The deal struck between National Bank of Greece to buy Turkey’s Finansbank is likely to be the first in a line of cross-border acquisitions. Kerin Hope reports.

Few analysts doubt that the acquisition of a Turkish bank by National Bank of Greece (NBG), the country’s biggest financial group, will herald the beginning of a new era for Greek banking. In a two-horse contest, NBG trumped Citigroup with a bid of €2.3bn for 47% of Finansbank, a mid-sized private bank, and became the first Greek bank to enter the Turkish market.

Although Greek banks already have a firm foothold in the Balkans, Turkey was considered off-limits until recently because of the perceived political risk. But with trade booming between the two formerly hostile neighbours and Turkey due to start EU accession negotiations this October, several Greek banks had been examining prospective targets.

EU premium

NBG paid 3.6 times book value for Finansbank. This reflects a significantly increased premium for Turkish acquisitions ahead of the EU accession process compared with the price paid last year by GE Capital for Garanti Bank and by Belgium’s Fortis group for Disbank.

Nevertheless, Takis Arapoglou, NBG’s chief executive, says: “Finansbank is a super bank, with strong management and excellent retail products.”

The deal makes state-controlled NBG the biggest regional bank, with total assets of €70bn and more than three million customers outside Greece. Markets welcomed the deal, with NBG’s share price quickly rising 4% on the Athens Stock Exchange after the announcement.

A €3bn rights issue planned for June will help to finance the acquisition – NBG expects to increase its stake in Finansbank to at least 51% and will sell the bank’s overseas operations back to its founder – and leave cash in hand for future purchases. The group’s war chest already stands at about €1bn following last year’s sale of Atlantic Bank, its US subsidiary, as part of a restructuring.

Two private Greek banks, Alpha Bank and EFG Eurobank, are expected to follow NBG into Turkey. Alpha is understood to be in talks with Deniz Bank; and EFG, which bought an Istanbul-based brokerage firm last year, has been tipped as a buyer for Alternatif Bank.

Into the Balkans

Turkey aside, Greece’s big three banks will continue to compete for assets in the Balkans, where levels of financial intermediation are still low but appetite for mortgages and consumer lending is increasing rapidly. The presence of Austrian, French and Italian banks has intensified the battle for market share in a region where household indebtedness averages less than 10% of gross domestic product (GDP). With a potential customer base of almost 50 million in the Balkans, compared with just 10.5 million at home, Greek banks see the region as the key to future profitability.

Alpha Bank will open branches across the region at the rate of two a week this year, under an ambitious plan to add 300 new outlets in five Balkan countries by 2008 and increase the region’s contribution to group income from 5% to 20%. In the early 1990s, Alpha pioneered the Greek banks’ move into the Balkans by establishing a Bucharest-based bank to serve Greek corporates moving into Romania. Its strategy of organic growth contrasts with other Greek banks that are still looking for acquisitions.

Marinos Yiannopoulos, group chief finance officer at Alpha, says: “There is a big potential in retail lending given the rapid growth of these economies. We decided on organic growth as the best option because acquisitions have become expensive.”

NBG, whose profits from its Balkan network increased 67% last year to €85m, has been short-listed for stakes in two state-owned banks in Serbia – Panonska Banka and Vovjvodijanska Banka – which are included in this year’s privatisation programme. Either or both of these acquisitions would give a significant boost to NBG’s network in the region’s least-developed market.

By contrast, EFG Eurobank, which already has extensive networks in Bulgaria and Romania – both of which are set to join the EU next January – as well as a growing presence in Serbia, chose central Europe for its latest expansion. Eurobank, which is part of the Swiss-based Latsis group’s international network of private banks, has launched a new bank in Poland, setting a target of 200 outlets by 2010.

“Our research showed that in spite of a strong foreign presence and several big local players, Poland is still underbanked. We decided to target specific cities and regions,” says Nicholas Nanopoulos, Eurobank’s chief executive.

Playing catch up

In a drive to catch up with its bigger rivals, Piraeus Bank, the fourth biggest Greek bank, has focused on expansion in Bulgaria, which has the region’s biggest presence of Greek companies. Last year, Piraeus’s Bulgarian subsidiary added 50 branches and doubled its share of lending to 5%. “We have a large number of Greek clients across the region but increasingly we see ourselves as a local bank serving medium-sized companies on a fast growth path,” says Piraeus deputy chairman Michael Colakides.

To fund the expansion drive while supporting a sustained increase in domestic lending, Greek banks have borrowed more than €30bn in the past five years in the form of European Medium Term Note programmes, as well as securitisation and hybrid capital issues. “We are the second biggest borrowers after the Greek government,” says Mr Nanopoulos.

With Tier 1 capital averaging more than 10% for Greece’s biggest banks, the addition of increased Balkan risk has not affected the banks’ credit ratings. However, rating agency Standard & Poor’s downgraded the outlook for NBG’s single A rating from positive to stable following the announcement of its Turkish acquisition, citing concerns over exposure to a new and riskier market.

Poised to expand

At home, Marfin Bank, the banking arm of a fast-growing financial holding group, has emerged as a dynamic new player with an appetite for acquisitions. Following a deal with Dubai Financial, which has agreed to pay about €400m for a 32% stake in Marfin Holding – the first significant Gulf investment in Greece – the group’s banking operation is poised to expand.

Earlier this year, Marfin acquired a 21% stake in Cyprus’s Laiki Bank from HSBC, in partnership with Laiki employees and Tosca, a London-based hedge fund. It is now preparing to buy Laiki’s Greek subsidiary with a network of almost 80 branches. It has also acquired a controlling stake in Egnatia Bank, a small Thessaloniki-based private bank listed on the Athens Stock Exchange.

“We see ourselves as having a major role in a new round of consolidation of smaller banks. This means building a strong retail network,” says Andreas Vgenopoulos, Marfin Holding’s chief executive.

State plans sell-offs

The finance ministry hopes to raise about €1.5bn this year from the sale of equity stakes in three state-controlled banks. Citigroup is advising on the disposal of a 40% stake in Emporiki Bank, Greece’s fifth largest bank, to a strategic investor. The finance ministry controls 10% of Emporiki directly and has an influence on 30% held by state-controlled pension funds and other entities.

The front-runner would be France’s Credit Agricole, which already has a 10% stake and has made clear that it is on the look-out for international acquisitions. But several big Greek banks that are keen to increase market share are also likely to bid.

An initial public offering (IPO) of 15%-20% of Postal Savings Bank (PSB) will be made on the Athens Stock Exchange, with a sizeable allocation of shares for local retail investors. The IPO would give a market valuation for PSB, which analysts project at about E2.5bn and open the way for the sale of a strategic stake, perhaps next year.

The finance ministry also plans to sell 10%-15% of its 82% stake in Agricultural Bank of Greece (ATE) to institutional investors through an accelerated book-building process. New management and a balance sheet clean-up, followed by a €1.2bn capital injection underwritten by the government, have set ATE on the road to becoming a competitive commercial bank. A strategic stake would be offered at a later stage.

Lending boom continues

Greece’s lending boom, which is the result of pent-up demand that was released after interest rates plunged with entry to the euro in 2001, appears set to continue. The bank sector is still less developed than in the rest of the eurozone, with just 310 bank branches per one million residents compared with 540 for the EU12.

With total credit at 83% of GDP compared with the eurozone average of 117% for the EU12 at the end of 2005, the catch-up is forecast to take another five years at least. Household borrowing stood at 38% of GDP last December against an average 54% for the eurozone, led by another year of explosive growth in mortgage lending.

George Alogoskoufis, Greece’s finance minister, says the moment has come for more foreign banks to join the Greek market. “What is needed at this point is more competition, not more consolidation,” he says.


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