Understanding operating expenses

Transcript

PwC's Banking Matters Insights

Beatrice Fitzgerald:

Outside of NIM and where it would end up, one area we had a number of debates on when we forecasted results was operating expenses. On the side of it going up, we had arguments of 8% inflation over the year, a tight labour market, albeit with slight indications of this easing in recent months, and projects ongoing across all of the banks in technology, risk, and compliance. There was a lot for them to stay on top of. However, we'd noted each of the banks were discussing their productivity goals, and so we were therefore waiting to see how the banks had balanced those goals against the industry headwinds.

What we saw in the actual results was a mixture of the two arguments. Employee expenses were definitely up. They were 7%, half on half or an annualised 14% at the aggregate level, albeit one bank did come in largely flat. This seemed to be a factor of both wage inflation, as well as the nature of the new FTEs that were brought on board with technology. Risk and compliance skills, key mentions and likely coming in at higher than the average wage. The success story was then on the productivity gains across all of the other categories with occupancy expenses, technology, and other expenses actually down half on half at the aggregate level.

Considering that's in spite of the 8% inflationary expectation we had in place, we think this is actually a really positive result for the banks and we're curious to see if it can be held onto in the second half. Read more about this in our half year, 2023 Major Banks Analysis Report.