentarySIGN UP HERE