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Western EuropeApril 4 2004

Growing ambitions

Greek banks have expanded their presence in south east Europe in the expectation of boosting their market share, writes Kerin Hope.
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National Bank of Greece ended a three-year search for a partner in Romania last November by acquiring Banca Romaneascu, a small private bank founded by the Romanian American Enterprise Fund. National agreed to pay e30m ($36.7m) for an 80% stake in Romaneascu, which has assets of $140m and 15 branches around the country.

The acquisition filled a glaring hole in National’s regional network. It already controls United Bulgarian Bank, the leader in retail lending in Bulgaria and Stopanska Banka, the biggest bank in Macedonia, as well as branch networks in Albania and Serbia. With the addition of Romaneascu, group assets in the Balkans stand at almost e2bn.

Active players

National intends to become a more active player in Romania’s fast-growing retail lending market. The acquisition has brought the bank’s regional network to more than 200 branches – the biggest of any foreign bank operating in the Balkans.

“This marks the completion of our expansion in south-east Europe for the moment. But we’ve started to look at Bosnia and Croatia with a view to further growth down the road,” says Agis Leopoulos, general manager for international operations.

National led the Greek banks’ drive into the Balkans a decade ago by setting up branches in Bulgaria and Romania. Alpha Bank, the country’s biggest private bank, founded a bank in Romania in partnership with the European Bank for Reconstruction and Development (EBRD) and a group of Greek businessmen.

EFG Eurobank arrived later, acquiring banks in Bulgaria and Romania that were offered for privatisation. Post Bank in Bulgaria and Banc Post in Romania both have large networks that facilitate growth in retail lending but have a market share of less than 8%.

David Watson, head of EFG’s Balkan operations, says: “We want to be part of the growth curve in this region. Over the next three to five years we expect to see a doubling of our market share.” Emporiki Bank and Piraeus Bank have smaller operations but can offer both Greek and domestic customers a range of services in Albania, Bulgaria and Romania.

At first Greek banks followed their customers, ranging from large corporates to small cross-border trading operations. In Albania, Greek banks handle remittances from migrant workers in Greece which amount to about one-third of the country’s budget.

Big investor

According to Jens Bastian, regional analyst at Alpha Bank, total investment by Greek companies in the region exceeds e7bn, of which about e5bn has been directed to Romania and Bulgaria. The biggest single investor in the region is OTE, Greece’s public telecoms operator, with fixed-line or mobile subsidiaries in each regional market. The biggest private investor is Coca-Cola Hellenic Bottling Company, which holds Coke bottling franchises in most Balkan markets.

Greek banks, led by National, are responsible for about e650m of total investment. They have spent to acquire local banks, take out banking licences and set up branch networks.

Greek companies are still an important part of the banks’ regional business, but domestic lending is the growth end of the market. National claims a 16% market share in retail lending in the region. Mr Leopoulos says: “Our ambition is to become the leading bank for households in the region, just as we are in Greece.”

Reduced political risk

Improving stability across the region has helped reduce political risk for foreign banks. Mattress money has poured into the banks since the launch of the euro triggered a drive to exchange Deutschmarks, the region’s unofficial currency during the early transition years. Fast-growing small and medium-sized enterprises are turning to foreign banks that can offer cheaper and more flexible loan products than domestic institutions.

But the environment has become more competitive for Greek banks, with Austria’s Raiffeisen, France’s SocGen and Italy’s Unicredito all present in the region. The privatisation process is close to completion, with the sale last year of DSK, Bulgaria’s second-biggest bank to Hungary’s OTP, and of Albanian Savings Bank, the country’s biggest, to Raiffeisen.

“It is becoming a two-tier market,” says Mr Bastian. “Bulgaria and Romania are set for membership of the European Union and this makes them effectively a convergence play. But it will take much longer for the west Balkan region to become integrated with the Union.”

Bulgaria and Romania saw their economies grow by 4.5% last year. With the exception of Serbia, the west Balkan countries did almost as well. “A key growth driver in most of south-east Europe has been private consumption, supported by falling unemployment rates,” says a recent report by National’s research department.

This year economic growth in the south Balkans is projected at 4.6%, driven once again by private consumption and investment. Exports are expected to pick up, reflecting recovery in the eurozone economies, the region’s main export market. Intra-regional trade is also projected to increase with the completion last year of bilateral free trade agreements between almost all the Balkan countries.

Credit expansion last year reached 33% across the region, led by strong demand for consumer credit, which has boosted demand for imported consumer durables. As a result the region’s current account deficit has deteriorated to 8% of GDP from 5% in 2002. This year the rate of expansion is expected to slow – Romania has already imposed credit curbs – but may still exceed 20%.

“Improving economic conditions have brought a situation where Greek banks now expect their Balkan operations not just to hold their own but to make a real contribution to group profits,” Mr Bastian says.

The banks have also diversified. Alpha Bank has Romanian subsidiaries providing services in insurance, leasing and investment banking – and plays an active role in placing Romania’s euro-dominated bond issues. National’s leasing subsidiary in Bulgaria is a market leader.

International effort

The Balkan expansion has also given Greek banks an opportunity to co-operate with international financial institutions. The EBRD holds minority stakes alongside National in Bulgaria’s UBB and in Macedonia’s Stopanska. Alpha Bank Romania serves as a channel for EBRD lending to small and medium-sized companies.

Serbia, still suffering political uncertainty, remains the region’s problem market. It is the only country in the region to see growth drop last year from 4% to an estimated 1.5%.

EFG Eurobank is the only Greek bank to have acquired a Serbian bank rather than opt for a branch network. It has increased Belgrade-based Post Bank’s capital to e20m and plans to open 50 branches over the next five years. Mr Watson says: “It is a very small bank at the moment but we see Serbia moving ahead and we intend to expand as quickly as we can.”

While EFG has decided to stay out of the region’s smallest markets, both National and Alpha have subsidiaries in Macedonia and branch networks in Albania. National last year succeeded in turning around Stopanska, which was burdened with a high percentage of unrecognised bad loans, while the much smaller Kreditna Banka, Alpha’s subsidiary, shows modest profits.

Business culture

Though EU membership is a distant prospect – Albania, for example, has set itself the target of accession in 2015 – and foreign investors face more obstacles than elsewhere in the region, both countries have a thriving small business culture.

National and Alpha have started to offer mortgages and credit cards in both countries. Construction of new homes is one of the main growth drivers in Albania and is important to Macedonia’s economic recovery. While incomes in Macedonia and Albania average less than e2000, funds from the grey economy are making their way into the banking system.

National’s Mr Leopoulos says: “There’s a growing market for consumer products even if it is only among a comparatively small segment of the population.”

Greece’s central bank plays an active role in supervising the banks’ Balkan operations. The Bank of Greece co-operates with other central banks in the region and sends members of its supervision team to carry out checks on branch networks and regional subsidiaries.

Anti-money laundering legislation is in place across the region but Greek bankers say implementation remains a problem at domestic banks which are still accustomed to transactions involving large amounts of cash.

Panayotis Thomopoulos, deputy governor of the Bank of Greece, says: “Western banking is fairly new to this region, so we are keen to help develop European standards of regulation.”

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