National Bank of Greece (NBG) Deputy Governor Apostolos Tamvakakis is optimistic about business prospects in 2003, forecasting an average 10-15 percent rise in profitability for listed firms as a whole, and even more for banks. He says in an interview that the sources of bank profitability will mainly be retail banking and small and medium-size enterprises, while cost-cutting efforts will begin bearing fruit. He believes that the Greek market suffers not from a lack of liquidity but from a lack of confidence in business plans. There is a feeling that the banking system is digesting the shock of falling profitability and is restructuring. Do you share this optimistic view? I would not say the fall in profitability was a shock – it was something more or less expected. The average 30-percent fall in share values this year significantly reduced bank earnings from capital market-related business, such as investment banking, mutual funds, and stock trading. This, combined with lower profits from bond management, led to a significant downturn in bank profitability. At the same time, however, operating profitability rose significantly, thanks to high growth rates in retail banking and containment of cost increases. In some cases, asset management and profits from foreign operations also helped. All in all, one may say that the worst is behind us. I expect the average profitability of listed firms to rise by about 10-15 percent, and banks to do even better than that. Savings accounts now offer negative returns as a result of the fall in interest rates. Do you fear that depositors will desert them? Rates for savings accounts have had to be adjusted to levels of competition on an equal basis with banks elsewhere in the EU. We now offer a broad variety of deposit and investment products with higher returns and varying risks, such as mutual funds, guaranteed-capital schemes and repos, which give many alternative possibilities to investors. So, they will not go away; they will simply use other products, which will perhaps mean lower interest revenue in the medium-term, but also higher commission income from managing such products. The rapid rise in consumer credit has kept demand at high levels so far. However, there are signs that the pace of growth is slowing down. Do you not fear the phenomenon of the over-indebted consumer? Every year, the outstanding balances in retail banking rise by more than 30 percent (it will actually be nearly 35 percent this year). In our country, retail banking is estimated to be equal to 22 percent of GDP at the end of this year, against an EU average of 50 percent, and 70 percent in some countries. This market is certain to continue growing significantly in the next 3-4 years. Regarding possible excessive debts, let me note that, at least in our experience, every year the need for new provisions against bad debts lessens, despite the impressive rise in outstanding balances. NBG in particular has a clearly better performance in this field than the international norm. In any case, I consider it the duty of banks to protect their clientele and not lend to them more than they can repay. The recent second flotation of the Public Power Corporation (PPC), in which NBG acted as a lead manager, was a great success. What lies behind this success, and how do you respond to criticism that such moves drain market liquidity? The success demonstrates the huge importance that the quality of the enterprise has, the efficiency of its management, the results, as well as the planning and placement of shares by the lead manager of the issue. In PPC’s case, everyone performed superbly and we witnessed phenomena not seen before in such a big flotation, for example, that the share price rose in the last day of the public subscription and the flotation price was fixed with a discount of only 0.32 percent of the closing price that day. As regards liquidity, I do not consider that available data shows that the Greek market has any such problem. In fact, quite the contrary. We saw the investing public reacting positively even in bad times for the stock market. Are the conditions of competition between Greek and foreign banks satisfactory? Unfortunately, no. There are many areas in which taxation or legal vacuums set obstacles to Greek banks offering products and services that are equally competitive as those of foreign banks. Classic examples are the bond loan market, mutual funds, the setting up of special-purpose corporate schemes and securitization of liabilities. Fortunately, the Hellenic Union of Banks, the Economy Ministry and the Capital Market Commission are trying to solve these long-standing problems. I expect we shall have results soon. NBG’s international activities now account for a significant segment of its profitability. Why is this so? Could it be that enterprises can adapt more easily in other countries than in Greece. This is a valid observation. We have said for a number of years that we have ambitious targets for our network abroad. I believe that this year, its contribution to group profitability will approach 30 percent, after more than quadrupling its pre-tax profits in the last four years. Our presence in 18 countries, with more than 300 branches and 5,000 employees has been improved as a result of a general overhaul in management and acquisitions in particular markets. We have done particularly well in the USA, the UK, Bulgaria, Cyprus and Canada. We will soon complete our expansion in the Balkans, while the USA, the Eastern European newcomers to the EU and – why not – China, are targets of future expansion. Our outward-looking attitude has almost become an end in and of itself for NBG since 1999. You have repeatedly said in the past that concentration in the Greek banking system will continue and that you expect an intensification of cross-border mergers and acquisitions after 2004. Do you still hold this view? Absolutely. I have always held the view that countries with Greece’s population make-up must have between three and five dominant bank groups. I consider that, at some point, three banks will come to control 80 percent of retail banking. In Europe, we may see the first big cross-border schemes as early as 2004. We must start preparing for this now. Stock market values will play the chief role and so boosting capitalization must be a key element in our future strategy. This can be achieved in two ways; ensuring a continuous rise in our core profitability and expanding in any way possible both at home and abroad, provided, of course, it makes economic sense.