With the earnings season kicking off tomorrow, the Greek banking sector is expected to report a sharp drop in net profits last year, a victim of the prolonged stock market slump and slowing growth in credit expansion. Earnings per share for the sector last year is projected to decline by close to 40 percent and net profits by more than a third, Manos Giakoumis, banking analyst at P&K Research, wrote in a report yesterday. «The substantial drop is attributed to the sharp decline in trading income, down 80.5 percent,» he said. The impact was especially severe as trading activity has historically played a significant role in bottom-line results. The Athens Stock Exchange, which shed about a third of its value last year on top of a 20 percent drop in 2001, posted its third consecutive decline last year, mirroring the woes of stock markets around the world. Compounding the problems of the sector, the consumer credit boom, the engine of growth for the last four years, began losing some of its momentum. Credit to domestic enterprises and households slowed to 15.7 percent in the first 11 months of 2002, against 22 percent in the same period in the previous year, Bank of Greece statistics showed. While the mortgage market remained robust, consumer lending showed clear signs of a deceleration, increasing by 22.4 percent in the January to November period, down from 36.7 percent. Total lending by the banking sector is estimated to have increased by 17 percent last year compared with 25 percent a year earlier, said Sophia Skourti of Marfin Hellenic. «It’s principally due to the stronger-than-expected mortgage credit expansion in the last five months.» Of the five major banks, Commercial Bank is expected to take the biggest hit, with net profits estimated to decline by more than 60 percent. Pressure from capital market-related income aside, it is due to report a substantial one-off charge arising from the merger of its two insurance subsidiaries. National Bank, the largest bank by assets, is seen as posting a 50 percent drop in net profits as the sharp fall in trading income and the hefty costs of an early retirement scheme weighed on results. Alpha Bank, which stirred up a storm last week with surprise rate increases, is expected to see a near-40 percent decline in trading income, half of the sector’s average decline, with net profits down by a third. Giakoumis said the bank is due to report a modest increase in net interest income despite an aggressive drive into retail lending last year. Earnings before tax at Eurobank Ergasias are estimated to fall by 19 percent as the bank benefited from a 17 percent year-on-year gain in the last quarter, Skourti said. The integration of ETBA Bank last year is expected to give a minor boost to Piraeus Bank, making it the only bank to report positive profit growth.