RPT-All aboard for Europe's shrinking bank branch network

By Sarah White

MADERUELO, Spain, Aug 11 (Reuters) - A queue of pensionerswaits to board a brown and green bus in the medieval village ofMaderuelo on Spain's arid central plains. It only comes once amonth and won't take them anywhere, but they're mostly happywith the service.

The bus, parked up alongside a van selling frozen fish, is amobile bank run by bailed-out Spanish lender Bankia toserve remote areas with no branches. Inside it looks much likeany other small branch, but for the elastic bands that keep thefurniture in place when it's on the move.

Martin, a 71-year-old villager, would prefer more frequentvisits, like the weekly service that used to be provided by thelocal bank that merged into Bankia.

"It's not normal to have to take cash out for the wholemonth. What if it gets stolen?" he said.

This is the front-line reality of banking cuts acrossEurope, where lenders from Italy to France to Bulgaria, broughtlow by economic turmoil, are slashing costs and services.

Banks have shut about 20,000 branches across Europe in thelast four years, including 5,500 last year and 7,200 in 2011,according to a Reuters analysis of European Central Bank data.

That represents the closure of about 8 percent of Europe'sbranches since the financial crisis, and the cull is expected tocontinue for many years.

Banks are shrinking bloated domestic networks to improveefficiency and cutting overseas branches even more sharply, anda mobile phone and internet banking boom is accelerating the shift away from a traditional banking model, even if it risksleaving some customers adrift.

The cuts have been most severe in Spain, unravelling yearsof expansion by regional savings banks, which had landed it withthe biggest network in Europe.

Its branch numbers were down 17 percent by the end of 2012from four years earlier. But at just over 38,200 branches, Spainstill had more branches per head than any country in Europe -one for every 1,210 people. A European bailout of weak lenderslast year, including Bankia, was conditional on them shrinkingfurther.

In remote areas such as Maderuelo, 150 kilometres (95 miles)from Madrid, many are grateful they have the bus. Elsewhere,newcomers to the service might not count themselves so lucky; inthe eastern region of Valencia, the bank is rolling out the busservice for the first time as it cuts over 1,000 sites acrossthe country.

A CATALYST IN SPAIN

Other countries such as France are also ripe for cuts.France had the most branches in Europe by the end of last year,with nearly 38,450, or one for every 1,709 people, behind onlySpain and Cyprus per person.

Cyprus had one branch per 1,265 people, and its banks,rocked by links to the tumbling Greek economy, also have toshrink after an EU bailout.

Many banks admit they are not cutting branches as quickly asthey should, wary of putting off clients just as bank earningsare recovering, and fearful of a public or political backlash incountries like Britain, where some of the biggest lenders wererescued by the taxpayer.

"When you close a branch, you run the danger of losing atleast a few clients," said Paris-based Fabrice Asvazadourian,global co-head of financial services at consultant RolandBerger. "It's the moment that gives people an excuse to considerswitching banks."

French banks are cutting branches at a slower pace thanSpanish peers, trimming only 79 in 2012, according to ECB data.

It had shed less than 3 percent of its network in the fouryears to the end of 2012, while 5 percent of UK branches andmore than 8 percent of German ones pulled down the shutters forthe last time. The number of branches plummeted by a third inDenmark and by a quarter in the Netherlands.

A flurry of Spanish bank mergers in the past three years inpart explains the deep cuts. A 2008 property crash that guttedbanks' earnings and led to a European rescue added urgency tothe cull as the economy fell into recession for the best part ofthe last five years.

The country shed nearly 700 more branches in the first threemonths of 2013, data from the Bank of Spain showed.

"In Spain, the economic problems have been a catalyst.Perhaps without that things could have carried on the way theywere for a little longer," said a Madrid-based banker fromBarclays.

RISE OF THE INTERNET

Subsidising unprofitable branches is a luxury few can nowafford. Branches account for around 60 percent of retail bankingcosts, including property and refurbishment spending as well asstaff pay, Deutsche Bank researchers estimated.

Formats such as internet banking are adding to the incentiveto shut outlets. These could yield 15 billion to 20 billioneuros in extra earnings by 2021 for European banks, according toconsultants McKinsey and industry body the European FinancialManagement and Marketing Association.

In France, major banks such as BNP Paribas,Societe Generale and Credit Agricole havemade clear their intention to cut costs as retail revenues aresqueezed by belt-tightening consumers.

In Britain, with a branch network one-third of France's orSpain's, banks have almost halved branch numbers since 1990.Senior bankers privately say a network of 700-800 outlets wouldbe an optimal size for a bank covering all of Britain. None ofthe big five have so few. Lloyds has three times that(2,260), and Royal Bank of Scotland more than twice(1,750), excluding almost 1,000 branches they are alreadyselling between them.

Cuts across Europe should allow banks to improve thebranches that remain, and many are targeting a "look and feel"akin to the stores of consumer electronics powerhouse Apple, combining tellers and technology.

But it's a transition that risks leaving millions of clientsbehind, unless banks keep up minimal physical services. InCorral de Ayllon, a Spanish village of 60-odd inhabitants nearMaderuelo, where most people are farmers or pensioners, changinghabits will be hard.

Like many in the village, retired local farmer Tomas Aribaswithdraws cash using account booklets and fears that in futurethe banking service might be inaccessible to him and hisneighbours.

"We'd have to learn about the Internet to be able to use it,"he said.