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Changes to pay policies in Cyprus’ banks ‘inevitable’, BoC chief says (Updated)

Changes pay policies in the banking sector are unavoidable, and banks will need to engage with the unions on the issue, Bank of Cyprus’ Chief Executive Officer Panicos Nicolaou said on Friday, addressing the Limassol Economic Forum.

“The banks will not move fast in engaging with the unions to promote a fair remuneration system based on productivity and job description,” Nicolaou said. He said it may not happen this year or the next “but it will come soon as this is inevitable and it will come.”

According to CNA, Nicolaou highlighted the main challenges facing the banks in the euro area, namely low-interest margins, cost-to-income-ratio, legacy issues, such as non-performing loans, regulation, and the digital disruption.

“Having lower-income, banks need to improve cost efficiency,” Nicolaou said. He added that solutions could come from more traditional cost-saving actions such as branch network downsizing as well from adopting cost-efficient technology.

He also said that banks in Cyprus and southern Europe were facing headwinds from NPLs which absorb a lot of operation capacity, tie up capital and involve high administration costs, while regulators press for higher capital requirements and for solutions in legacy problems “within accelerated timeframes.”

“There is no grace period for solving our legacy problems,” he added.

As a recent example of the challenges banks will have to face in streamlining their pay policies, last Friday, members of the bank workers union Etyk stage a strike at Hellenic Bank after

accusing the company of refusing to pay employees automatic wage increases as well as Cost of Living Allowance, despite being advised to do so by the labour minister.

The bank has already said it would be granting a 2 per cent raise across the board plus an additional increase based on performance and the going market rate. Management reiterated that it had granted higher pay increases than those demanded by Etyk, in a fairer way, and has also established a minimum wage of €1,300.

The bank’s argument was that the frantic pace of technology was leading to the digital transformation of the banking sector, which, in a few years, would in no way resemble its current form.

Competition was no longer limited to banks as financial services and other players, such as fintech companies—giants like Apple, Google and Amazon—had joined the game. These were organisations with staff better trained in technological rather than financial matters and had the necessary flexibility to move based on their needs, without being trapped within collective agreements.

On Friday, industry sources told the Cyprus Mail that in the case of Hellenic, the pay rises offered were higher than those requested by Εtyk and probably much higher than those the union would be agreeing with any other bank. But instead of welcoming the hikes, the union staged a 24-hour strike, they said.

“The problem was that the bank’s management sought to break the cycle and, instead of giving horizontal raises, a practice which Etyk has been demanding for the past 50 years, considered it fairer to correct payroll discrepancies, rewarding the best and increasing the salaries of low-wage employees,” said the sources.

They said it was a fairer, more equitable system that enhanced productivity, and also made the point that the unions refused to talk with management.

The sources also said the union leadership would do well to follow developments in the banking sector globally and be aware that outside Cyprus there is no discussion about “fairer increases” but about “layoffs”.

“In an era of technological booming, banks are evolving, becoming more flexible and efficient. For how long do they think they can keep the banking industry trapped in counterproductive and stiff contracts?”

The sources added that foreign companies such as PIMCO, Third Point and Renova Group invested in the banking sector of Cyprus and had not seen any return yet. “Instead they experience irrational demands from a union backed by the ministry of labour,” said the sources.

In addition to Hellenic trying to make changes and streamline their pay policies, Bank of Cyprus also recently unveiled its fourth voluntary retirement scheme since 2013 offering staff up to €200,000 tax-free with the aim of shedding 400 jobs.

In a message to staff, the bank highlighted the need for further cost-cutting amid rising operating costs.

In light of the international financial environment in the banking sector, where interest rates were very low and operating expenses on the rise due to the strict regulatory and supervisory framework, there was a need for further rationalisation, further modernisation, and reduction of the bank’s operating cost, BoC said.

At Friday’s conference, the head of the Financial Advisory Services of Deloitte Cyprus Nicos Kyriakides also referred to the new challenges that were affecting international business environment. Among them, ever-increasing globalisation and the challenge of digitalisation in business.

(CNA contributed to this story)

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