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Western EuropeSeptember 3 2012

Finansbank progresses under NBG's control

The National Bank of Greece's acquisition of Turkey's Finansbank in 2006 faced much scepticism but the Turkish bank's chief believes that despite the countries' previous hostile relationship and Greece's recent debt crisis, it was a move that has paid off.
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Finansbank progresses under NBG's control

There are times when conventional wisdom is best ignored and unconventional approaches, however roundly they are criticised at the time, prove to work well in the long run.

Arguably one such example is the unconventional approach adopted by the Turkish central bank, which for the past 18 months has been effectively conducting monetary policy through the banking system via a neat juggling act with interest rates and reserve requirements. Much criticised last year, the policy is now being widely praised. 

No less unconventional was the acquisition in 2006 of Turkey’s Finansbank by the National Bank of Greece (NBG) – the largest single investment ever made by a Greek company outside Greece; a move that, despite the historically tense relationship between the countries, has proved to be no less inspirational, regardless of Greece’s domestic economic woes.

Separation of business

“Lots of people were sceptical at first, asking what will these Greeks do and will the Turks all withdraw their money,” laughs Omer Aras, chairman and CEO of Finansbank. He says the strategy adopted by the bank’s new owners was to keep the existing brand identity and management intact and to maintain a strict separation between the shareholder and the bank’s operations.

“Separating the shareholdership from the management has paid off – internationally owned, locally managed,” he adds, pointing out that the more hands-on approach adopted by some international banks in Turkey has not always paid off.

The hands-off approach has also helped Finansbank avoid any fallout from problems faced by its parent back in Greece. “Having the problems of the Greek economy on the front page of the Financial Times or the Wall Street Journal every day has been quite discouraging, but Finansbank is ring-fenced – the shareholder and the bank are completely separate,” he says.

Finansbank doesn’t use any funding from the NBG and we don’t provide any funding, and we don’t have any Greek bonds, so the only connection is that the NBG is the shareholder

Omer Aras

“Finansbank doesn’t use any funding from the NBG and we don’t provide any funding, and we don’t have any Greek bonds, so the only connection is that the NBG is the shareholder,” adds Mr Aras, explaining that the separation has had benefits for both sides, with ratings agencies continuing to rate Finansbank at the same level as its Turkish peers, despite downgrading both Greece and the NBG.

“Keeping an international asset clean and profitable and highly valued has been to NBG’s benefit,” says Mr Aras. He adds that Finansbank has also been able to benefit from the relationship with its parent to help Turkish companies looking to do business in Greece.

Valuation concerns

While the travails of its parent company, NBG, and the Greek economy in general has had no effect on Finansbank, the same cannot be said for the unorthodox policies adopted by Turkey’s central bank over the past two years. A planned public offering of 25% of Finansbank stock announced in late 2010 was postponed indefinitely in early 2011 as uncertainty over the impact of Turkish monetary policy began to affect bank valuations.

“We put it on the back-burner,” says Mr Aras. He expects the shareholders to reassess the situation when markets are more favourable.

The root of the problem was the decision by the Turkish central bank to try to control inflation and keep the Turkish lira stable by controlling the flows of 'hot money' through the use of a variable interest rate corridor and hiking reserve requirements. “The major problem with that policy was that it made the cost of funding more expensive and the banks didn’t get a chance to reflect that to their asset sides immediately because of the time lag,” says Mr Aras.

Aside from forcing the cancellation of the bank’s second public offering, Finansbank was no more affected than other Turkish banks, says Mr Aras. He also notes that the unusual policy mix had eventually proved very successful.

“The policy was widely criticised at the time but now when we look back we can see it has been correct,” he says, pointing out that Turkey has managed to remain comparatively stable, despite the volatility of European markets.

Adjusting sights

Finansbank’s response to that volatility has been to refocus its business on growth areas. “We were one of the first banks in Turkey to do project finance and we became quite a big financier of the shipping industry,” says Mr Aras.

With the shipping sector running into difficulties, he explains that the bank refocused on construction projects, particularly power plants – a logical move given that Turkey needs to double its installed capacity over the next two decades.

Finansbank has also refocused its approach to general banking, nearly doubling its number of branches to 522. “Over the past five or six years we have grown rapidly on the retail and small and medium-sized enterprises side and concentrated on large corporate finance,” says Mr Aras. He adds that with the bank’s loan portfolio now shifted towards retail and SME, he plans to follow a more balanced growth strategy. “I think we have the ideal composition right now and we plan to keep that composition.” 

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