Consumption, not investment, holds promise for banks

Greek bank deposits are in rapid decline, lending continues on an upward slope and growth margins promise even greater profits for banks in coming years. These are the main conclusions from a reading of the nine-month results of the country’s big credit institutions. According to the data recently released, lending rose by an average of 15 percent, with EFG Eurobank Ergasias and Piraeus leading the way with more than 20 percent. Alpha Bank has the largest share of corporate lending in its loan portfolio, 75 percent, and the National Bank of Greece (NBG) the smallest, 56 percent. Conversely, NBG leads in retail lending (mortgages and consumer loans), with 44 percent of its portfolio, with 31 percent accounted for by mortgages. By contrast, mortgages represent only 15 percent of Piraeus Bank’s total lending, whereas corporate loans account for 71 percent of it. EFG Eurobank seems to have placed a greater emphasis on consumer loans, which represent 23 percent of its portfolio, in contrast to Alpha’s lowest 7.6 percent. Bank officials take a favorable view of growth prospects, given that the overall borrowing requirements of Greek households is still much lower than in the rest of the eurozone; total bank lending represents 62 percent of Greek gross domestic product, compared to a eurozone average of 128 percent. The respective rates for household debt in particular are similarly distanced: 23 and 47 percent, with the mortgage component accounting for 15 and 31 percent respectively and the rest by consumer loans. A continued rise in lending at the same pace, however, depends on the maintenance of high growth rates for the economy. In contrast, total deposits were 0.3 percent down year-on-year in the nine months and 2.3 percent down quarter to quarter. One explanation given for this development is that interest rates are now effectively at negative levels (due to higher inflation and bank charges). An optimistic version of this explanation is that deposits are now being channeled to seemingly more promising placements in shares or mutual funds. According to the pessimistic view, however, the propensity to save is declining and consumption rising. This would hold serious implications for the financing of investment from domestic resources.