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BFCSA: Financial tech push: Big four banks to cut 20,000 jobs, experts predict. Onto the unemployment scrap heap!!!

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Financial tech push: Big four banks to cut 20,000 jobs, experts predict

Australian Financial Review Jan 2 2018 11:00 PM

James Frost


The big four banks are set to accelerate plans to thin the ranks of full-time employees by 20,000 in 2018 and beyond as earnings growth slows and costs become harder to control.

Experts say ANZ, Commonwealth Bank, NAB and Westpac will need to get serious on headcount in the year ahead after reducing the number of full-time employees by just 2498 or 1.5 per cent in 2017.

NAB generated headlines at its full-year results on September 2 when it announced the bank would look to shed 4000 jobs over three years, or 12 per cent of its work force.

A 12 per cent reduction in staff across the 159,028 employed across the big four is just under 20,000. CLSA analyst Brian Johnson said it was unlikely that NAB would be the last bank to take a scalpel to staff numbers.

"We think the rest will follow," Mr Johnson said. "The only lever left is costs. We are in a low-growth world and the banks have given staff above-inflation pay rises of 3 per cent across the board."

ANZ has also cut staff numbers significantly as it refined its super regional strategy and withdrew from Asia. The bank has cut the number of full-time employees by 5256 or 10 per cent over the last two years. Some believe this is just the start of a longer-term staff reduction.

ANZ was one of the first banks to admit there will be fewer branches in the future. It was an early adopter of the Agile management technique with its work cycle "sprints" and "scrum" strategy meetings. The bank says the system of working means it will need fewer employees.

"It seems pretty clear that ANZ are taking out a raft of middle management," Mr Johnson said.

Banks left exposed

More work may need to be done to manage costs at Commonwealth Bank and Westpac. With their big mortgage books both are exposed to slowing credit growth and margin compression as customers switch to principal and interest loans.

The number of full-time staff at Westpac fell by 484 or 1 per cent to 35,096 in 2017. The bank employed 35,055 full-time staff in 2010 but it is widely acknowledged to have made great strides in reducing headcount over the last three and five years.

Commonwealth Bank on the other hand added 100 staff in 2017, taking headcount to 51,800. The bank employed 45,000 people in 2010. The bank cut 150 positions from a Brisbane loan processing centre last year. The sale of asset manager Colonial First State Global Asset Management and troubled life insurer CommInsure will relieve some pressure.

Analysts remain concerned that record low bad and doubtful debts will in the future return to average levels while the banks argue they have better risk management systems that are helping to issue less risky loans. Many are concerned that asset sales and other measures for reducing costs will create a significant headwind for EPS growth.

The solution is automation with digitised functions producing new opportunities for savings and headcount reduction. But the banks also need to invest in the right capabilities which can mean paying up for staff in highly competitive job market.

KPMG's head of banking Ian Pollari said there was a degree of inevitability about the job losses as more processes became automated. Hiring more tech professionals however comes with its own unique set of problems.

"The challenge for the banks is they are not alone in their pursuit for these highly sought-after skill-sets and capabilities, often competing with international technology companies for these types of professionals. As a result, it will naturally put upward pressure on wage costs."

Ambitious tech targets

NAB's program involves shedding 6000 roles while adding 2000 technology jobs. It also set itself the ambitious target of hiring 600 specialists in software engineering, data, architecture and security before Christmas. NAB said the bank was paying globally competitive rates to secure the best talent.

Operating expenses rose at three of the big four banks in FY17 with ANZ the only bank to reduce costs on the back of a one-off software capitalisation charge of $556 million and restructuring expenses of $216 million in 2016.

Macquarie analyst Victor German said he expected banks to do more on the job front in 2017 but was confident of seeing more progress as the year unfolded.

"The fact they are not rushing is arguably not a bad thing," Mr German said. "We think they are taking the right approach by carefully understanding where inefficiencies are how they can improve processes and reduce expenses."

Mr German has warned banks from waiting too late, however, noting that natural attrition would not be able to do the heavy lifting for much longer. Banks typically expect that around 10 per cent of bank staff leave of their own accord each year.

"We think natural attrition levels are more likely to decline than accelerate," Mr German said.

"It's not that difficult to take out costs, but to do so in a sustainable way by redesigning inefficient processes is far more difficult and actually more valuable in creating longer-term value."

"The question is, of course, would we look at what banks have achieved in three years' time and realise that they have invested well and are better companies or if they wasted time and money."



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