Big Four should remember who backed them during GFC
Bill Shorten posted Thursday, 9 February 2012
As published in The Australian
Australia has some of the best banks in the world. It is partly because of our excellent regulatory system and prudent management. It is partly because the Labor Government guaranteed our big banks security during the Global Financial Crisis. But it’s also because Australian banks have traditionally been well served by a smart and committed workforce. Even after the Global Financial Crisis, of the nineteen AA rated lenders in the world, four of them are the Aussie ‘big 4’. Our credit unions and mutuals are also becoming stronger deposit holders and lenders in their own right.
Thanks to superannuation many Australians now own bank shares, directly or indirectly. It means that more of us than ever before have an interest in having a robust banking sector that delivers sustainable shareholder returns. Even when it comes to interest rates, we need to remember that the depositors are looking for a reasonable return as well as borrowers looking for cheaper rates. There are almost always two sides to the big economic arguments of the suburbs.
But the broader than ever ownership of bank shares today means there is a broader than ever interest in the community that senior bank executives make responsible management decisions and think long term about our investment.
With the digital age, the advent of fast broadband (accelerated by the NBN) and an increasingly borderless world – both individuals and businesses can and will engage with the services offered by the rest of the world. Obviously banking is not immune to international competition any more than retailing is with the online revolution.
In fact, as research by Ibis World shows, businesses these days don’t need a bank as much as they used to. A modern business, and especially in the services industries (now 70 percent of our GDP) often choose not to own land, buildings or equipment; preferring to rent or lease it from institutions that are mostly non-banks. The big corporations go to the stock market or overseas wholesale funds, so again banks are not the lender to enterprise they used to be. And as more and more people turn to leasing homes, as in Europe and elsewhere, there is further change to bank lending profile.
With current global volatility, including the sovereign debt crisis in Europe, Australian banks are clearly operating in a different environment than prior to the GFC. Bankers need to be smart about working out how they continue to prevail in the long run, keep delivering a solid return to shareholders and be there to support households, growing business and the national economy at large.
That is why I believe there are real risks, indeed even strategic sloppiness, in banks just shedding jobs or off shoring them from Australia to overseas without serious consideration of the alternatives.
Australian banking customers are also taxpayers and taxpayers were there for the banks during the GFC with the Government guarantee on deposits. Banks should be very mindful of the long term impact on their brand off shoring jobs from Australia as the first and only option when costs might need to be shaved or business models refined to meet the challenges ahead.
No business leader ever lost by showing loyalty to their employees and investing in their people. In a competitive free market – your employees are your biggest asset and brand reputation can be everything.
But it isn’t just reputation. There are real costs to hiring and laying off staff, in addition to the anguish it causes the people who lose their jobs. It may be the case that slower credit growth is the ‘new normal’ and credit growth faster than GDP may be unsustainable. But surely this isn’t something that should create thousands of layoffs. Workforce planning in large, profitable organisations like banks should be sophisticated enough to handle at least some smoothing across the peaks and troughs of the business cycle.
Furthermore, while laying off thousands of workers can provide short term sugar hit to the bottom line, I believe it makes more sense in the long run for banks to invest in improving their workers’ skills. Many of the jobs that banks will need in 5 or 10 years’ time probably don’t exist now. A more highly trained and flexible workforce will be a huge asset to banks in filling these positions.
Workplace relations and the future of financial services are intimately linked. But the fulcrum point is not the minimum award system, but rather the individual workplace culture, intellectual effort and financial investment banks choose to make in their own workplaces.
Suggestions made yesterday in this newspaper that productivity growth is a problem in Australian banking, under the Fair Work Act, are simply not borne out by the facts. Since 1993 the trend in productivity levels in the financial and insurance sector has been on a positive trajectory, not flat or backwards. Five year productivity growth in the sector to 2011 was 3.1 percent, compared to an average across all sectors of 0.8 percent. Those who work in big banks are paid well above the award. Hence blaming the Fair Work Act for productivity issues also misses the opportunity that banks have before them to back their people and grow into the future.
Off-shoring is a policy with many risks. For an industry that needs to remain customer-focused in an ever more competitive environment, the banking sector needs to achieve more than just cost cutting. Banks will need to enhance the customer experience to survive. This will require highly trained staff.
In 2008 the Australian banks turned to the RBA for liquidity support and the Australian Government for bank guarantees. Those requests for assistance were met and, as a result, the Australian banking system has emerged from the GFC in great shape. The Australian community through those institutions of the Reserve Bank and the Australian Government supported the banks – we showed our loyalty. But loyalty is a two way street. Now is the time for the banks to repay the loyalty which the Australian community gave them and demonstrate loyalty to their staff.
Tags: Banks,
Economy,
Financial Services,
jobs