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The logo of Laurentian Bank is seen at its head offices in Montreal, April 1, 2015.CHRISTINNE MUSCHI/Reuters

Laurentian Bank of Canada's decision to shutter a third of its branches is by far the most drastic reaction from a Canadian bank as consumers abandon tellers in favour of smartphones. But it also raises the question of whether other banks will emulate Laurentian's move.

On Wednesday evening, Laurentian Bank said it will "merge" about 50 of its branches over the next 18 months, adding that it will shrink its network to about 100 branches from 148. The move will affect 300 positions, representing about 8 per cent of the bank's total full-time staff.

In a statement, the bank called the traditional banking model "obsolete" – a weighted term, given that all banks are struggling with what to do with their extensive branch networks at a time when consumers have less need for them.

"Banking is not typically an industry that sees bold moves – and we see this as a bold move," Robert Sedran, an analyst at CIBC World Markets, said in a note that followed the announcement from Laurentian.

Indeed, Laurentian, Canada's eighth-largest lender, could end up closing more branches than the Big Six banks put together.

Since the start of 2016, the Big Six have reduced their total Canadian branch count by just 39 branches out of a collective network that numbers close to 6,000. Put another way, the biggest banks have shrunk their branch networks by less than 1 per cent, compared with Laurentian Bank's target of more than 30 per cent.

Is Laurentian Bank an exceptional case?

In some ways, it is. Despite their extensive branch networks, Canada's biggest banks have very profitable retail operations that generate about 50 per cent of their profits. Laurentian Bank's retail banking accounts for less than 15 per cent of its profit, even though it consumes 85 per cent of the bank's corporate costs. Some cost trimming appears inevitable.

As well, the bigger banks tend to be diversified across geographic regions and business lines, giving them more financial flexibility to deal with one problematic area.

But in its release on Wednesday, Laurentian implied that its challenges are not unique: Changes in customer behaviour, the bank said, "have led to a reduction in the number of branch visits, a reality seen across the industry."

Though Laurentian Bank is relatively small – in terms of asset size, Royal Bank of Canada is 30 times larger – its challenges are similar: Consumers can now do most of their daily banking transactions on their smartphones or computers, leaving bricks-and-mortar branches looking increasingly anachronistic.

Many observers believe that up to 80 per cent of transactions will soon be handled outside of branches, as the banks roll out services that allow customers to apply for mortgages, credit cards and new accounts from smartphones and computers.

Nonetheless, the big banks – and many of the consultancies that serve them – have long clung to the argument that a substantial branch network remains necessary, even if individual branches shrink in size and offer services aside from mundane transactions.

"Digital channels have not replaced physical channels," McKinsey & Co. said in a report. "While customers have embraced multichannel access, they also expect higher value from face-to-face interactions at their bank branch."

That was published two years ago, though, making it a potentially outdated view in light of Laurentian's move.

As Mr. Sedran, put it: "We suspect other banks will be watching closely to see how this unfolds in coming quarters."

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:00pm EDT.

SymbolName% changeLast
CM-N
Canadian Imperial Bank of Commerce
+1.3%50.72
CM-T
Canadian Imperial Bank of Commerce
+1.13%68.67
LB-T
Laurentian Bank
-0.04%28.02
RY-N
Royal Bank of Canada
+0.48%100.88
RY-T
Royal Bank of Canada
+0.29%136.62

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