Nicholas Nanopoulos, chief executive of Eurobank EFG, talks to Stephen Timewell about his bank’s strategy and expansion in ‘New Europe’.

Greece’s third largest bank, Eurobank EFG, has established a significant second growth engine in what it calls “New Europe” through a dramatic series of greenfield developments and selective acquisitions. With a combined investment of more than €1bn in 2006, Eurobank broke into three banking markets, Poland, Turkey and Ukraine, while demonstrating dynamic expansion in three of its existing markets, Bulgaria, Romania and Serbia.

From being a relative minnow in the region, Eurobank has now catapulted itself into seventh position among banks in New Europe with a total of €7.1bn in assets covering the six countries. Chief executive Nikos Nanopoulos says Eurobank now has 800 branches and points of sale outside Greece, roughly half of which opened or were acquired last year.

Greece remains the core market, with 500 branches, and will continue to provide the bulk of profits but this will change as the expanding external network moves into profit. Mr Nanopoulos believes that by 2009 the network outside Greece will reach 1400 branches and points of sale, and will account for 30% of group revenues and 20% of group profits.

Potential to tap

Key to Eurobank’s expansion in New Europe has been a combination of organic growth and acquisitions. In Poland, the bank believed that the market was under-penetrated and had huge potential in areas such as consumer lending, mortgages and corporate lending. Taking a greenfield approach, Polbank EFG was established and opened its first branch in February 2006. By the end of the year, the bank had grown dramatically to reach 140 branches and points of sale, which are expected to rise to 250 by year-end 2007.

Eurobank’s branch expansion model in Poland, based on a comprehensive product offering, strong technology and systems including iFlex’s Flexcube platform, is progressing well and is expected to move into profitability in the first quarter of 2008. This emphasises the advantages of organic growth; the investment in the Polish network has been less than €100m, much less than the cost of acquiring a 140-plus branch network.

Acquisitive expansion

Although Eurobank is keen on organic expansion, it is also making more acquisitions. In Serbia, it acquired 100% of Nacionalna Stedionica-banka (NSB) in March 2006 and merged it with its existing Serbian operations in October to form Eurobank EFG Stedionica. The new entity now has more than 100 branches, a sizeable 5% market share and is the fourth largest network in the country.

Two other acquisitions begun in 2006 and completed earlier this year extend Eurobank’s footprint into the large markets of Turkey and Ukraine. Following the acquisition of EFG Istanbul Securities in May 2005, the Greek bank bought the small Turkish wholesale bank Tekfenbank in May 2006 for a total investment of €140m.

Last July, Eurobank also bought Universal Bank, a retail bank in western Ukraine, for €45m and renamed it Eurobank EFG. Both these acquisitions have networks of about 35 branches. A further 35 branches are to be launched in Ukraine in 2007 with a target of 170 branches set for 2009.

Two other key growth areas are Bulgaria and Romania. In addition to its fast growing Postbank franchise in Bulgaria, Eurobank bought a majority stake in DZI Bank last year, adding 130 branches to its network and 3.5% to its market share. Altogether, Eurobank has more than 280 branches in Bulgaria and is the fourth largest bank in asset terms with a 9.3% market share. In Romania, the existing Bancpost network grew by 25% to reach 189 branches and a solid 4.5% market share.

While the large investments in New Europe made no real contribution to profits in 2006, the Eurobank EFG Group still produced record profits of €644.5m for the year, showing a strong 28.6% growth and a 23% return on equity. The results reflected 20% overall revenue growth across all businesses, including a robust asset management performance with €44.6bn in funds under management. Net loan additions amounted to an impressive €5.3bn in Greece and €2bn in New Europe in 2006.

Picking up profits

Built around the successful ‘bank in a box’ expansion model, Eurobank expects its strategy in New Europe to pay healthy dividends quite quickly. A recent UBS Investment Research report noted: “We believe the pick-up in profitability should be sharp, thanks to the completion of restructuring in Romania, the mergers in Bulgaria and Serbia and the easing off of set-up expenses in Poland. Emerging Europe should contribute half of group earnings growth over the period 2007-2009.”

With profits from New Europe targeted to reach €260m in 2009, Eurobank appears to be well on its way to creating a second growth engine for the group and Mr Nanopoulos’ three-year targets of 22% growth in earnings and return on equity in excess of 25% seem well within his grasp.


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