The overseeing function for Greek commercial banks needs reform in order to prevent abuses, Bank of Greece Governor Nicholas Garganas said yesterday.

“There are instances of banks abusing their power... We must be able to intervene with the appropriate institutional framework,” he said in an address at The Economist’s 5th International Banking Forum in Athens.

Garganas noted the expansion of Greek banks in Southeastern Europe and their role in the transition of neighboring countries’ economies.

“Until the end of 2005, Greek banks had in the countries of Southeastern Europe 18 subsidiary banks and six branch networks, totaling about 1,000 operating units which employed about 15,000 staff,” he said.

In terms of assets, the share of Greek banks was 26 percent in the Former Yugoslav Republic of Macedonia (FYROM), 20 percent in Bulgaria, 17 percent in Albania, 12 percent in Romania and 11 percent in Serbia.

“Given the small size of the domestic market and the expected intensification of competition, the expansion of Greek banks abroad allows them to tap the growth opportunities which these markets provide, differentiate their revenue sources and augment their size, which remains relatively small compared to the EU average,” Garganas said.

According to Bank of Greece assessments, the credit and market risks of Greek banks remain at relatively small levels, while their return on equity and capital adequacy provides a satisfactory margin for ensuring stability, Garganas said.

Garganas said Greece’s high inflation and current account deficit were threatening the economy.

“Macroeconomic imbalances, which are reflected in high inflation compared to the eurozone, and the current account (deficit), which remains high, undermine the economy’s development prospects,” he said.

Greek inflation was 2.8 percent year-on-year on October, compared with the eurozone’s 1.6 percent.

Addressing the conference later, Economy and Finance Minister Giorgos Alogoskoufis said a new banking landscape is emerging in Greece, with all the prerequisites for a more competitive credit system that will benefit both entrepreneurship and the consumer. Privatizations and the resolution of problems with bank employees’ social insurance contributed to this development, he said.

Alogoskoufis said the government would go to the polls at the end of its four-year term to ask for a mandate for a second round of reforms in the economy.

Alpha Bank’s managing director, Dimitris Mantzounis, said the dynamic side of Greece, based on hard work and high productivity and expansion outside the country, needed to overtake the Greece of missed opportunities and inertia, “which seems to be defending the maintenance of the status quo at any cost.”

This was “the Greece which turned a blind eye to world developments, crying out that things had changed; which sought permanent jobs in the public sector as a right; which considered free education a right... but which paid for this free education dearly and, at the same time, lagged dramatically in training,” he said. “I believe the dynamic Greece has gained the upper hand for good now.”