Small- and medium-sized enterprises could face diminished customer service, longer wait times and fewer choices if job cuts at banks deepen, experts say.
Paul Dowling, principal analyst with banking research and advisory firm East & Partners, says UBS forecasts of 7,000 job losses over the next two years at the major banks are "possibly underdone."
“We’re looking at between 12,000 and 14,000,” Dowling says, referring to ANZ Banking Group (whose job cut plans have been publicised), Westpac Banking Group, Commonwealth Bank of Australia and National Australia Bank.
Future Fund chairman and former Commonwealth Bank of Australia boss David Murray agrees that more job cuts are on the cards, telling the Australian Financial Review that it was “absolutely obvious” banks needed to cut costs amid lower demand for credit.
Some financial services firms are asking staff to take pay cuts rather than sacking staff. During the global financial crisis, some companies successfully asked workers to volunteer for unpaid leave, to cut down on pay but retain valued staff.
But Dowling says the influence of the Finance Sector Union restricts the ability of the big four to alter employment conditions, unlike investment banks and the stockbroking industry where pay cuts are being offered.
Dowling says the big banks have been reducing their headcounts for the past six to nine months, in response to the European debt crisis, weak credit growth in Australia, and the setting of their business models for a growth environment.
“They are charged by shareholders to grow profit, and the only way to do that is to reduce their costs,” he says. Wages account for about 50% of bank costs.
Dowling says if his estimations of 14,000 job cuts are correct, this will still account for less than 10% of the big four banks' 180,000 staff members.
He adds that the expected exit of debt-laden European banks from Australia will compound troubles, leading to fewer choices for borrowers. Job cuts are expected in Australia as Royal Bank of Scotland searches for a buyer of its equities and advisory operations.
Dowling says there’s a risk that customer service will diminish if job cuts from the back office and the middle offices (marketing, administration, technology) are extended to the front offices (branches, relationship managers and salespeople).
“It’s a delicate balancing act because in reducing head count, the banks don’t want to reduce existing customer service levels, such as they are,” Dowling says.
“If these cuts hit front office as well, which is what we expect will happen, there’s a real risk customers will experience service degradation.”
Dowling says beyond a possible decline in customer service levels, there’s the unattractive prospect of slower decision-making and fulfilment.
He says banks will be relying on customers’ take-up of technology to minimise the negative impact of job cuts.
“They’ll be hanging their flag on internet and mobile platforms being able to replace real live face-to-face contact.”
Kevin Davis, research director at the Australian Centre for Financial Studies, says the cuts are a reflection of slower loan demand and technological changes that make some roles redundant.
He predicts that mortgage brokers might benefit from the cuts, playing a larger role in the loan process as they did before the GFC.
“What you might be seeing is a de facto outsourcing of activities,” Davis says.
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