Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

To the Balkans and Beyond

Over the past decade, Greece's leading banks have expanded into south-east Europe. To remain competitive, however, they will now need to weather the financial storm and continue to focus on increasing their presence in the Balkans and the rest of eastern Europe. Writer Kerin Hope
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

The four big banks in Greece have built a combined market share of close to 20% of assets in south-east Europe over the past decade through a mix of acquisitions of local lenders and organic growth.

But as the region's fragile economies buckle under the impact of the global crisis, banks are having to rethink their strategy. Network expansion has stalled and lending has been curtailed. The Greek central bank has warned against using funds from the government's €28bn bank support package - Greek tax payers' money - to fund operations abroad, and has strengthened liquidity requirements at group level for foreign subsidiaries.

However, the major banks are still lending, using their local deposit base.

Nicholas Nanopoulos, of EFG Eurobank, says: "It is demand that has suffered in the past few months, whether it is small businesses, consumer loans or mortgages. It is not supply - we have always been present for decent credit."

Exports collapse

Until late last year, business plans forecast that as the Greek market matured, about 30% of profits would come from the emerging markets of east and south-east Europe by 2012 - double the figure for 2008. Revisions are under way following a collapse in export-led growth across the region, along with a financing crisis that has caused five countries so far - Romania, Serbia, Ukraine, Turkey and Poland - to seek help from the International Monetary Fund (IMF).

While other foreign banks focused on large acquisitions in a few markets, the Greeks chose to spread their operations across the region, from the west Balkans to Romania, Bulgaria and Cyprus. Banks at first supported the expansion of Athens-based corporate customers, then moved into retail lending.

Some groups went further afield. National Bank of Greece (NBG) made a bold move into Turkey, acquiring Finansbank, the country's eighth-largest lender, which contributed 27% of group net profits in 2008. EFG Eurobank set up a profitable greenfield operation in Poland. Eurobank, Alpha and Piraeus Bank all acquired small banks in Ukraine.

At the end of 2008, Greece's assets in Eastern Europe were equivalent to 20% of gross domestic product (GDP), compared with 70% for Austrian banks. With some exceptions, loan-to-deposit ratios exceeded 100%, reflecting a surges in demand for credit. Economies in the region grew by an average of 6% during 2006-2008.

Albania bucks the trend

This year, only Albania - the region's smallest market - and perhaps Bulgaria are likely to escape recession, according to regional analysts. Flows of inward investment, which previously included substantial transfers from parent banks to their regional subsidiaries, are drying up, along with remittances from migrant workers - the two main sources for covering current account deficits that last year ranged from 12% to 25% of GDP.

However, Mr Nanopoulos stresses that economic conditions vary widely within the region. "You have to differentiate. For example, you can't put Poland with an A rating in the same box as other countries in the region, which face a more difficult economic situation," he says.

Takis Arapoglou of NBG says he is confident Turkey will rebound quickly, thanks to a flexible export-oriented manufacturing sector. Finansbank's network, which has doubled since the acquisition, provided a reassuring first-quarter increase in Turkish lira deposits.

"We have tried to inject the NBG group's culture into Turkey, of being a deposit-collecting machine," says Mr Arapoglou.

Expansion halted

Alpha Bank has brought expansion to a halt, after opening 400 branches in Romania, Bulgaria, Serbia, Albania and FYR Macedonia in 2007 and 2008. It had originally planned to complete the network by adding another 200 outlets across the region during 2009 and 2010.

Michael Masourakis of Alpha says: "We have achieved national coverage everywhere except Ukraine. Now we have an opportunity to re-appraise and improve profitability. Our commitment is for the long term. Our assumption is still that the countries of south-east Europe are heading for membership of the euro."

Greek banks weathered a series of regional crises in the 1990s, including the collapse of fraudulent pyramid schemes in Albania, hyper-inflation in Romania and a domestic financial collapse in Bulgaria, says Jens Bastian, economic analyst at Eliamep, an Athens think tank.

In March, the four Greek banks joined Austrian, French and Italian lenders in pledges of support for Romania and Serbia. Joint lobbying of international financial institutions has helped secure additional assistance from the European Commission and the European Investment Bank for countries that have agreed with the IMF on stand-by or precautionary loan arrangements.

"Balkan expansion internationalised the Greek banks' operations and made them more competitive, thanks to a long-term strategy. It would be a mistake to lose that edge by downsizing portfolios now," adds Mr Bastian.

Was this article helpful?

Thank you for your feedback!