Crisis killing Greek banks’ expansion hopes

Crisis killing Greek banks’ expansion hopes

Greece’s third bailout, which forced domestic banks to restrict their international activities, is curbing what ambitions they may have fostered.

Greek banks have already seen their position weaken significantly in the broader region of Southeastern Europe, with their portfolio in the area shrinking 51.6 percent to 27.4 billion euros today from 56.5 billion at the end of 2010.

Bank of Greece data show that the reduction is largely due to the departure of Greek banks from Turkey and Poland, which together represented 36 percent of their international activities, as well as a drop of 21 percent in loans in the countries where they still maintain a presence.

Now, banks are being required to restrict their international activities even further, and particularly Piraeus and National, which received more state assistance in the third round of recapitalizations. It is noted that the restriction of foreign activities was one of the prerequisites for the approval of recap plans and of state aid.

“Greek banks’ international activities will henceforth play only a minor role in their overall figures,” says the Bank of Greece.

These developments effectively mark the end of the expansion of Greek banks, which started in the early 1990s, after the collapse of the Soviet Union, peaking in the mid-2000s. From 2000 to 2007, not a year passed without some Greek bank buying out a foreign one or establishing a branch abroad.

By end-2007, domestic banks had created a small empire, with a presence in 15 countries (besides Greece), a network of 3,500 branches and more than 42,000 employees. Their total assets abroad came to 90 billion euros, while loan issues were over 60 billion. From a base of 10 million residents with annual GDP of around 210 billion euros, Greek banks had managed to grow into regional players, with a significant presence in a large geographical area formed by Ukraine and Poland to the north, encompassing all of the Balkan peninsula and Turkey, and spreading to Egypt in the south. The potential market of these countries came to almost 300 million residents, with a total GDP of 3.4 trillion euros.

Understandably, Greek banks held great expectations for the future. The question, however, is: Could their positions and investments in Southeastern Europe have been saved?

Bank executives believe this would have been possible if the Greek crisis and its effects on the economy had been handled more efficiently from the start, allowing banks to get back on track faster. This did not happen and the dead end of 2009 led to the first memorandum, followed by uncertainty and failure to implement reforms, then to the second and later the third bailout deal, with the economy shedding around 26 percent of GDP and unemployment passing the 25 percent mark.

Every round of recaps posed a new dilemma for the banks’ boards. One example is that of Finansbank, National’s erstwhile subsidiary in Turkey. Though the country’s creditors had sought the sale of Finansbank since 2013, National’s management had succeeded in holding on to the majority of its shares and was planning to gradually sell a 40 percent stake in the Turkish subsidiary. This effort was thwarted by the third recap, which banks were forced into by the negotiations fiasco of 2015. In order to qualify for state assistance, National was forced to agree to the sale of all its shares in Finansbank, completing the transaction in June.

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