Greece’s banks are better prepared than other sectors in the country for the competitive challenge of the euro-zone.
But a new-found enthusiasm for strategic alliances with banks elsewhere in the European Union points to an underlying sense of insecurity. Greece is poised to become the single currency’s twelfth member on January 1, 2001.
The budget deficit and inflation rate are already comfortably within the Maastricht requirements for adopting the euro.
Short-term interest rates are approaching euro-zone levels, although cuts of up to 3 percentage points have still to be made in the run-up to entry. With the economy set to grow this year by 4.1 per cent, rising to 5 per cent next year, finance ministry officials sound bullish about Greece’s prospects.
This year’s revenue surplus may reach Dr800bn ($2bn), supporting projections for a budget surplus next year of 0.5 per cent of GDP. A new EU structural aid package of Dr15,000bn will help promote growth over the next five years.
Imminent deregulation of telecoms and energy, in line with EU directives, has given an unprecedented boost to business confidence. Greece’s information technology sector appears poised for explosive growth, while traditional sectors such as tourism and ocean-going shipping are flourishing.
But there are concerns that the finance ministry may have trouble restraining inflation as the economy picks up speed without being able to use the familiar tools of interest rate intervention and exchange rate policy. Fiscal and wage policies are already under pressure.
The governing Socialist party faces demands from the public sector unions to relax wage policy now that Greece has achieved entry to the euro-zone. Fiscal policy is also under pressure because the government is already committed to lowering taxes.
In the banking sector, entry to the euro provides a host of new opportunities, but competition will be fierce. Greek banks are looking to develop asset management, private banking and bancassurance through strategic alliances with foreign partners. Greek mutual funds controlled just Dr11,500bn at the end of the first half.
Inflows showed only a marginal increase, with many investors switching funds to repos as share prices on the Athens stock exchange declined. Credit cards and consumer lending in Greece still lag behind the rest of the EU.
Bancassurance products are limited and cross-selling of financial products is at an early stage. “A strategic alliance with an EU bank offers access to products that Greek customers are starting to want, as well as technical expertise,” says Yannis Stournaras, newly appointed governor of Commercial Bank of Greece.
Commercial, still under state control, has teamed up with France’s Crédit Agricole, in a deal arranged under the government’s privatisation programme. The French bank has taken a 6.8 per cent stake in Commercial, but is expected to increase its holding in the CBG group through participations in Commercial’s mutual fund operation and its investment banking subsidiary.
The finance ministry is also looking for strategic partners from abroad for ETVA and Agricultural Bank, two other state banks on the privatisation list. ETVA, listed last year on the Athens bourse, is headed for full privatisation.
About 10 per cent of Agricultural Bank, undergoing a restructuring, will be sold by this year-end through a public offering. But it may be an uphill task. “Cross-border alliances will be product driven at first,” says a foreign banker.
“European banks are not keen yet to take big stakes in Greek banks, with powerful unions and high operating costs compared with elsewhere.” But David Watson, managing director at Piraeus Bank, an aggressive private bank in negotiations with ING, the Dutch financial group, says a product distribution alliance would be “too fragile and could be an impediment to something larger”.
“It has to be a meaningful long-term relationship with significant content,” he says. Piraeus has become Greece’s sixth-biggest bank after acquiring state-owned Macedonia-Thrace Bank and Chios Bank, a small private bank. It has increased its loan book by more than 50 per cent over the past year, faster than any other Greek bank, though from a smaller base.
Piraeus is also the market leader in the fledgling Internet banking market. EFG Eurobank, the retail bank controlled by the Latsis shipping family, can point to the benefits of acquiring a strategic partner. Since joining up with Deutsche Bank, which bought a 10 per cent equity stake, Eurobank has dominated growth in credit card business, consumer lending and phone banking.
“It is important to develop and protect the area where you have a competitive advantage,” says Nikos Karamouzis, deputy chief executive officer at Eurobank. “Increasing volumes will not be enough in the new environment. You have to retain the clients, and that means providing global, not just European opportunities.”
Consolidation has taken a back seat as banks focus on absorbing their acquisitions of the past two years. The merger of Alpha Bank, the biggest private bank, with state-controlled Ionian Bank, acquired last year in Greece’s biggest financial privatisation, went smoothly. But EFG Eurobank has faced problems absorbing Ergobank, the target of Greece’s first hostile takeover bid, mainly because of cultural differences, according to executives at Ergo.
Because Greece still has fewer bank branches for its size than other EU members, the mergers have brought few closures and job losses. Increasing competition is expected to bring network expansion in provincial cities, which have comparatively few branches outside city centres, and in new residential districts.
But there are few attractive takeover targets left in the market. “At this point it makes more sense to increase market share through organic growth rather than acquiring a small bank with a market share of less than three per cent,” says Mr Watson. However, few bankers believe Greece’s five big banking groups will survive intact for long in the euro-zone.
“Long term there probably is not room for more than three sizeable banks in Greece,” says a London-based analyst. There is already speculation that National Bank of Greece, the country’s biggest, may opt for closer relations with Commercial.
In the broader regional market, recent political events contribute to an upbeat mood. Greece’s cautious rapprochement with its old rival Turkey is making slow but steady progress. Greek-Turkish joint ventures in IT and retailing are already under way. National Bank of Greece has become the first Greek bank to open a representative office in Turkey.
NBG is also participating alongside JP Morgan and Garanti Securities, part of Turkey’s Dogus group of companies, in a $100m private equity fund, launched in September to invest in medium-sized Turkish companies. Greek banks are enthusiastic participants in Turkish syndicated loans.
Two private Greek banks are looking for prospective partners among Turkey’s private banks to tap a promising market of 70 million – bigger than the entire Balkan region. “A joint venture is the way to go in Turkey,” says consultant Panagis Vourloumis, former managing director of Alpha Finance, the investment banking arm of Alpha Bank. “Greek bankers are familiar with Turkish capital markets, and they feel comfortable about the country’s prospects.”
The overthrow of Yugoslav president Slobodan Milosevic is expected to bring a swift end to Serbia’s isolation. Greek banks that already have made acquisitions in Romania and Bulgaria are keen to explore the Serbian market, but they sound cautious about investing. Greek companies, mainly food processors and metals traders, have maintained a presence in Belgrade.
Greek contractors are keen to take a share of foreign aid-assisted reconstruction projects. But, until the outer wall of international financial sanctions against Yugoslavia is lifted, the banks are unlikely to make a move. NBG, which acquired leading commercial banks in Bulgaria and Macedonia this year, was close to acquiring the assets of Slavija Bank, a bankrupt subsidiary of Beogradska Banka, the biggest Yugoslav bank, when sanctions were imposed by the international community in 1998.
NBG planned to invest alongside a consortium of Greek businessmen who would have contributed to a capital injection and been the bank’s main clients. Apostolos Tamvakakis, NBG’s vice-chairman says: “The Yugoslav banking system has basically been demolished in the past few years, and our strategy in the region has changed dramatically. In principle we want to be there but it is too early to say how things will develop.”
Agricultural Bank established a retail banking agreement with Beobanka, also part of the Beogradska group, which was expected to lead to an equity participation. The deal allowed depositors with hard currency accounts in Beobanka to withdraw funds through Agricultural’s branch network in Greece.
It helped finance dozens of small cross-border trading operations but was frozen when the Kosovo conflict erupted.
