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The next wave
A survey of Greek regional banking By Robert McDonald March 2007 -- Greek banks are rapidly expanding abroad. They now have close to 30 business units (either subsidiary banks or branch networks) in 10 Balkan, Black Sea and Eastern Mediterranean countries - more than half of which have been acquired in the past four years. They have close to 2,000 branches that may employ as many as 25,000 people. Their foreign assets could be worth as much as EUR 15 billion. The rationale is basically survival. Greece is a very small market. The country has just 11 million inhabitants. The broader Balkan region, where Greek banks have already established significant presence, has a population of approximately 60 million. These countries have only recently emerged from planned to market economies. Their standards of living are low. But after a transitional decade of political and economic turmoil, all are stabilising and determinedly bent on pursuing a path towards eventual integration into the European Union. Bulgaria and Romania joined this year. But the potential is vast. All the Balkan countries have outstanding volumes of credit well below those in Greece. Corporate loans are at about half the level; retail about a quarter. Aspirations in these countries are high and the demand for credit is spectacular. Banks have been increasing their lending at annual rates of between 50-90%. Because this is from a low base, the nominal amounts, for the time being, modest. Even so, because of the prevailing low standards of living and remaining macroeconomic and monetary uncertainties, the risks are high. But high risk breeds high return which is what Greek banks are after. It's a phenomenon the Greek players understand. They have come to their domestic maturity in a convergence era which has seen the Greek economy move from low growth, high inflation and intense currency risk, to full membership of the Eurozone, with high growth, falling interest rates and currency stability. The Greek banks have had recent experience of coping with excessive non-performing loans and the need for high rates of provisioning. They have dealt with tight monetary controls, including measures such as high volume, low-interest reserve requirements and caps on lending volumes. After all, it was only in 2003 that the Greek consumer lending market was finally fully liberalised. The Greek banks have only recently rolled out their integrated, customer-oriented IT systems and electronic banking infrastructure. They have presided over the introduction of mutual funds and more sophisticated investment instruments into the Greek market and they weathered - some better than others - the boom bust cycle on the stock exchange. Already they have begun to look beyond the Balkans into a new orbit that embraces Turkey, the Ukraine and Egypt --- countries with a population three times again that of the Balkans - bringing the total potential customer base to close to a quarter of a billion. These countries are riskier even than southeast Europe - Turkey for political reasons, the Ukraine for economic and Egypt for cultural. But the profit possibilities are commensurately large and the Greek banks, steeled by experience gained in the Balkans, are beginning to invest in these countries too -- most tentatively, National aggressively. For the time being the regional contribution to consolidated profits is limited to around 10%, however, growth prospects in the region, coupled with diminishing profitability at home, mean that the Greek banks are already targeting a contribution of between a quarter to a third by the end of the decade. Some are talking 50-50 by then end of the next decade. Greek banks have understood that, either they become regional players or they will become takeover targets for northern and western European multinational banking groups with considerably larger capital resources. Credit Agricole has already acquired Emporiki and Société Générale has taken control of Geniki. The remaining four big players -- National, Alpha, Eurobank and Piraeus -- are intent on staying independent and joining the Big League in their own right. They will have to look to their mettle to make sure that they don't become victims of their own success with their extensive regional networks enhancing their attractiveness as takeover targets rather than proving a defensive mechanism. "The next wave," Business File Special Survey No. 62, is based on interviews with leading executives of the major banks including exclusive interviews with Takis Arapoglou and Nicholas Nanopoulos, respectively the CEOs of National Bank and Eurobank EFG. The issue is available from Kerkyra Publications Publications Limited; subscriptions to the annual series of four issues are available at EUR 35. Contact info@invgr.com.
For further information on subscriptions and/or individual copies of Business File, which is published by Athens-based Kerkyra Publications Ltd., please contact INVgr. "The next wave" is available from Kerkyra Publications. Subscribers to INVgr's electronic business information service are entitled to a discount of 20% on the cover price or 20% on the first year's subscription rate. Source: Kerkyra Publications Ltd. Useful links:
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