KfW Research: SMEs are making fewer branch visits

• In 2019, bank branches received visits from 300,000 fewer SMEs than in 2017
• Coronavirus crisis is set to accelerate thinning of branch networks
• Germany has highest branch density of all EU countries
• On average, nearest primary bank branch is 15 minutes away

Small and medium-sized enterprises (SMEs) have recently been much less inclined to do banking at a branch. In 2019 just slightly more than half (57%) of businesses and self-employed persons visited a branch of a bank or savings bank in person (2017: 66%). This was the finding of a special analysis conducted by KfW Research on the basis of the KfW SME Panel 2020. The progressive thinning out of branch networks in Germany has also contributed more recently to this trend – one that is likely to be further accelerated by the coronavirus pandemic. Nevertheless, small and medium-sized enterprises overall remain loyal to their primary banks. They made 87% of their branch visits to their primary bank (2017: 92%).

Banks and savings banks generally continue to play a major role in the financing of SMEs. In 2019 just over EUR 81 billion was extended to finance investment, the highest volume ever. Banking relationships have often existed for many years and are characterised by close cooperation. Nevertheless, the tendency to make in-branch appointments is decreasing noticeably. In 2019, 2.2 million businesses attended in-branch appointments. That means some 300,000 fewer businesses visited a branch than two years before. The growing trend towards digital banking is also contributing to this decline.

Dr Fritzi Köhler-Geib, Chief Economist of KfW, commented: “The coronavirus crisis is keeping our society on its toes even in the new year. The branch networks of banks and savings banks will also feel the consequences. A further downsizing of the branch network is already foreseeable as an impact of the pandemic. However, SMEs in particular are often locally rooted and loyal to their primary bank. Irrespective of branch coverage, small and medium-sized enterprises need an accessible offering of specialist knowledge and experience from their financing partners. This can also be location-independent. After all, despite the downward trend, businesses still make 8.5 million contacts with their banks each year.”

In spite of the continuing downsizing of branch networks, Germany is still within the EU average, with 3.2 branches per 10,000 inhabitants. If we consider the number of branches in relation to the country’s area, Germany even rises to the top of the leaderboard. This also means that the nearest branch of an SME’s primary bank is only 15 minutes away on average, in towns as well as in the countryside.

The current KfW analysis of SMEs’ communication with their primary banks is available at www.kfw.de/fokus