Our View: If banks want to reduce costs they should act on it

The main challenges facing the banking sector were the high level on NPLs, ineffective foreclosure legislation, red tape and the “unsustainable cost-to-income ratio” said the CEO of Hellenic Bank Oliver Gatzke in a speech on Wednesday. He explained that while the ratings of the banking sector were improving, they were still not investment grade, which made it difficult for the banks to attract foreign investment.

This was why it was vital to deal with these challenges. Progress has been made in reducing NPLs, the governor of the Central Bank Constantinos Herodotou, saying on Monday that in June 2021 they made up 17.4 per cent of total loans compared to 27.9 in December 2019, before the onset of the pandemic. He noted that the reduction was mainly because of one bank and others should follow suit.

With regard to the foreclosures, the political parties are largely responsible for imposing restrictions, on the pretext of protecting the primary residence, restrictions they keep extending for no rational reason. The parties labour under the illusion that they have a responsibility to protect people who refuse to pay their housing loans. As for bureaucracy neither the banks nor the state have brought it under control.

The most persistent problem facing the banks, which they are afraid to deal with is the high staff costs and payroll, which according to Gatzke amount to 50 per cent of total costs. “In my view, the time of extensive pay rises as well as too generous exit schemes should be over, and I wish that the banking industry in Cyprus stands united behind this direction.” He also pointed out that Cyprus’ population per bank, branch and bank employee was much lower than the euro zone average.

These are all valid points, we have been hearing for years, but why have the banks done nothing to correct things? Is anyone stopping the banks from closing down branches? And once they reduce the branches they will have the justification to reduce the number of staff. Of course, doing so without obscenely high pay-offs that have become the norm, might be easier said than done bearing in mind the power of the bank employees union Etyk and inexplicably strong political support it enjoys.

Putting an end to the “extensive pay rises,” as Gatzke said would be even more difficult. Once again, this is entirely up to the boards of the banks, which have traditionally shied away from confrontation with Etyk. Without a confrontation, which will also incur a cost, the extensive pay rises and too-generous exit schemes will continue. Expecting a constructive stance by Etyk in order to solve the problem is naïve and futile. If the banks want to reduce their costs they should stop complaining and act.