How Australia's major banks have lifted profit while shedding thousands of staff

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A record profit run hasn’t translated into more jobs at Australia’s major banks. More jobs could be on the line as mounting growth challenges turns the focus to cost control.

The four-largest lenders — ANZ, Commonwealth Bank, NAB and Westpac– now employ 8% fewer staff than they did three years earlier. That comes as profits have climbed 6% in the same time to $15.6 billion in the first half of their financial year, data compiled by Business Insider from regulatory filings reveal.

The banks’ strategy resembles the jobless growth the Australian economy is gearing up for.

Last week, the Reserve Bank of Australia in its quarterly statement on monetary policy (SoMP) forecast gross domestic product to rise between 2.75% to 3.75% in 2018, up from 2.5% to 3.5% previously, and the underlying inflation to be around 2% in early 2018. But it also sees the unemployment rate continuing to tread at 5%-6%.

From a long stated objective of ensuring cost growth remained under that of revenue, the banks are now taking the axe to expenses. That comes as cost cuts and lower provisions for sour loans are pretty much the only weapon left to secure profit growth amid intense competition and tighter regulation that hurts loan growth.

Take the case of ANZ, which managed to boost profits by nearly a quarter largely by slashing costs by 14%. It cut jobs across pretty much every business unit. It is now also moving to project-orientated business with the smaller and nimble cross-functional teams seen in the big and successful digital players such as Google.

CEOs at the four banks have regularly spoken about measures to improve productivity — read “fewer staff doing more work” — and have all focused on cost to income ratio. Topping the list is Westpac Banking Corp, which aims to cap annual cost growth at 2% to 3% and bring down its cost to income ratio to below 40% from 41.7% now.

“The benefits of our strategy are also clear in this result,” CEO Brian Hartzer said. “We’ve digitised more processes, which is improving service for customers while also bringing costs down.”

After almost eight consecutive years of record profits, the pressure is mounting on the banks. On one side, the banking regulator, which introduced more mortgage lending curbs in March, is gearing up to impose additional capital requirement. On the other hand, the government is ratcheting up its oversight. The CEOs are being brought before a parliamentary inquiry to explain a series of scandals involving financial planning and other issues including why the banks didn’t pass on the full benefit of interest rate cuts to customers.

On Monday, treasurer Scott Morrison announced a Productivity Commission inquiry into competition in Australia’s financial system. The investigation will look at competition in personal deposit accounts and mortgages and services and finance to small and medium businesses. That could only add to the challenges.

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