The banking sector and the real economy are closely interdependent: for the time being, the real economy and the PSI are pulling down the banking sector. Nonperforming loans (NPLs) are on the rise, banks proceed with restructuring of loans that have a big probability of being repaid, so that fundamentally healthy companies and small businesses that are suffering from the recession do not close down. And this is a great service to the economy that few acknowledge. Banks, admittedly with some delay, have been reacting appropriately to the crisis. All banks have been engaged in a soul-searching exercise and have presented business plans, much ahead of the supposed restructuring in the wider public sector. Branches are being reduced, personnel is being reduced (in many of them by 10-20% – e.g. Agricultural Bank, New Proton Bank), wages are being cut dramatically to the tune of almost 15-20% [much more for senior personnel (35% in real terms) and significantly more for the top management], units are being merged with other units to improve cost efficiency. However, for the time being the firing costs (severance pay is equal up to18 months’ salaries) do not allow this cost-cutting to be reflected in the profit and loss accounts of the banks. However, these transformations will be fully reflected in the accounts in
about a year’s time, when the efficiency gains will be effective and non-core activities will be disposed off and administrative costs reduced. Of course, this will not be reflected immediately in a big improvement in the cost/income ratio because income is still being squeezed, but once the situation is stabilized and even more when recovery is underway, cost/income ratios will be reduced drastically.
