Such high personnel expenses would be reasonable for investment banks, where the human resources are a key element. Even though the large local universal banks have moved to salary systems that include a performance-based variable component, this type of spending has not gone down that much, even though sales did decline.
“The healthy salary spending share in the budget is 50%, or else one risks no longer being able to juggle the rest of the banks’ expenses, because of too much money tied up into salaries,” said the human resources manager of one of the largest local banks.
Even though they started to improve spending efficiency in recent years, banks have been unable to avoid the growth of salary budgets in volume, despite reducing the salary cost share in the total operating expenses.
“First of all, the major banks tend to try and cut their risk costs at the moment, as they are main factors that lead to losses or less than optimal profits,” says Andrei Caramitru, partner and head of Eastern European Telecom, Media and Technology Practice of strategic management consultant McKinsey & Company.
“Personnel spending is the second big problem for banks, where they try to optimize costs, considering the number of loans has significantly gone down, while the number of branches stayed the same as in the peak period.”
Not replacing employees who go on maternity leave, freezing general raises and layoffs were the main cost-cutting solutions banks used in the past year. The latest financial results published by the top three banks show there is still room for human resources cost optimization.
BCR, the largest local bank, with 8,084 employees at the end of last year has the highest personnel costs. The bank increased salary spending by 0.05% (to RON790.5 million) in 2011, but the share of such spending in the total administrative expenses fell by almost 2.3% to 59.1% compared with 2010.
BCR posted RON546.4 million net losses in the first half, as a result of the decline of interest income and high provisions.
“The large banks in Romania still have a high number of branches compared with other countries. The number of employees in the system remained constant or dropped slightly, while the number of new loans fell 50% to 70% compared with 2007-2008. Personnel spending will be optimized in all major banks in the next few years, but the biggest problem of the banks is the risk costs, which affect their profits and do not allow attaining the 10% to 15% yield shareholders want,” Caramitru added.
In BRD’s case, the share of salary spending reached 45.7% at the end of last year, even though the bank’s personnel costs (RON645 million a year) are lower than BCR’s, despite the same number of employees. Still, BRD, the most profitable local bank in 2011, posted RON43.6 million losses in the second quarter of this year, as a result of lower revenue and high risk cost. The first quarter profit, however, was enough to offset it, and BRD’s first half net income reached RON39.4 million.
Banca Transilvania, which has the lowest personnel spending among top banks, also posted the highest profit in the first half, RON180 million, up 47% year-one-year. The bank says this was because of the lower provision spending. The amount earmarked for salary payments stands at almost RON369 million a year, which is almost 56.5% of the bank’s administrative spending.
“We look at the cost/revenue index when we set salary budgets, but this index varies from bank to bank, because some include provisions in costs, while others don’t. Our salary budget has always been over 50%, but there were also years when it was lower, 52% or 53%, because no bonuses were paid and also years such as this one when financial results allow for bonuses and an increase in the salary budget,” says Nevenca Doca, human resources manager of Banca Transilvania.
People working in banks are among the highest paid employees, considering their salaries are 2.5 times the national average. The average net salary in the banking system stood at almost RON3,800 in 2011, up 6.2% on the previous year, while the net salary went up 4.9%, according to the National Statistics Institute.
“The trend started in 2010 maintained in 2011 and 2012. Banks are no longer giving or giving very low and individual raises, for the key positions filled by high performance employees,” says Roxana Feregan, consultant with Consulteam, the local representative of HR giant Mercer.
The banking system is currently employing fewer than 60,000 people, after a gradual decline in employee numbers in the first half.
“The variable component of the salary budget is the only factor influencing the percentage of salary spending in the total expenses, considering there have not been any general raises or at least [raises] adjusted for inflation. Performance bonuses alone influence the increase of the salary budget,” added Banca Transilvania’s Nevenca Doca. (EUR1=RON4.4939)
(English version by Loredana Fratila-Cristescu)