Cost cuts are the newest thing in Australia's banking industry as it tries to adjust to expensive hikes in regulatory capital, a transitioning economy, and a loss of pricing power.
Westpac was first of the three major banks to reveal its half-year result, showing a cut of two per cent in its FTEs. On the other hand, ANZ had a staff freeze in place since the start of the year, with three executives departing from its ranks. This is to reduce duplication, become more efficient, and simplify their workflow. The National Australia Bank is also set to cut roles as a result of the implementation of its personal banking origination platform, and this can result in significant downsizing.
Earning capacities of these banks are not looking good as well. Westpac's $3.9 billion cash profit was down by three per cent half-on-half. The stock crashed 3.5 per cent and led the sector down with CBA, NAB, and ANZ all falling in the range of 2.1 to 2.2 per cent. This correction in the banking sector hurt some investors.
These problems are reminiscent of the financial crisis, but Westpac's chief Brian Hartzer believes that company-specific factors are behind the failures. But while there is an overall deterioration in asset quality, unlike the financial crisis, interest rates are currently low and underlying business conditions are fine. "We feel that the quality of the portfolio is pretty good," he said.
At present, the biggest challenge is cost efficiency. Disrupters are waiting as it cannot come at the expense of investment in innovation.
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