LONDON – Fitch Ratings, the international rating agency, says there are unlikely to be any changes to the current ratings assigned to the five largest Greek banks in the short term, and the agency may consider positively further improvements in operating profitability and overall performance fundamentals, according to a special report just published. In a report titled «Largest Greek banks’ 2003 Results and Outlook – Leveraging on a Favourable Economic Environment,» Fitch says these large banks have resumed an upward trend in net income in 2003. This is expected to continue this year, despite intensifying competition and low interest rates. The rise in profitability was due to a higher level of operating revenues and an increase in retail business, as the banks benefited from a strong Greek economy. Stronger revenue generation, which was partly aided by the upturn in domestic and international stock markets, compensated for rising costs and high loan loss provisions, and enabled the Greek banks to improve underlying profitability. Net interest revenue was underpinned by strong loan growth of between 10 and 22 percent, centered on retail lending, which constitutes the main revenue source. The rise in commissions has been based on growth in traditional banking services and market-related activities, the latter of which was supported by the upturn in stock markets. Fitch notes there is a fair amount of potential for growth in fee income at all Greek banks as they develop and cross-sell products, particularly from their undeveloped asset management and bancassurance businesses. While the operating environment for Greek banks is currently favorable, the future presents both challenges and opportunities. The domestic market is growing very quickly, providing banks with more opportunities to earn both interest and fee income. At the same time, they are starting to reap the benefits of the substantial investments made in the past three years in modernizing their information systems and infrastructure. The adoption of a more sales-orientated approach is also enhancing service quality and cost efficiency. As a result, the five largest Greek banks are well positioned to continue reporting sound results in 2004. However, future growth will have to be balanced by the need to control credit risk, to adopt more conservative provisioning policies and definition of non-performing loans, to continue improving asset quality and to strengthen their capital base. Strong loan growth is a source of concern. An increased focus on retail lending and declining low-risk government bond portfolios as a proportion of total assets have increased the banks’ risk profiles. However, while risk management systems and controls are being upgraded, these have yet to be tested in an economic downturn.