WILMSLOW, England (Reuters) - 'The branch is the bank' sounds like a slogan from before digital technology was seen as the future of banking. But that mantra has enabled Sweden's Handelsbanken (>> Svenska Handelsbanken AB) to expand in Britain at an unprecedented rate since the financial crisis of 2007 to 2009.
Handelsbanken has drawn upon the practices it adopted in its home market in the 1970s when then Chief Executive Jan Wallander introduced a culture of 'decentralisation'. He handed branch managers full control over lending decisions and shunned annual bonuses for staff in favour of a long-term profit sharing scheme that matures when they reach 60.
It is also something of a throwback to the days when the local bank manager was a pillar of British provincial life.
"The people running the bank are the branch staff," the bank's UK Chief Operating Officer Andy Copsey, 48, said in an interview at Handelsbanken's local branch in Wilmslow, Cheshire, 185 miles (300 km) north of London.
"Head office exists to serve the branches. It's a very flat structure where people are trusted," he added.
In contrast, every other major bank in Britain uses a 'centralised' decision making process, heavily reliant on computers to assess customers' credit ratings.
While domestic rivals have slimmed down in order to bolster their capital positions and meet tougher rules from regulators,
Handelsbanken has more than trebled the number of branches that it has in Britain and more than doubled its loan book to 13.3 billion pounds ($20 billion) over the past four years.
Wilmslow branch manager Anthony Flynn, 38, said Handelsbanken has attracted customers fed up with Britain's biggest banks, whose reputations have been tarnished by a series of headline-grabbing scandals.
"We've had lots of interest from businesses which are really dissatisfied with their service elsewhere," he said in his branch, in an affluent town south of the city of Manchester.
"They hear about us as a bank that's offering something different and, specifically, as a bank that's offering local decision making where they know the people they're dealing with."British lawmakers are keen for challengers to break the dominance of the country's 'big four' banks -- Lloyds Banking Group (>> Lloyds Banking Group PLC), Royal Bank of Scotland (>> Royal Bank of Scotland Group plc), Barclays (>> Barclays PLC) and HSBC (>> HSBC Holdings plc) -- which control over three-quarters of current accounts and provide nine out of 10 business loans.
Handelsbanken opened its 189th British branch shortly before Christmas, having had fewer than 20 a decade ago. In the same period, its domestic rivals have closed more than 2,000 branches, citing the growing number of customers banking online.
Handelsbanken itself has also revamped its internet banking in the past three years and launched a mobile app 18 months ago.
Berenberg analyst Nick Anderson said that the bank's rate of future expansion in Britain may depend on whether it can find candidates with the right experience to manage its branches.
"The main concern is 'can they find the right calibre of people to maintain the culture and values that have enabled Handelsbanken to do so phenomenally well?'," he said.
Handelsbanken has one of the best records in the industry for successful lending, with a far smaller proportion of bad loans than the industry average in Europe. That helps to justify the expense of a branch network and has enabled it to have the lowest funding costs of all European banks, according to its 2013 annual report.
PROFIT SHARING SCHEME
Not everyone is convinced by the Handelsbanken model.
Paul Pester, chief executive of rival TSB (>> TSB Banking Group PLC), has suggested some customers fear their branch managers might be swayed by favouritism when making decisions.
Meanwhile, a senior executive at another British bank which competes with Handelsbanken told Reuters he believed that the bank's lending criteria could be inconsistent across branches.
"Handelsbanken is a risk adverse prudent lender," said Copsey, who joined Handelsbanken in 2001 when he opened its fifth British branch in the northern English city of Leeds.
"If a branch manager seems not to have understood the credit policy then the regional manager will explain what it means," he said, dismissing any talk of double standards.
Handelsbanken pays branch staff a higher fixed salary than the industry average because of their extra responsibilities.
Staff at Handelsbanken also join a scheme known as Oktogonen which awards them an equal share of the bank's profits provided
its annual return on equity is better than the average of its rivals -- a target it has hit in each of the past 42 years.
The awards, the same for kitchen staff at the bank's head office as they are for its chief executive, are granted in the form of shares in the bank which cannot be accessed until staff reach the age of 60.
That is meant to discourage short-term decision making and excessive risk-taking and is consistent with moves by regulators to make banks defer bonuses for longer periods of time.
Industry sources said the payouts can be worth upwards of a million pounds for staff that spend their entire working lives with the bank. Handelsbanken declined to comment on their value.
(Reporting by Keith Weir, 44 20 7542 8022)
By Matt Scuffham