Economic slowdown could force Australian banks to downsize in the coming months, Swiss bank UBS warned on Thursday.

The downsizing may result in lay-off of bank employees in the thousands and wage freezes and cuts, The Australian reports. Australian banks currently employ about 174,000 workers considered among the highest paid bank employees in the world.

A full-time employee earns $104,000 a year on the average, up by about 5.4 per cent annually since 1994. Junior tellers are paid $40,000 yearly while their counterparts in Britain get only $18,000 and in the U.S. $19,500.

Payroll accounts for 58 per cent of retail bank expenses, thus at least five financial institutions have plans to reduce manpower. The list are led by Westpac which plans to slash about 1,000 jobs from middle management and Macquarie which laid-off staff from its investment banking and retail divisions. Commonwealth Bank, ANZ and National Australian Bank are expected to also axe workers.

According to UBS analyst Jonathan Mott, Australian banks managed well their payroll size from the late 1990s until early 2000s, but became lax in controlling employee size in recent years.

"As the banks have grown their revenues, credit and products over the past several years, they have added additional middle management roles.... This is likely to be an area which the banks focus on in addressing staff expenses," The Australian quoted Mr Mott.

The likely target of downsizing would be employees in business development roles which had become redundant on account of flat growth for credit. Mr Mott explained the sales force will be hit because of the higher value banks place on retaining existing clients rather than signing new ones.

Australian banks, even with the threat of downsizing and economic slowdown, are expected to report record-breaking full-year profits, with the top four expected to log combined earnings of $26 billion.