Older adults attend a workshop on online banking services at a Shinhan Bank branch, Seoul, Sept. 14, 2022. Korea Times file

A decrease in the number of bank branches led to a weakened economy, stifled by corporate lending and the ensuing layoffs that reduced regional spending, a report analyzing Sweden's case showed Friday.

Most affected were service industries with heavy reliance on local demand, compared to the manufacturing sector that does not depend on the location of their businesses for profits.

Also strained are suppliers of raw input materials, certain to face short-term cash crunches and challenging investment conditions due to delays in the redemption of account receivables by firms seeking to maintain greater cash reserves.

Whether the Northern European case would slow the pace of the ongoing shutdown of branches in Korea remains to be seen.

According to the report cited by an insurance institute run by the Korea Deposit Insurance Corp., economic activities in certain regions in Sweden declined as the number of bank branches dropped 67 percent between 2001 and 2024.

A 30 percent decline in the number of bank branches, the report showed, led to a 5.8 percent drop in corporate loans to local businesses over three years.

The overall credit supply slumped, as evidenced by a 4.5 percentage point increase in the potential cancellation of the previously extended corporate loans.

Borrowing opportunities for small businesses with low to moderate sales or assets were substantially diminished, constrained by a lack of nonquantifiable information and business reputations long vouched for by their regulars.

The real economy took a hit As a result, as a result.

Decreases in corporate lending caused the bank-financed firms' revenue, employment and operating funds to drop 5.1 percent, 4.2 percent and 4.9 percent, respectively.

The potential liquidation of those firms — due either to bankruptcy or a sale to a third party — rose 1.6 percentage points.

The developments bear implications for Korea, the report added, since the country's top five commercial lenders — KB Kookmin, Shinhan, Woori, Hana and NH NongHyup — have been shutting down branches in remote rural areas.

"The shuttered branches weaken relationship-oriented financing opportunities, outright denying funding for small businesses," it said.

"Also affected will be job markets and the majority of the country's small and medium-sized enterprises."

According to the Financial Supervisory Service, the number of bank branches came to 5,690 as of October of last year.

Of the 1,189 branches that have closed over the past five years, 708 were in Seoul and other metropolitan areas.

Meanwhile, the oligarchy-protected banking industry in Sweden is defined by six banks dominating about three-quarters of the lending market total.

Only 750 branches remained as of last year, significantly down from 1,900 in 2001. The 67 percent drop is explained by a digitization drive amid widespread adoption of online banking and their app services, translating to far fewer in-person services.