The government yesterday urged Greek banks to consider merging or linking up with other financial institutions to strengthen their size, enabling them to play a bigger role in the economy and in neighboring countries. «Greek banks are small compared with their counterparts in the EU. Mergers or strategic alliances with other financial institutions will lead to economies of scale, reinforce banks’ creditworthiness and give them access to capital,» Economy and Finance Minister Nikos Christodoulakis told the Hellenic Bank Association’s general assembly. He said the sector’s modest size was underlined in the value of its assets, which amount to just 150 percent of the country’s gross domestic product against the EU average of 265 percent. Consolidation in the banking sector has come to a halt since the failure of the proposed merger between National Bank and Alpha Bank last year due to disagreements over the senior management structure at the integrated entity and the distribution of responsibilities. Domestic banks could strengthen their presence in the Balkans by expanding their products and services and venturing into areas such as venture and risk capital, said Christodoulakis. Separately, National Bank Governor Theodoros Karatzas sought to explain the rationale behind the sector’s interest rate decisions following the outcry over Alpha Bank’s unexpected decision to jack up rates last month. Only a few banks have followed the European Central Bank’s rate cut early this month and trimmed their rates. Interest rates are governed by the ECB’s monetary policy, with the actual rate affected by inflation as well, Karatzas said. «Falling rates might reduce savings but they also benefit borrowers,» he pointed out.