The wide-scale transformation may disrupt short-term performance as the bank moves away from operating as three separate entities. Through this initiative, called “Unite,” Westpac is investing $2 billion in technology rationalisation and is targeting $750 million in annual savings by 2030.
Over the years, acquisitions and ageing IT systems have made Westpac less efficient than its major rivals. Legacy infrastructure from former businesses such as St George and the recently divested RAMS has driven up the cost of system updates. For example, a recent policy change for first-home buyers came at a $17 million cost but would have been $10 million under a unified system.
The sale of the $21 billion RAMS mortgage book marks Westpac’s latest move to streamline its operations. The Westpac and St George brands will now operate under a single business banking and consumer platform. This integration is a cornerstone of the Unite program, which is receiving a growing proportion of the company’s overall investment. Alongside this, staff reductions are expected to support the push for greater efficiency and cost control.
Despite having more than 13 million customers, Westpac has struggled to take full advantage of economies of scale. At present, 54.2 cents of every revenue dollar is consumed by costs, putting the bank behind its peers whose cost structures are leaner. If Westpac were to match the performance of its best-in-class competitor, it could save as much as $1.8 billion annually. Realising those savings will depend on successful delivery of the complex restructure.
Profitability is under pressure. In its latest results, Westpac recorded a full-year profit of $6.92 billion with limited growth. While business lending rose by 15%, mortgage lending underperformed and there is a growing reliance on mortgage brokers. Still, the bank’s share price increased by 3% due to investor confidence in capital returns and improved asset quality. This includes a fall in loan delinquencies.
Westpac’s recovery now depends on effective execution of the Unite strategy. Unlike other banks that are setting bold ambitions, Westpac is taking a more measured approach that emphasises delivery rather than declarations. However, with inflation, rising costs and tighter investor scrutiny, the bank will need to meet expectations to avoid further setbacks.
