Cyprus banks have high costs relative to EU

Heavy staffload the likely problem

Data from the European Central Bank show that banks in Cyprus have one of the highest costs among new member states and much higher costs then the EU average.

According to the European Central Bank Report, “Banking Structure in the New Member States”, the cost to income ratio of commercial banks in Cyprus is 76.9%, compared with an average of 63.1% for the other new member states and an average 65% in the EU, according to other ECB sources.

The cost to income ratio of the co-operatives, meanwhile, is 52.5%. Only Lithuania among the new members outstrips Cyprus, with a cost to income ratio of 77.7%.

Staff-cost ratios have been rising

While high costs can have several causes, preliminary research seen by the Financial Mirror suggests that it is staffing costs that are the real problem.

This research shows that, not only have staff-cost ratios been climbing over the past few years, they are the reverse of trends in larger economies such as the UK, where such ratios have been falling.

The reason for such an anomaly is obvious, namely that the heavily unionised sector will not counter any lay-offs.

Cypriot banks have been on a recruitment freeze for years now, but no amount of non-recruitment will make up for the overstaffing and sky-high pay deals awarded in the heady days of the stock market boom.

In the meantime, the banks have been trying cutting costs in other ways that ultimately do them damage, for example by scaling back on investment and marketing.

Fiona Mullen