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Significant Footprint Reduction in Puerto Rico Banking Sector

By on August 2, 2019

Deposits Rise 28 Percent Despite Fewer Branches; Trend Likely to


Editor’s note: The following is by consulting firm Vision to Action (V2A).
It was first published in the Aug. 29, 2019, issue of Caribbean Business.

As was mentioned in a previous article, the banking sector has consistently reduced its brick and mortar footprint on the island. Since December 2009—just before the Federal Deposit Insurance Corp. (FDIC) assisted transactions involving Westernbank, Eurobank and R-G Premier Bank—the number of bank branches in Puerto Rico was reduced from 493 to 296 (a 40 percent reduction; see Figure 1).

Furthermore, after 2016, the reduction in banking branches has coincided with a 28 percent increase in total deposits. As a result, the average deposits per branch has grown by 38 percent. Banco Popular and Oriental Bank have experienced the largest increases in their branches’ average deposits (49 percent and 38 percent, respectively). In the case of Banco Popular, the main driver has been an increase in its total deposits base, while the large reduction in the number of branches has been the main driver of Oriental’s increase in average deposits per branch.

The footprint reduction is likely to continue after Oriental Bank announced it acquired Scotiabank because there are three Scotiabank branches less than 200 meters from an Oriental branch (Los Colobos [Carolina], San Patricio [Guaynabo] and Plaza del Sol [Bayamón]) and six more are less than 400 meters from an Oriental branch (Plaza Las Américas [Hato Rey, San Juan], Plaza del Caribe in Ponce and Caguas).

Bank consolidation is not the only driver behind the reduced physical presence; banks are also increasingly relying on digital channels to increase their business and service their customers.

But banks are still highly dependent on customer segments that rely on or look forward to branch interaction. One-third of Puerto Rico adults are more than 60 years old and cash is still an important transaction method used by local businesses and individuals, particularly outside the metro areas. As a result, footprint optimization will continue to play an important role for banks to gain market share and improve efficiency levels.

All municipalities either maintained their number of branches or experienced a reduction during the 2014-18 period.

With the exception of Arecibo, Juana Díaz, Isabela, Toa Baja and, particularly, Las Piedras, municipalities saw a rise in deposits (visit for deposits and number of branch changes by municipality). As a result, eight municipalities have seen average deposits per branch surpass the $100 million threshold. For example, San Sebastián’s average deposits per branch increased from about $60 million in 2014 to about $101 million in 2018. If the deposits trend continues going forward, there may be opportunities for some banks to open new branches for the first time in many years and “steal” market share in specific areas of the island.

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