“The banking sector's headwinds were laid bare during the dramatic interim reporting season last week: margins have been squeezed to a record low, return on equity is contracting and capital levels are moving higher.
The big banks are also feeling their "jaws" [the gap between revenue and costs] narrow. Revenue grew, but remains under pressure from a sluggish economy struggling to find its next gear after the mining boom faltered. Meanwhile, operating costs notched upwards during the half; according to PwC, IT expenses across the big four banks rose 6.8 per cent over the half, while total staff expenses were up 3 per cent.
With their share prices under pressure and the outlook for credit growth looking benign, the current operating environment will force the banks to search for productivity improvements. Each of the big banks spends around $1 billion a year on various technology initiatives; but when will these big investments in IT start to yield quantifiable results in terms of reducing operating costs?
Australia's banks are great big technology companies. They employ tens of thousands of computer engineers and maintain close relationships with IT giants like Oracle, IBM and SAP. Big banks headquarters swarm with management consultants and their directors and senior managers flock to Silicon Valley to pick up digital wisdom. Innovation labs are de rigueur.”
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