A few years ago, when former banks were being converted into trendy wine bars on an almost daily basis, Lloyds Banking Group made a pledge to its customers: it promised it would keep branches open wherever it was “the last bank in town”.

Rival banks made similar promises, but, as Lloyds yesterday announced another 9,000 job losses, along with the closure of 200 of its branches, the group formally abandoned its “last bank” promise.

The branches scheduled for closure in the next few years represent just under 10 per cent of the group's 2,250- strong retail network. As well as Lloyds, the network includes Bank of Scotland and Halifax, which became part of the group via its rescue of the crippled HBOS at the height of the financial crisis in 2008.

Bank of Scotland and Lloyds, whose black-horse symbol is a familiar sight on the high street, will bear the brunt of the closures. For Halifax, however, there will be additional openings, leaving the net branch closure figure at about 150.

The further shrinking of the Lloyds network is inevitable, given the dramatic shift to 24/7 online banking in recent years, and the growing popularity of banking via mobile phone. The era of weekly trips to the bank to deposit money or withdraw funds is long gone, although, as Lloyds chief executive António Horta-Osório made clear yesterday, there will always be a need for banks of the bricks and mortar variety; just not so many.

Lloyds, which claims it is closing branches at a slower rate than its rivals, says 90 per cent of its customers will still have a bank branch within five miles of their homes.

Horta-Osório wants Lloyds’ slimmed-down network to be transformed into high-tech, digitised branches, where customers will be able to go online, to have advice sessions and consultations with remote advisors via video links and serve themselves with more sophisticated self-service tills.

Counter transactions

All of this will cost about £1 billion over the next few years – and require far fewer staff – hence the closure and redundancy programme. Some five million of the group’s customers already use mobile banking and it predicts that over the next three years the number of counter transactions in the branches will be halved.

The latest job cuts – equivalent to about one in 10 of the Lloyds workforce – come on top of the 45,000 posts that have already been axed since the HBOS merger and are a bitter blow to employees. The unions reacted angrily, demanding that executive bonuses be cut if the redundancies are made compulsory or if customer service suffers.

“The wallets of top executives at Lloyds should not be getting fat by forcing low-paid workers onto the dole,” said Unite’s Rob MacGregor.

Perhaps the biggest shock from Lloyds, which is the first of the major UK banks to report on its third-quarter performance, is the inclusion of another £900 million provision for the mis-selling of payment protection insurance. This takes the bank’s PPI bill to more than £11 billion, and pushes up the total cost to the big five high-street banks to an incredible £23 billion, underlining PPI as by far the UK’s most costly mis-selling scandal ever.

Analysts forecast still more PPI pain to come for Lloyds, with some anticipating another £1 billion or so of costs next year. This has done little to calm worries about Lloyds’ balance-sheet strength – although it passed the recent European stress tests, it did so by the narrowest margin of all the British banks, with a core Tier 1 capital ratio of 6.2 per cent against the 5.5 per cent minimum.

Hair-raising scenarios

The Bank of England will be publishing results of its own stress tests in mid-December. These will be far tougher than the EU tests, with hair-raising scenarios including a 35 per cent plunge in house prices, an unemployment rate of 12 per cent and interest rates at 6 per cent.

Although Lloyds says it expects to pass Threadneedle Street’s test as well, there are worries it may not be able to scrape through. Failure would delay the date for the resumption of dividend payments by the bank, which is still 24 per cent owned by the UK taxpayer. And that, in turn, would delay any further sale of Lloyds shares by the government.

Reflecting these fears, shares in the black-horse bank, down another 2.5 per cent yesterday, have slithered to 73.5 pence, leaving them at almost exactly the same level at which the government pumped in £20 billion of taxpayers’ money six years ago.

Fiona Walsh is business editor of theguardian.com