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Westpac to cut costs in 'new reality'

The country's second biggest bank plans to reconfigure its back office and IT structures

A new push by Westpac Banking Corporation to improve productivity is likely to result in job losses and outsourcing overseas.

The country's second biggest bank plans to reconfigure its back office and IT structures in order to achieve revenue growth amid weak loan demand and consumer confidence.

"We certainly recognise the new reality of banking," chief executive Gail Kelly told analysts on Tuesday.

"We're into a slow growth period and we expect that's going to be continued in the period to come."

That meant increasing productivity to raise shareholder returns because banking wasn't going back to the pre-global financial crisis environment of fast loan growth, she said.

Slow credit demand caused Westpac's cash earnings for the three months to June 30 to fall two per cent to $1.55 billion from the average of the first and second quarters.

Cash earnings were still 11 per cent higher than the same period last year.

Income rose 1.5 per cent in the quarter, expenses were flat and impairment charges rose.

More details on the new productivity plans would come when the bank releases its full year profit in November, but Mrs Kelly indicated it would involve job cuts.

"Staff will come down somewhat over the year we are in, and will come down somewhat over next year, but there are quite a few moving pieces," she said.

Staff numbers were increasing in some areas, such as the newly launched Melbourne Bank, and changed frequently in IT and technology areas, Mrs Kelly said.

The Westpac CEO also hinted at some jobs moving offshore.

"Clearly that involves sourcing some services from some players that are onshore and some players that are offshore," she said about the plans to improve productivity.

Westpac shares fell $0.92 or 4.35 per cent, to close at $20.25, much more than its rivals which lost between 1.2 and 1.6 per cent.

Analysts said full year profit forecasts for Westpac could come down slightly, while the rise in impairment charges was a concern and the net interest margin was lower than those of its rivals.

"Westpac needs to convince the market it can navigate these headwinds in the next few months for 2012 numbers to remain unchanged," City Index chief analyst Peter Esho said.

The bank's third quarter net interest margin of 2.12 per cent was up four basis points from the first half's figure of 2.08 per cent, after excluding volatile and one-off items.

Impairment charges were higher than the previous quarter at around $300 million.

Bad debt charges fell in Westpac's institutional bank and New Zealand operations, but rose in the retail and business bank and St George Bank.

Mortgage delinquencies of 90 days or longer increased to 59 basis points at June 30, up three basis points in the quarter.

There was a fall in 30-plus days delinquencies of 17 basis points, partly due to ab easing of the disruption borrowers felt from natural disasters.

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More about: St George Bank, Westpac, Westpac

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