I’ve been questioning the ability of the Australian banking sector to contiue to deliver high levels of profits under current economic conditions for a while now. I mentioned back in June that the major banks seemed to have used adjustments in bad debt provisions in order to bolster their profits and more recently I noted that Westpac has begun to struggle to maintain its margins. None of this should be a surprise to MacroBusiness readers who would be well aware that Australia is currently experiencing a period of historically low levels of credit growth.
Given that the banks had already done quite a bit of work shuffling their balance sheets it was only a matter of time before the focus moved to expenses. We have already seen the European banking sector slash staff due to falling revenues and the talk from inside the Australian sector is that cuts are definitely coming.
People I have talked to tell me that many staff are currently on “soft-layoffs” with a time limit of Christmas for business to pick up or they will be layed off permanently. Salaries of existing staff are also under pressure and new hires above mid-level are having to be signed off by the Chief executive level staff.
Yesterday the Australian reported this
Major Australian banks may be forced to slash thousands of jobs, freeze wages and cut salaries for workers to offset a dramatic slowdown in business and consumer credit demand.
According to a report by investment bank UBS, the banks’ workforces have grown to the highest point in more than 15 years as a result of the strong economic and financial market conditions that existed before the global downturn.
The report says the average salaries of most Australian banking workers are higher than elsewhere in the world, meaning the big four banks have some of the highest costs among their global peers.
Westpac plans to slash at least 1000 jobs from its middle management ranks, primarily at its headquarters in Sydney.
Commonwealth Bank, ANZ and National Australia Bank are expected to follow suit.
Macquarie has already started shedding jobs, especially in its investment banking and trading divisions, which are dragging down the group’s earnings.
….
Mr Mott said the major banks were likely to target business development roles, which were becoming redundant as credit growth flatlined.
“The banks will look to trim their sales force,” he said.
“In the past, the banks have removed the bottom 10 to 15 per cent of their underperformers and redistributed their roles among the remaining staff.
“This will be an initial focus of management, because retaining client relationships is going to be more important than new client acquisitions.”
It looks like the falling rate of credit issuance is about to claim another few victims.