Job layoffs across the banking industry have been making headlines in recent weeks, but what exactly is driving the cuts, and where are things headed?
Just last week, Desjardins laid off nearly 400 employees and Scotiabank announced it would cut three per cent of its global workforce, or around 2,700 staff.
In September, the Royal Bank of Canada (RBC) made a round of job cuts in its capital market operations, with plans to cut two per cent of its full-time equivalent staff in the coming quarter. The bank had 93,753 employees as of July 31.
But the rationale behind the layoffs isn’t necessarily the same for all institutions.
For instance, Scotiabank says bank digitization, automation, streamlining efforts and shifting consumer preferences are driving its layoffs. Meanwhile, RBC’s planned cuts come as a cost-saving strategy following the weight of high expenses in the third quarter.
Coming amid a year of high inflation, the layoffs are likely a domino effect of the aggressive interest rate hikes from the Bank of Canada, according to Jay Zhao-Murray, FX analyst at Monex Canada, a commercial foreign exchange firm.
“In the face of consumers spending less, you’ve got firms that have this weaker sales outlook, so they’ve decided to slow their employment intentions, as well as cut back on investments,” Zhao-Murray said in a phone interview with CTVNews.ca.
“When you take a look at banks, you have this weak demand, especially in interest-rate sensitive goods, and that affects loans. On the business side, there are reduced investments. All of these things come together to weigh on profitability.”
Despite the recent layoffs, he’s doubtful these job losses will be permanent.
“It really is a cyclical thing. We’re at the tail end of the economic cycle in Canada. With slowing demand, there’s a greater potential for a recession next year,” he said.
“It’s just more or less the normal swings that come in the business cycle. Even though profitability has been eroded, companies are still earning a higher rate of profit now than they were during the entire five-year period preceding the pandemic,” Zhao-Murray added. “With the higher profits, firms don’t necessarily need to fire workers and I don’t think they want to.”
Following the firing-and-hiring challenges during the pandemic, firms are now trying to hoard labour and not make layoffs until absolutely necessary, he adds.
And according to Nita Chhinzer, associate professor in human resource management and business consulting at the University of Guelph, layoffs were often used in the past as a result of firms experiencing declines, such as a loss of customers or profit.
But today, layoffs are often used by employers who are reporting profit.
“Instead of training and developing employees, some employers use layoffs as a tool to change the skills composition of their workforce, since it is quicker than training and redeploying employees,” Chhinzer told CTVNews.ca in an email.
For the banking industry, factors such as rising interest rates and less than favourable third-quarter results are leading to cuts to the workforce.
For instance, the bad debt provisions of Bank of Montreal (BMO) more than tripled to $492 million by the end of July 2023, compared to 2022.
And the quickly changing banking environment may be contributing to the recent uptick in layoffs, Chhinzer said.
“The move from in-person to online support shifts the skills needed from workers. Clients require 24-7 access and response, meaning everyone from customer service to tech support needs to shift when they work. Improvements in AI and chatbots requires fewer workers for some types of jobs,” she said. “I expect that we will see more layoffs as banks continue to evolve to their internal and external pressures.”
Chhnizer also has some advice for improving job security.
“The shift has occurred where employees are increasingly responsible for their own career outcomes and I highly recommend that people keep active with keeping their skills and competencies up to date,” she said.
“Whether it’s free courses from edX, Coursera, or Class Central, or microcredentials from LinkedIn or Microsoft, keeping your skills current and communicating that to your employer is one way to signal that you are adaptable and transferable for other roles.”