Canada's major chartered banks intend to reinvest some of last year's record profits to significantly grow their retail branch networks across the country.
The expansions reverse the outlook at the beginning of the decade, when plans emphasized branch consolidation in favour of increased customer reliance on online banking, telephone banking and automated teller machines (ATMs).
While those self-directed services still account for a rising share of deposit and withdrawal transactions, the banks are becoming more conscious of their bricks-and-mortar presence for the cross-selling of financial products such as loans, mutual funds, insurance and asset management.
"The banks have rediscovered that branches attract customers to whom they can sell products," says Diana Chant, financial services leader at PricewaterhouseCoopers LLP. "They're focusing more and more on the retail side of their business, because it provides steady, less volatile profits."
That doesn't mean the major banks previously underestimated the need for branches, she says. "They're following consumers, and consumers are showing that they're willing to use all the media available to them - whether it's telephone banking, online banking or branches - and not just a single distribution channel."
While younger clients are more inclined to use online banking, the Baby Boomer generation is walking into branches to discuss investment products and retirement planning, says Chant. "The banks are responding by making their new branches more modern and stylish. If you make the design appealing, people will come and buy products."
Bricks and mortar have always been important, says Brian Haier, TD Canada Trust's executive vice-president of retail banking, "but seven to 10 years ago, most pundits were forecasting the growth of the web business and the decline of the branch network. But in more recent years, the branch network has reinvigorated itself. Customers still want to use branches. It is critical to establishing the relationship. How that experience goes, so goes how they think about TD Canada Trust."
TD has been in expansion mode for the past three years, reaching a peak of 31 new branches in 2006. It expects to open about 30 new outlets in 2007, and continue at that pace for the rest of the decade.
The new branches will largely be concentrated in Quebec, Ontario, Alberta and British Columbia. Each new opening involves a capital investment of $1 million and the deployment of 10 or 11 full-time employee equivalents (FTEs).
The new branches will offer a full range of personal and commercial banking services, including coverage by a financial planner for wealth-management products. While many of the branches will be opened in suburbia to service new sub-divisions, others will capitalize on redevelopment in the downtown cores of Toronto, Montreal and Vancouver.
The choice of locations is based on what Haier says is a "sophisticated model" that takes into account each area's natural growth of population, immigration, demographic trends and income levels. "But basically, when you cut through all that, we want to be in locations where people live and work, locations where hopefully we're going to get a good amount of traffic, brought to us either by ourselves or by retailers in that location."
Royal Bank of Canada (RBC), which has Canada's largest branch network, also has the most aggressive growth plans. RBC added 14 new branches in 2006 and expects to open 30 to 40 new branches throughout the 2007 fiscal year (ending Oct. 31). Its five-year growth plan (taking it to 2010) includes opening at least 112 branches across Canada.
With the issue of bank mergers seemingly a non-starter in Ottawa, it's not surprising that the late-'90s buzz about branch consolidation has dissipated, allowing expansion plans to go forward. But Ann Bowman, RBC's vice-president of distribution strategy, downplays the moribund mergers as a consideration in her team's ambitious growth blueprint.
"This wasn't a factor in developing our strategy," she insists. "We want more capacity around building relationships."
Leading the bank's push will be the Greater Toronto Area (GTA), where RBC plans 50 new branches by 2010, up to half of them in 2007.
About half of those will be in established markets, the other half in new suburbs.
Alberta will be another key growth area, with up to 20 new branches through 2010, including seven in 2007. B.C. is expected to gain another 10 to 15 units through 2010, though only two of those will open in 2007.
As part of its five-year plan to expand the branch network, the bank will add about 1,200 new positions in branches and insurance outlets (primarily in sales and specialist roles.)
The typical branch, which used to accommodate nine sales personnel, now will have 13. It will also include a discussion room where the bank's mobile sales force can meet with clients.
"The financial profile of the branches has changed along with the roles within the branches," says Bowman. With administrative personnel having been substantially centralized out of the branches and more profit-generating salespeople having taken their space, branches can generate more profit per employee.
The average new branch can achieve profitability within 18 to 30 months, she says, with some turning a profit as early as six months from launch.
ScotiaBank agrees that the alarmist predictions about the withering of the branch network haven't come to pass.
"Routine transactions have gone electronic," says Frank Switzer, director of public affairs. "But customers want more service around new products or managing wealth."
Since 2000, ScotiaBank's branch network has remained stable, "with the odd new branch opening as suburbs opened up," says Switzer. Now, the bank is in expansion mode. Since the other banks are also growing their branch networks, however, Switzer doubts that Scotia's ramp-up will have much impact on its retail market share.
"One of our priorities in domestic banking," he says, "is to gain new customers and to get deeper penetration with the customers that we have, particularly on the investment side.
"The branch openings are one part of an integrated plan to accomplish this."
ScotiaBank opened 15 new branches in 2006, including the conversion of 10 branches of National Bank of Greece (Canada), which it acquired from National Bank of Greece SA.
In 2007, it plans to open 35 more, at a capital cost of more than $1 million per branch. Most of the new units will be established in high-growth locales such as Alberta, the GTA and B.C.'s Lower Mainland.
The new branches will have two configurations. The vast majority will be full-service units with tellers and advisory personnel.
There will also be a few units without tellers. They will have sales and service staff for mortgages and wealth-management products.
These will be launched in neighbourhoods that have a full-service ScotiaBank outlet nearby. The bank expects to hire 700 employees for the new branches.
ScotiaBank has a team that oversees a promotion campaign for each launch, making use of local newspaper advertising, direct mail, door-to-flyers and local media relations to create awareness of the new outlets.
The Bank of Montreal is also pressing ahead. In 2006, it upgraded 85 per cent of its branches and installed almost 2,000 state-of-the-art ATMs throughout its network. In December, BMO completed its acquisition of Portuguese-owned bcpbank Canada, which operates a network of eight personal and commercial branches (seven in the GTA). Bcpbank Canada has a customer base of 28,000 and a strong presence in the Portuguese-Canadian community.
BMO will launch 16 new branches in 2007. The only location it has announced thus far is Chatham, Ont., where it will invest $1.7 million in a new branch. The outlet is expected to open in the spring, with 22 banking and investment professionals. But much of BMO's expansion will be in high-growth markets such as Alberta and British Columbia. A BMO spokesman declined to provide details.
Bill Downe, BMO's chief operating officer, told a recent conference that the bank is "determined to grow profitable market share in Canada. The strategy is to grow this franchise through a customer-centric approach that fully leverages our relationships and distribution channels to meet all of our customers' financial needs.”
Since the fourth quarter of 2005, BMO has hired 1,000 new employees, mostly frontline staff, to bolster its Canadian retail services.
CIBC, despite reporting record fourth-quarter profits in December 2006, is being cautious about growing its branch network (which is the country's second-largest).
The bank says, rather vaguely, that it intends to "relocate, expand and build 70 branches in high-growth, high-potential markets" between now and 2011. Some 40 of those branches will be in Ontario and 11 each in Alberta and B.C.
(Sheldon Gordon can be reached at gordon@businessedge.ca)
