Labor and operating costs, reduced revenues and charges
According to a study by the Association of Banks, for every euro earned by financial institutions in Cyprus, 65% to 70% is attributed to labor costs. Analysts point out that this ratio may be the highest in the world in the banking sector.
Under the current circumstances, labor costs for Cypriot banks are disproportionate to income, inelastic and in many cases irreversible. It is clear that banking institutions in Cyprus are facing new challenges, in a period of zero interest rates and uncertainty due to the pandemic, having to manage wage and automatic increases / contributions, issues that affect their labor and operating costs.
It is no coincidence that the Central Bank of Cyprus places particular emphasis on the need for banks to adjust to the new data. In particular, the CBC points out that the low profitability they record, due to low interest rates and high operating costs, make it imperative to adjust their operating model. The conditions that have been created force the banks to invest in the technological upgrade of their operation, providing their customers with cheaper and faster services. Part of the same equation is the choice of banks to increase charges, in an effort to cope with rising costs compared to other EU member states.
Another "weight" for the Cypriot banks is the very high number of accounts per person in Cyprus, which leads to an increase in their operating costs as for each account the banks pay a fixed amount as a "parking fee" to the European Central Bank. The Governor of the Central Bank, Mr. Konstantinos Herodotou, during the recent discussion on bank charges before the Trade Committee, stressed that citizens should keep only those accounts that are really needed, typically saying that he himself belongs to the category of customers who need to reconcile their accounts.
It is recalled that the changes in bank charges were made on the basis of a decree issued by the Ministry of Finance. Each citizen can choose the appropriate account or service based on their own financial profile. The decree set a ceiling of a maximum charge of € 36 per year, while charges for vulnerable groups, such as the recipients of the Minimum Guaranteed Income (EEI) are zero.
The CEOs of Cypriot banks do not miss the opportunity to emphasize the need to reduce their operating costs. In fact, speaking at the recent Banking Forum & Fintech Expo, the CEO of Hellenic Bank, Oliver Gatzke, referred to the example of ABN AMRO, the second largest bank in the Netherlands, which has about 100 branches, although it gathers more assets than all Cypriot banks combined. .