Empty banks in Argentina are now expensive ATMs

Ghost branches like this one, where customers who need more than an ATM are no longer served, but are not technically closed, have become commonplace in Argentina.

Like its counterparts around the world, Santander and its Argentine rivals such as BBVA Argentina, Grupo Financiero Galicia and Grupo Supervielle are looking to close physical branches as banking is increasingly done through digital channels. But regulators don’t allow it.

The problem, as explained to industry representatives by the president of Argentina’s central bank, Miguel Pesce, is the country’s powerful banking unions. Pesce has said authorizing permanent branch closures is difficult because he is under pressure from union leaders concerned about job losses, according to two people with direct knowledge of the talks. A central bank spokesman said unions do not influence decisions to close branches or keep them open.

It’s a very costly dilemma for Argentine banks, which are already plagued by rampant inflation and interest rate caps. According to the banks, their goal is not to cut costs by cutting jobs, as many employees who worked in the now empty branches are being redeployed elsewhere.

But between rents and other expenses, one industry official estimates that running each phantom branch costs about $500,000 a year, depending on the size. If it weren’t for regulatory hurdles, executives say, more than a quarter of branches would close, representing some $375 million a year in savings.

The phenomenon has put the country’s banks at a disadvantage compared to their Latin American peers. Only three branches closed in Argentina last year through August, according to central bank data, less than 0.1% of those that operated a year earlier. In Chile, 8.3% of the branches closed in the same period, while in Brazil 2.2% stopped operating.

According to the senior corporate research analyst at the TPCG brokerage, Paula La Greca, who has not recommended Argentine bank shares for two years, in the country, bank revenues have fallen in the last three years, while the operating structure has remained same. Union pressure prevents them from cutting jobs and the central bank does not authorize the closing of branches, she adds.

Only in Buenos Aires there are more than 100 ghost branches, executives estimate. Many Argentine banks are being forced to renew lease contracts they were planning to terminate due to the central bank’s refusal to let them close branches, an industry official said.

Spokesmen for Santander, Supervielle and representatives of Argentine banking industry groups ABA and Adeba declined to comment. A spokesman for Grupo Financiero Galicia said that while the bank does not have empty branches, some of its offices in downtown Buenos Aires have received few customers.

Union leaders argue that redeploying employees to busier branches is not enough. Technology is transforming the industry, reducing the need for tellers and other traditional functions. The number of employees at private banks fell 1.6% in the first six months of 2022, according to central bank data.

Claudio Bustelo, press secretary for La Bancaria, a union that represents workers in the financial sector, said the central bank was asked not to indiscriminately authorize the closing of branches. He explained that his intention is not to oppose the advancement of technology, but for technology to help and not replace or reduce jobs.

Pesce was appointed to head the central bank by Argentine President Alberto Fernández, who has long expressed his support for the unions. With Argentina’s general elections scheduled for October, the central bank’s stance on authorizing branch closures could change under a new administration.

Not all Argentine banks face the problem of ghost branches. Some are smaller companies with fewer branches. Others, like Banco Macro, have a greater presence in rural areas in the interior of the country, where face-to-face banking is more common.

But for most Argentine banks, spending on empty branches is rising at a time when revenues fall amid a weak economy and government caps on interest rates on loans. The big banks had efficiency ratios, a key measure for evaluating profitability, of between 70% and 80%, compared to 50% for their counterparts in the rest of South America. A lower coefficient indicates better performance. Shares of Argentine banks also lagged their Latin American rivals last year.

Empty branches also make M&A difficult, because buying a bank in Argentina means taking on the cost of maintaining unused branches.

“The closure of branches is a global trend, due to digitalization and because the maintenance costs of the same and of the employees are relevant. But the process of closing a branch is very complex in Argentina”, said Marcelo de Gruttola, Moody’s senior analyst for Latin America.

Meanwhile, Argentine banks, like others around the world, are reinventing how real estate is used. Among the ideas being considered is transforming branches into cafeterias, employee training rooms or places to pick up deliveries from e-commerce sites. In some cases, banks keep some desks available for clients to use the computers.

Luckily you don’t see many branch closures, stresses Bustelo, a union representative. Only its digitization is seen.