The European Commission and the European Central Bank champion the market economy and competition but some of their directives have had the effect of stifling competition. This seems to be the case in Cyprus in which the two systemic banks dominate the market, but do not appear to be competing, at least not for customers.
The situation is not of the banks’ making, even though they are using it to their advantage. It was not the banks that sought the role of tax inspectors for the state, demanding tax certificates from customers, monitoring their transactions and being obliged to notify the authorities about suspicious money transfers or deposits. These measures, including the tax policing, are part of the anti-money laundering policy imposed across the EU.
One side effect of these policies has been to make banks take their customers for granted. The amount of paper work required to open a bank account with a new bank is a deterrent for individuals and businesses to make such a move. Bank employees can be as rude, unhelpful and arrogant as they please, knowing that a customer would rather be subjected to this treatment than face the hardship of taking their business to another bank. How is competition served when it is so difficult to leave banks offering lousy service?
A banker who has been on the receiving end of many complaints about his bank’s poor customer service said that top management was not bothered because even the few customers who decided to take the big step of taking their business to a competitor usually returned because service was no better at the new bank.
The situation cannot be blamed entirely on the paper work. Record low interest rates and the strict criteria imposed by the Central Bank for granting loans have also contributed to poor customer service, because the banks do not seem to want extra business. The low margins directly linked to low interest rates are a disincentive for attracting new customers, while banks try to increase profits by imposing high charges for money transfers, foreign exchange, cheque books etc. And as they all do it, for the reasons mentioned above, it is difficult for the customer to take their business elsewhere.
This is not a healthy state of banking affairs. The diminished competition – or should we say non-existent – should be a concern for the authorities and worthy of investigation by the Commission for the Protection of Competition. We are aware there are no obvious answers to the problem, but that does not mean the Competition Commission should not be looking at ways of improving the situation.