Greek banks

Sunnier climes
Dec 6th 2007
From The Economist print edition

A less crunched corner of Europe

HAPPY bank shareholders are a rare breed in Europe this year, but the industry can still point to some pockets of contentment. Greek banks have outperformed their euro zone brethren, notching up impressive gains in revenue, profit and share prices. Reporting quarterly results, a painful experience elsewhere, has by and large been a pleasant task. National Bank of Greece (NBG) boasted a 66% year-on-year increase in net profit for the first nine months of the year; Eurobank EFG saw earnings grow by 29% in the same period.

Immaturity, in various forms, explains their success. Greek banks have little direct exposure to the subprime-related instruments that have tripped up sophisticates in other markets. The domestic market, although decelerating, still has plenty of scope for growth, thanks to generally benign economic prospects and comparatively shallow levels of private credit, which is expanding by about 20% annually. “Greece is somewhere in between a mature and an emerging market,” says Nicholas Nanopoulos, Eurobank's boss.

The countries that fringe Greece are more dynamic still: Bulgaria and Romania are expected to post loan growth of 50% this year, for example. Greek banks have not only built up sizeable retail operations in nearby Balkan markets, but are also busily planting flags in further-flung bigger markets such as Turkey and Ukraine. Both NBG and Eurobank have more branches in south-eastern Europe than in Greece itself. Finansbank, NBG's Turkish franchise, will account for around 30% of NBG's earnings this year alone. Eurobank expects to derive more than a third of its profits from its regional activities in 2010, up from an expected 7% this year.

The credit crunch is not passing by without a trace, however. A drawn-out seizure in the credit markets would harm the banks' growth prospects: although overall loan-to-deposit ratios for Greek banks are relatively low, their dependence on wholesale funding has increased over the past couple of years. The effects of a global economic slowdown would ripple into south-eastern Europe. Economics aside, political risk still clouds the outlook in the Balkans and beyond.

But there is no shortage of optimism. The bigger banks' extensive retail networks provide a useful hedge against liquidity problems in capital markets. Capital ratios at Greek banks are high, enabling further acquisitions in the surrounding region: Piraeus Bank submitted an offer to buy Kreditprom, a Ukrainian bank, last month. And yet, once the dust settles, Greek banks are themselves likely to become targets for predators: there are few other ways to gain a substantial presence in Europe's most promising markets.