Australian banks are on a cost-cutting mode in a bid to pare expenditures that soared during the credit and housing boom.

The widespread economic slowdown and lower demand for credit are also some of the reasons why banks are under heavy pressure to maintain earnings growth which could be reached by belt-tightening measures. After 20 years of uninterrupted rapid loan growth, Australian banks are now experiencing contracting business credit and mortgage demand levels at the lowest in 34 years.

Commonwealth Bank of Australia (CBA) announced on Monday that it aims to reduce its cost-to-income ratio to 35 per cent by 2013 from the current 38.7 per cent for its retail banking unit, The Australian reports.

However, CBA said it will not lay off workers to cut costs even if payroll accounts for about 60 per cent of the bank's cost.

On Tuesday, Australia and New Zealand Banking Group (ANZ) announced through a company memo pay freeze for majority of top executives. The policy is the result of the bank's 2011 performance and remuneration review that limits salary increase budget to 1 per cent for the top 900 executives.

"We are taking action to position ANZ ahead of the curve by making decisions that demonstrate to our people, customers and shareholders that we are running our business in a responsible and sustainable way," Reuters quoted ANZ Chief Executive Michael Smith.

With limited funds for salary increases, executive pay would likely remain fixed for the next few years, while those in non-executive posts who are performing well could expect some salary adjustments.

The policy comes at a time that there is a growing criticism of huge bank executive compensation packages even if the banks are not earning or some or it had been bailed out by taxpayers' money.

"The environment for banks globally is becoming more difficult and we believe showing leadership from the top by demonstrating restraint on costs is the right thing to do for the business and for our shareholders," the ANZ spokesman said.

Despite the austerity measures, Australian bank employees are relatively well protected because they enjoy one of the highest pays among bank workers globally.