IRISH banks are making record profits but are obsessed with cost cutting exercises which could undermine long term competitiveness, the general secretary of the Irish Bank Officials' Association, Mr Ciaran Ryan, has said.
"There is a tremendous contradiction in the banking industry at the present time," Mr Ryan told delegates to the association's biennial conference in Dublin at the weekend. "We see unprecedented profits in each and every one of ,the banks in which we represent employees. We see record profits, record stock market valuations and a level of dividend which vastly exceeds both the movement in the cost of living and the level of pay increases we are able to negotiate for our members."
Overall profits had increased from £175 million six years ago to over £1 billion last year, yet employers were seeking to enhance profits still further "by programmes of grinding attrition aimed at reducing staff numbers, diminishing the quality of jobs and undermining the terms and conditions of those very people who have produced these gargantuan profits".
The union was constantly told that "the cost/income ratio is king. Unless we cut back, the hidden competitor will savage our business.
This meant that banks with high ratios were trying to cut costs to reach the average, banks with average ratios were trying to reduce costs to match best industry practice and banks with low ratios were cutting costs to stay ahead of the competition. "The logic is unrelenting and it has a strong operational impact of leading to round after round of cost cutting, with an emphasis on cuts in staff numbers," Mr Ryan said.
The IBOA accepted that profitability was important, "not just to investors but in creating the conditions under which jobs can become more secure". The real problem it had with the cost/income ratio was that "it provides more of an excuse to cut costs than a reason to cut them. Reducing the ratio allows bank management to maintain an illusion of strong management when, in fact, it can hide bad management."
Often changes in the cost/income ratio were totally outside the control of employees, as when the new Australian owners of the Northern Bank took more in dividends than the profit made by the bank over the previous five years, Mr Ryan said.
A more relevant ratio for assessing operational success, he argued, was the ratio of profit per employee. Last year the Business and Finance listing of the top 1,000 Irish companies showed that Allied Irish Bank and National Irish Bank made £24,500 per employee. Bank of Ireland made £25,000 per employee and Ulster Bank just short of £28,000 per employee.
In contrast, the top six industrial companies made an average of £9,325 per employee. The most profitable, the Jefferson Smurfit group, made £16,410 per employee.