EC tells lenders to stop funding to subsidiaries in SE Europe

Local banks will have to curtail their operations in Southeastern Europe as the European Commission’s Directorate General for Competitiveness has asked managers to commit against transferring cash and funds in a bid to strengthen their subsidiaries in neighboring countries.

While this may be a blow to the growth of the country’s credit institutions, it means that they will succeed in fending off a proposal by certain Commission officials calling for an urgent withdrawal of Greek banks from the Balkans. Sources told Kathimerini that the Commission and Greek banks have agreed that by 2017 domestic lenders will have to reduce the total volume of their operations abroad, something that can be attained without necessarily meaning the sale of subsidiaries.

The thinking in Brussels is that banks that receive state support cannot use it to develop their activities in foreign countries. The Commission is also demanding that banks take faster and more decisive steps for the sale of assets, which would allow them to return the funds they have received from the public sector, something European authorities want to see accomplished as soon as possible.

It is common knowledge, of course, that when an asset needs to be sold within a given period of time, buyers wait for the right moment to acquire it at the lowest possible price. Therefore, even if banks were to sell all of their subsidiaries in Southeastern Europe, they would only collect a small share of their actual value and would be able to repay just a small share of the state support they have received.

In contrast, if Greek banks retain their presence in the region, the future growth of neighboring countries would fetch major revenues, thereby increasing the value of subsidiaries and of their parent groups, and bolstering the price of their stocks, most of which are in the hands of the Hellenic Financial Stability Fund. The HFSF, a state-run entity, holds just under 90 percent of the shares of National, Piraeus and Alpha, and about 98 percent of Eurobank.

Analysts have expressed concern about the EC’s move against local lenders, given that the crisis in Greece was not created by the credit sector.

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