Westpac to Boost Technology Investment to Drive Down Costs

  • Annual investment to rise to A$1.3 billion from 2016
  • Plans to reduce expense to income ratio to 40% in 3 Years

Westpac Banking Corp. said Monday it will increase annual investment in technology and simplifying operations by 20 percent as it seeks to boost efficiency and cut costs.

Annual investment will rise to A$1.3 billion ($900 million) starting in 2016, resulting in savings that should reduce its expense to income ratio to below 40 percent within three years from the current 42.5 percent, Chief Executive Officer Brian Hartzer said in a strategy update.

Hartzer, who took over as CEO in February, faces slower revenue growth and regulatory requirements for more capital. Westpac’s profit for the six months ended March 31 missed expectations, prompting calls from analysts at Citigroup Inc. and Macquarie Group Ltd. for the lender to cut costs and close some branches.

“When you don’t have revenue growth the focus shifts to cost savings,” T.S. Lim, a Sydney-based analyst at Bell Potter Securities Ltd. said by phone. “The investment spend, targets for cost to expense ratio and return on equity if achieved will offset some of the pressures the lender faces.”

Capital Requirement

The nation’s four biggest banks -- Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia, National Australia Bank Ltd. and Westpac -- are amassing capital to meet stricter regulation partially aimed at sheltering them from any downturn in the nation’s booming housing market.

The lenders have revealed plans to raise A$16 billion. Westpac, which on Monday reiterated a return on equity target of above 15 percent, has the lowest Tier 1 ratio among the four and may need about A$6.5 billion, according to a survey of five analysts last month by Bloomberg.

The planned investment will result in a single technology platform across brands, automate head office processes and remove duplication, according to the statement. About 55 percent of branches are getting a makeover, Westpac said. The lender also aims to add 1 million new customers by 2017, according to the statement.

The lender will increase its focus on wealth management, lending to small and medium enterprises and Asia, it said.

“The measures we have outlined today will deliver a step change in the service we provide to customers, while at the same time improving our efficiency and productivity,” Hartzer said in the statement. “We have set ambitious targets and we have a clear roadmap to get there.”

Westpac shares rose 0.8 percent to A$30.19 at 10:09 a.m. in Sydney, paring this year’s losses to 9.1 percent, the least among the four largest Australian lenders. The benchmark S&P/ASX200 index has fallen 6.8 percent this year.

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