Cost reduction in banks is demonised

For a company’s business strategy to work successfully, it must be based on changes taking place in the economy and in each sector, on political developments and on the demands and needs of the target audience.

Technology, for example, is changing the banking model and as the years go by it will change it even more.

Building competitive capabilities by each business and supporting all its activities and moves is vital and there nobody could argue with this. Costs, at the same time, should not be looked at as a whole, but separately and this is how the cost strategy is formulated.

The company redefines its activities and chooses to terminate those that generate unnecessary costs, even if until two or three years previously the same activities were not counted as unnecessary expenses and served a specific purpose.

Cypriot banks have the second-highest average cost-to-income ratio among the European Union countries. Data from the European Banking Authority (EBA) show that in December 2021 Malta had a cost to income ratio of 88%, Cyprus 76%, Germany 74%, Ireland 69%, Luxembourg and France 67%, Italy 66% and Greece 65%. The European average cost-to-revenue ratio for European banks is 63%. It becomes apparent that it is imperative for Cypriot banks to reduce costs in order, at least, to reach the European average.

The banks in Cyprus have included cost reduction in their strategic plans by closing branches and reducing staff. Discussion about reducing staff was not a bolt from the blue. Banks have communicated their intentions in writing to the Ministry of Labour and to all the bank employees’ unions. Traditionally, banks have cut staff through voluntary exit schemes.

But the costs in an environment of declining revenues, high supervisory costs, inflationary pressure, and technology-related investments are enormous. Under these conditions, it is difficult to continue to resort to schemes with terms that are out of step with the times. The unions are threatening strikes in the Cypriot banking sector in response to proposals for staff reductions which include voluntary exit schemes with gratuitous severance payments of less than 200 thousand euro.

The negotiation of new collective agreements between unions and banks, is generally accepted, would reduce the chasm in differences that have arisen. It is the only way for the banks and their unions to work together for the good of the economy. Cypriot banks have a social character and, it is guaranteed that bank employees, who are not included in their new strategic plans, will leave with all legal and labour rights respected.

The differences that arise between employers and employees should be discussed. It is certain that through dialogue a solution will be found that satisfies both sides. Spasmodic moves with strike threats certainly do not help, nor are they steps towards finding a solution. The negotiating table is available and cost-cutting in the banks should not be demonised.