(Adds CEO comment, industry context)
By Swati Pandey
SYDNEY, Sept 7 (Reuters) - Westpac Banking Corp WBC.AX , Australia's No. 3 lender by assets, on Monday said it will increase annual investment spending by 20 percent as it looks to focus on customer service and improving efficiency.
The increased investment will be supported by reducing the group's expense growth run-rate to 2-3 percent a year, CEO Brian Hartzer said in his first public appearance since the bank's disappointing results in May, which missed expectations for dividends and profits.
An annual investment will be A$1.3 billion ($898.43 million) concentrating on technology and digital initiatives, the lender said in a statement on Monday. It will target a cost-to-income ratio of below 40 percent.
The moves are a sign of the times for Australia's biggest lenders who emerged from the global financial crisis relatively unscathed but are now facing tough decisions over how to tackle an over-reliance on mortgages and a more onerous capital regime in a slowing economy.
Westpac saw operating expenses jump more than 60 percent between the global financial crisis in 2008 and last financial year, while its staff count rose by a quarter. In that time, both revenues and profits have nearly doubled.
The bank is now targeting an expense to income ratio of below 40 percent within three years from 42.9 percent at the end of September 2014.
"Banking is undergoing a transformational change. The measures we have outlined today will deliver a step change in the service we provide to customers, while at the same time improving our efficiency and productivity," said Hartzer, who took over in February.
Within months of taking office, Hartzer overhauled the bank's retail and business banking division - a cash cow - to improve efficiencies and lower costs and announced a stake sale in its wealth management arm to boost capital ratios.
On Monday, Hartzer reiterated that the bank will maintain a return on equity of over 15 percent. Shares of the bank, valued at A$96.9 billion, have dropped nearly 10 percent so far this year compared with a 6.8 percent drop in the benchmark .AXJO .
($1 =A$1.4470 Australian dollars)