Coopers & Lybrand associate director Giles Brennand, who offers consultant advice to bank clients, suggests that mere down-sizing is not the solution.

''It's time to shatter some of the old concepts and take a fresh look at the fundamentals of retail banking,'' he said.

Given that large branch networks are expensive to maintain, banks are more sensitive to cost and pricing in their product delivery.

''Traditional banking cost and profit measures have in many cases failed to provide decidable information,'' he said.

In these circumstances, understanding the cost and profit dynamics of retail banking assumed greater urgency, he said, adding that what had failed banks previously was the use of ''averages'' which made it difficult to locate the sources of profit.

Bank managers are presented with the cost of an average cheque account or profit generated from an average customer loan, but may have no idea how that relates to the size and level of activity of the account.

Other banks resort to using customer and market segment profitability, but this profitability figure can hardly be disentangled from other segments serviced through common channels.

''There are a lot of cross-subsidisations. Sometimes banks don't understand the cost and profitability of certain products, resulting in wrong pricing and loss of money,'' Mr Brennand said.

More attention is paid to the cost accounting technique. Mr Brennand suggests that profit potential and actual profit should be looked at geographically in market areas.

''This is something we have been working on recently, using software developed and marketed by McDonald's,'' he said.

Banks should start with a set of data broken down by census tract and lifestyle, based on demographics, single out the market segment they are interested in and combine it with the financial product usage pattern of that segment.

Then, the calculation for the implied financial services revenue and profitability will be available.

For instance, data on the number of people with income above certain level, their jobs, goals in life, values, motivation, lifestyles and purchase behaviour are collected and matched to data with the type of financial services they might need.

It was this type of local-market focus and statistical approach that helped banks to grasp cost structure and profit potential, and target their services at the segment in the area where their branches were located, Mr Brennand said.

''There will be more branch specialisation and market segmentation,'' he said, adding that examples of such specialisation abound in Hong Kong.

He said Standard Chartered Bank set up priority banking centres in certain branches that aimed at a more professional type of customers, while Hang Seng Bank branches in MTR stations handled simple transactions for busy passengers.

Furthermore, banks recognised the need to split the cost structure into account acquisition and account administration.

''Acquisition cost include everything leading up to putting the new account on the system, and administration cost is the expense of running the account,'' he said.

''It is something banks must get a handle on if they are going to be able to assess the relative merits of different delivery channels.'' To enhance cost-efficiency of a product or a banking activity, banks are recommended to run a mapping process through which they look at various steps in banking activity, allocate cost and value to each phase.

Any non-value-added activities should be eliminated. Those are steps which, once deleted, will not change the basic form or function of the product to the customer.

This mapping exercise, crossing departmental boundaries, helps to clarify the cost structure of each product.

Mr Brennand said the banks that would excel in a changing market were those which ''achieve the most effective mix of channels (branches, ATMs, sales forces) to address each market''.

The concept of a typical branch should be cast away, and gone also were the mentality of managing a branch, administration and platform functions, he said.

They should be replaced by concepts such as generating sales leads, selling, opening new accounts, processing customer transactions, and responding to customers requests for information - phrases that were used in a sales room, he said.