Westpac, along with other major banks, is reducing its number of physical branches. Photo: Peter Braig

Banks have trimmed the number of branches in the past year, and further closures are expected as customers embrace digital banking and lenders try to cut costs.

However, the industry is resisting the type of sweeping branch closures that angered customers in previous cost-cutting drives, with lenders instead trying to transform branches into outlets for selling more elaborate financial services.

Westpac, ANZ Bank and National Australia Bank all reduced the number of branches in the past year, figures published on Wednesday by the Australian Prudential Regulation Authority show.

Westpac’s number of branches fell by 48, the figures showed, though it still has the country’s largest physical network, with some 1237 outlets, including those branded as St George, Bank of Melbourne and BankSA

ANZ Bank also cut branch numbers by 19 to 751, while National Australia Bank lowered branch numbers by two, to 749. Commonwealth Bank increased its branch network by one, to 1147.

Alan Shields, RFi’s managing director of advisory, said further cuts were likely, but they would be targeted in areas where banks had large numbers of branches and relatively few customers.

“There’s no doubt that we will see a reduction in the number of branches around the place, but the banks will be smart about it,”  Mr Shields said.

The trends reflect the rapid growth in digital and mobile banking, which is also displacing use of cash, cheques and automated teller machines.

Despite the rise of digital banking, however, Mr Shields said many customers still wanted to be able to go to branches for more complicated issues or if there was a problem.

As well, banks are seeking to change the focus of branches from processing transactions, which has become more automated, to selling higher-value or complex products, such as home loans or financial advice.

Reflecting the move towards high-tech branches, NAB will open a flagship “branch of the future” at a prime site in Sydney’s George Street.

NAB will be the first tenant in Charter Hall’s 333 George Street✓ site, currently under construction, and indicates that banks are the new wave of tenants in prime city locations, once the domain of high profile fashion retailers and restaurants.

As first revealed by BusinessDay, NAB will occupy space across the ground floor and level one of the building and will enjoy direct street access and high visibility to George Street.

The new branch  is still being finalised but is expected to offer a range of ATMs that count change, allow direct deposits without cards and interactive internet banking. The bank will also cater for one-on-one contact for more complex businesses or home loans and financial services.

Including all banks, credit unions and building societies, the number of branches nationally declined by 156, or 2 per cent, to 6204.

The modest number of branch closures stands in contrast to the 1990s, when hundreds of stores were shut down as banks rolled out automated teller machines and phone banking.

Even so, analysts still argue that banks are likely to continue cutting the costs of their branches, especially when profit margins are being squeezed by tougher regulations.

Morningstar’s head of Australian banking research, David Ellis, said the gradual decline in branch numbers was good for shareholders, because new technology should allow banks to be more efficient.

“You don’t need as many branches, you don’t need as many staff with new technology. The cost base as a percentage of revenue is going to decline,” Mr Ellis said.