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Friday, 11 August, 2000, 10:07 GMT 11:07 UK
Do banks prefer customers or profits?
Barclays bank
Barclays came under pressure because of branch closures
Barclays' takeover of the Woolwich comes at a time when it has been facing increasing criticism from consumer groups and politicians.

Its battered image is unlikely to be helped by the news that 100 branches and 1,000 staff are to go following the takeover.

The deal comes two weeks after Barclays announced bumper profits, which had already rekindled the debate about whether banks are putting profits before their customers.

Barclays was singled out for criticism because of its decision earlier this year to close 171 branches, with the loss of 7,500 jobs, on one day.

The decision left many communities without a bank and angered consumers. The bank was later forced to apologise to shareholders for its handling of the closures.

The bank also came under fire for spearheading the campaign to charge non-customers fees for using cash machines. It was later forced to scrap the plan following a climbdown by other banks.

Competition growing

Large profits are no longer a guarantee that jobs are secure, that branches will remain open or that customers will be charged less for having a bank account.

For example, earlier this year, Lloyds TSB revealed record profits of 3.62bn and plans to cut 3,000 jobs.

As competition grows with the arrival of telephone and internet banking, the big High Street banks are engaged in a never-ending battle to raise revenues and cut costs.

The arrival of internet banks like Egg has spurred the traditional banks to set up their own online banking operations, which are cheaper to manage than traditional branch banking.

Barclays Online
Many banks now offer online facilities

The transition to internet banking has seen hundreds of branches close and been partially to blame for 200,000 jobs disappear in recent years.

Through internet banking, banks can cut costs and compete on prices to get new customers, and by cutting costs they can earn huge profits.

The banks' defence to the charge that they make excessive profits is that their business is cyclical.

When times are good they make large profits. In the 1980s recession, some banks, such as NatWest, were actually posting losses.

Takeover fears

Competition in the banking market is rapidly heating up following the recent consolidation in the sector, started by the recent takeover of NatWest by the Royal Bank of Scotland.

Banks cannot take things too lightly with potential predators on the prowl for easy pickings.

And with most banks now listed on major stock exchanges, they have to answer to their shareholders, who are expecting the banks to deliver on profits.

But big banks are coming under pressure from both customers and regulators to be more consumer friendly.

A 16-month government probe into the sector released in March came down hard on banks.

The review was carried out by Don Cruickshank who called for banks to make it easier for customers to switch current accounts and to make charges clearer so they know when they are getting a bad deal.

The government commissioned the report following allegations of high charges and poor service.

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See also:

03 Aug 00 | Business
Barclays profits leap
20 Mar 00 | Business
Banks face profits probe
20 Mar 00 | Business
Backlash against UK banks
20 Mar 00 | Business
Banking report: What they said
11 Feb 00 | Business
Banking in the doldrums
15 Nov 99 | The Company File
Barclays closes branches
15 Nov 99 | Business
Why banks love online customers
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