A year ago, everyone – experts and non-experts alike – was relieved that the worst year for Greek companies and markets in some time was finally over. We were in for a nasty surprise, as we soon found, from the first quarter of 2002. We can now say with absolute certainty that this year was the worst year. Will we feel the same at the end of next year? Even though they seem rather chastised, Greek bankers believe that, after this year’s plunge in corporate profits, things must be looking up. According to their published statements, listed companies – including banks – saw their profits decline 20 percent in the first half of the year and 16 percent through the first three quarters. And keeping in mind that these comparisons are being made with an already dismal 2001. On the other hand, pressure on company profits forced them to act aggressively to cut costs and restructure their debt. This means that liquidity problems are far fewer than they would be otherwise. It is worth noting that, despite the stock market’s continuing weakness, Greek enterprises are much healthier financially than their eurozone counterparts because they are comparatively under-leveraged. According to the latest issue of the National Bank’s bulletin on the national economy, the ratio of total long-term liabilities to stock market value is 17 for Greek enterprises, while the eurozone average is 56. The bulletin goes on to say, however, that the disparities between sectors are great; cement and food and beverage companies are the healthiest. We must note that cost-cutting efforts usually bear fruit the year after they are undertaken. This, combined with the continued high rate of growth in private consumption, fueled by lower interest rates, will help boost turnover. Furthermore, the forecasts of a recovery in international markets, and even on the Athens Stock Exchange, are expected to help companies balance previous losses from market operations. Profitability will also be boosted by the corporate tax cuts and other measures taken by the government. According to the most modest forecasts by top bankers, corporate profits will rise 15 percent in 2003. Economy and finance ministry experts, though, point out that the adoption of International Accounting standards may have an initial negative impact on profits but are expected to be beneficial in the medium term. Banks’ profitability is expected to increase at a higher-than-average rate in 2003. Even if the Athens Stock Exchange were to stagnate at present levels – that is, below 2,000 points – bank profits should still increase by 30 percent, bankers say. Most of these profits will come, once again, from retail banking. Rate cuts will also help profits by boosting credit growth. In any case, there is much more room for credit growth in Greece than in the rest of the eurozone. The banks are betting, once again, on retail loans from individuals and households, although corporate loans should also rise, as the threat of bankruptcies recedes. This is why banks were more than eager to help companies restructure their loans by making them long-term. The increased inflows of funds through the European Union’s Third Community Support Framework and the intensive work on Olympic projects will also help boost bank profits, since corporate investment will increase rapidly. It is of great importance to the banks to minimize credit risk. The biggest banks claim that they have drastically reduced bad retail loans. Thus, they have improved performance in the category of loans that provides the highest profit margins. However, banks’ operating costs are still high. This is an intractable problem, because it is due to the rigidity of the labor market. It is no coincidence that almost all banks have adopted «employee rentals» for new services, such as promoting products through telemarketing. Greek bankers are not solely interest in profits; they also want to improve their bank’s capitalization. They forecast that, barring an unexpected development, such as a protracted intervention in Iraq, a new round of mergers and acquisitions will begin in the international markets next year and will affect the domestic market by mid-2004.