Investors in the several of the major Australian banks will have reaped big returns in the country’s past two decades of economic prosperity, but analysts are now warning that the domestic majors may need to focus on cost cuts to maintain their momentum, which makes headcount reduction a likely target.

Bloomberg said today that Australian banks had posted the best risk-adjusted returns among global peers in the past 10 years, attracting investors with rising earnings and the highest dividend yields of the world’s biggest lenders.Commonwealth Bank of Australia, the country’s top lender by market value, delivered the highest returns. It is worth more, by market value, than Goldman Sachs Wall Street’s top merger adviser in 2012.

But with some analysts suggesting that the country’s economy is facing a somewhat less robust scenario, and given the correlation between bank costs and revenue growth, the major banks may now start to rein in spending. Nomura Equity Research said in a note published last week that staff costs would be the most likely target for a cut-back in costs.

“Given (that) staff costs represent 52-56% of the majors’ cost base, should cost management become a priority, ultimately staff costs are likely to be the target. After a period of FTE (full-time equivalent) reduction in the early 2000s, banks expanded headcount between 2006 and 2010. Also, the average cost per FTE increased ahead of the average inflation index for most of the majors throughout the past ten years (except for National Australia Bank).

“While the split between front office staff and support staff is not available, anecdotal evidence suggests that banks have capacity to reduce their headcount in a slow growth environment without materially impacting service levels.”

Nomura said that given the relatively high labour costs, “we believe Australian banks will be increasingly tempted to look to offshoring opportunities particularly if the Australian dollar remains strong relative to other currencies.”

Singapore’s largest bank DBS wants the entire Temasek Holdings investment in Bank Danamon Indonesia. DBS chairman Peter Seah says a smaller stake would require a review of the economics of the deal, he said.