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The Bank of Cyprus management sounded the alarm on Tuesday pointing out the need for cost cuts, as the bank's operating cost structure will be challenged by the need to reduce its non-performing loan book which is among the highest in the EU.

In a circular to the bank’s staff on the occasion of the preliminary results for 2017, obtained by CNA, Josef Ackermann, President of the banks Board of Directors and John Patrick Hourican, the bank’s managing director said the staff must face this reality.

They stated the bank’s achievements in 2017 such as the new lending amounting to €1.6 billion, the €2.2 billion reduction in NPLs and the €6.6 billion since their peak following the 2013 financial in crisis in Cyprus, noting however “the progress we are achieving comes at a significant cost.”

Total provisions against NPLs and loan impairments that amounted to €942 million in 2017 wiped out the bank’s operating profit, resulting in a net loss of €552 million for the year that ended in December 31 2017.

Stating that the balance sheet repair continues, the strong men of Bank of Cyprus said despite the €6.6-billion in NPL reduction “we still have one of the highest levels of non-performing loan levels in the EU.”

“Tackling it will place further pressures on our revenues and challenge our operating cost structures. It is important that we recognize this reality,” they said.

Ackerman and Hourican recalled the bank’s proposal to introduce “a more modern and more transparent pay and grading structures which will correct current imbalances which are unfair for many of our staff,” noting that the discussions with the bank employees’ trade union (ETYK) have not progressed satisfactorily and that the bank sought assistance from the Ministry of Labour in facilitating a better and speedier dialogue.

“The continuation of current practices and the granting of horizontal indiscriminate salary increases will further drive up our cost base whilst at the same time render the Bank less competitive in an increasingly demanding environment,” they noted.

Ackerman and Hourican furthermore said the communicated with the staff to remind them "that the bank’s recovery remains delicate”.

They emphasised that “despite steady progress, we still have extremely high non-performing loans that present a danger to the bank. We have contracting revenues and an unsustainably high cost base.”

“We must collectively take responsibility for the Bank’s rehabilitation and modernization. We must embrace modernization in all aspects of our industry. We must embrace digitization and process re-engineering. We must embrace transparent, fair and modern pay and reward practices,” they concluded.

Source: Stockwatch