Westpac has announced an ambitious plan to cut its operating costs by around 40 per cent by 2024 and has flagged that branch and staff numbers will fall.
In 2019/20 the bank’s operating expenses were A$12.7 billion ($10.2 billion excluding notable items). Over the next three years it plans to bring its expense line down to $8 billion.
It is the first time the bank has set a “hard target” for cost savings.
Westpac chief executive Peter King said the bank would reach its target by: reducing the cost of notable items, such as litigation expenses and customer remediation; selling the non-core businesses that have been put into its specialist business division; continuing with its program of business simplification; and having a smaller head office.
It will also continue to work on process changes, such a greater digitisation of the business.
King would not be drawn on the number of branches that would close or the number of staff retrenched. He said branch closures would be in metro areas, where the group has a large branch overlap because of its extensive brand portfolio.
He said branches would be smaller and brands would be co-located. Westpac Group currently has 889 Australian branches.
Westpac chief financial officer Michael Rowland said the bank has set some milestones for meeting its target.
For example, currently 62 per cent of mortgages are currently processed on a digital origination platform. That number must reach 100 per cent by 2023/24.
Consumer product sales via digital channels must increase from 41 per cent to 70 per cent over the same period and branch transactions are budgeted to fall by 40 per cent from a baseline of 29 million.
The bank aims to get the number of products it sells down from 839 currently to around 345. Head office roles and corporate space will be cut by 20 per cent.
Rowland said these targets have been embedded in the responsible executives’ scorecards.
Last year the bank set up a specialist business division, which took over management responsibility for a number of low-return businesses that were considered non-core. The businesses were put under review.
Since then it has sold its stake in Zip Co, and announced the sale of its vendor finance business, Western Pacific, general insurance and its in-house lenders mortgage insurance business.
Businesses still to be sold include auto finance, Westpac Life, superannuation and wealth platforms.
Notable items have been a big issue for the bank in recent years. Last financial year notable items included $1.4 billion for Austrac proceedings, $440 million for customer remediation, $614 million for write-downs of intangibles and $123 million for asset sales and revaluations.
The bank’s Customer Outcomes and Risk Excellence (CORE) program, which has been running for a couple of years, has been designed to improve the management of financial and non-financial risk and reduce the incidence of such items.