St George Bank assured on Friday its employees that no one would lose their jobs amid reports that the subsidiary of Westpac is planning to outsource 200 IT jobs to IBM.

"Should we proceed with any changes, jobs will remain in Australia and there are no plans for redundancies," Westpac General Manager of Service Delivery Infrastructure Gary Sim was quoted by The Sydney Morning Herald.

Instead of firing the 200 affected employees, they would be transferred across the service provider and stay within the St George office, he explained. When speculations went around of the job axing, the bank workers sought a meeting with management which informed them of a possible change in the organisation but did not provide more details.

The possible change is based on an assessment that the present in-house operation of the information technology department no longer fits the Westpac service delivery model.

"At this point in time, it is a review only and no decision has been made," Mr Sim stressed.

The report of planned job cuts is fueled by a previous study that said 7,000 jobs would be shed in Australia's banking industry in the next 24 months. Westpac has indicated it will cut 560 jobs while ANZ laid off an initial 230 workers as part of the lender's plan to shed a total of 1,000 posts.

In contrast, Commonwealth Bank of Australia (CBA) said it has no plans to outsource jobs because it could lead to poorer customer service and operations risk. CBA Chief Executive Ian Narev assured the bank's staff the company has no plans to declare redundancies on a large scale.

In March, Westpac said it would go ahead with downsizing plans even if it would be a bitter pill for some employees.

"Our internal flexibility and agility will be hugely improved, but it is a painful process to go through to get there," Westpac technology head Clive Whincup was quoted by Financial Review.

The employee transfer scheme is not new to the banking industry. In 2010, after the National Australia Bank inked a new outsourcing agreement with Big Blue, it transferred 400 workers to the latter.

Outsourcing of tasks by large western companies to Asian and African nations had been ongoing for the past two decades, but it was used as labour cost-cutting measures mostly by large firms.

Recently, even small Australian firms are getting into outsourcing for the same reason. The scheme is being facilitated by online firms such as Freelancer.com.au which pairs small Aussie enterprises with outsourcing suppliers in third world nations.

According to the online company, customer support projects went up 89 per cent in the 2012 March quarter to 1,173 projects around the world, while for the same quarter data processing projects grew to 187 per cent to 18,351 projects. Data entry work also increased 111 per cent to 30,837.

While the number of projects is rising, labour costs are going down for small Aussie firms since the average project cost is less than $200 which is often worth 10 times the labour cost if the jobs are done by Australians.

However, the arrangement has affected employment opportunities for local workers, not just those in the manufacturing industry since the practice has spread to IT tasks, thanks to the Internet.

Economist Timo Henckel of the Australian National University said if more small local firms resort to outsourcing it would displace more local workers as well as companies.

"On the other hand because (the work) is done more efficiently, that frees up resources for a domestic firm to engage in some other activity or to use those funds for further expansion," The Sydney Morning Herald quoted Mr Henckel.

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