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Tuesday, 15 February, 2000, 16:53 GMT
Banks look to save money
It has become a recurring event in the banking sector - the unveiling of billions of pounds in profits coupled with the announcement of job cuts. Last week, Lloyds TSB revealed record profits of £3.62bn and plans to cut 3,000 jobs. On Tuesday, Barclays announced profits up 29.8% to £2.46bn. And while it does not plan to trim its workforce at this stage - 7,000 jobs have gone in the past year - it did set a cost-cutting target of £1bn over three years.
Banks might be making record profits, but the drive to become increasingly efficient seems never-ending.
The transition to telephone and internet banking has seen hundreds of branches close and 200,000 jobs disappear in recent years.
But increased competition in the sector means there is no resting on laurels.
"The only two strategies are to reduce costs or to increase revenues," says Phil Middleton, head of banking strategy at KPMG. "Most of the large banks were set up for a different regulatory climate. They had branch networks, regional processing centres and complex computer systems. "It was all costly and inefficent, but in the past that didn't matter quite as much. "Now you cannot afford to stand still. There's pressure from shareholders to get profits up, there's pressure from competitors and you have to adapt to changes in the market."
Tackling that competition does not just involve offering cheaper products. It is also about investing in new services, but cutting costs does give banks the option to compete on price.
And because consumers are more prepared to shop around, banks such as Barclays must work hard to win customers. "If you have an overdraft, you will pay £5 - £6 as a monthly charge with Barclays on the internet on top of the interest they charge you," says Neil Walkling of the Consumers' Association. "If you went to another current account provider - Royal Bank of Scotland, Alliance & Leicester, Nationwide - you wouldn't pay any monthly overdraft fee at all. You can actually save money by switching from Barclays." There is another reason why banks are taking steps to be at their most cost-effective - as the industry continues to consolidate, everyone is a potential target. "If you don't do it, someone else will do it to you," says one analyst. Clear logic "That's what happened to NatWest. People didn't think it was being run particularly well - it had one of the highest cost-income ratios in the sector." Phil Middleton believes there is a clear logic behind the constant cost-cutting. "The people they employ now are not there for processing pieces of paper. Banks are people businesses and the ones that will succeed are those that build close relationships with their customers," he says. In an age of fierce competition and globalisation, there are times when simply making record profits is not enough. |
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