Big banks to grow bigger?
Concentration in the Greek banking sector will gather speed in coming months, as the number of banks remains large and return on capital is on the low side for several of them, business consultancy Kantor Capital says in its annual report on the sector. The study projects concentration trends mainly among the big players, despite the fact that the degree of it is already high: The three largest banks by assets controlled 55 percent, and the eight largest 92 percent of the market in 2003. According to Kantor, banks attribute great importance to bolstering their market share in loan categories with large profit margins, despite the requirements for higher provisions. It expresses the view that expansion will continue in retail banking and lending to small and medium-sized enterprises. The average loans-to-deposits ratio rose to 0.74 in 2003, from 0.65 in 2002 and 0.56 in 2001. For the small banks, the rise was to 0.81 in 2003 from 0.78 in 2002 and 0.67 in 2001. Expenses were reduced by 3.7 percent in 2003. Interest costs fell 19.6 percent but commission expenses surged 48.5 percent and provisions advanced 25.9 percent. The average operating costs-to-expenses ratio for the big banks shrank from 66.1 percent in 2002 to 59.6 percent in 2003, with a European average of 62 percent. For the smaller banks, it declined from 93.2 percent in 2002 to 85.3 percent in 2003. The average capital adequacy rose to 13.3 percent from 10.8 percent in 2002, mainly due to value readjustments of fixed property assets, absorption of subsidiaries and the placement of own shares with institutional investors. The Kantor study shows that most big banks have adequate capital to support expansion of activities. Moreover, the likely securitization of part of loan portfolios is seen further improving liquidity and capital adequacy. Nevertheless, many banks are projected to face higher provisions against their results from the adoption of international accounting standards. This may dent profitability and limit credit expansion, and may lead to moves for better tapping of property assets and to initiatives for a strengthening of net worth. Finally, Kantor believes the solution to Greek banks’ high social security liabilities is a prerequisite for the entry of foreign banks as investors into Greek credit institutions. According to the study, the new operating regulations that will be introduced in line with the Basle II Accord, which provide for a bolstering of oversight authorities and of the methods for calculating banks’ minimum capital, will inevitably lead to higher capital requirements and expenses for control and auditing. Technology is seen as being of crucial significance in optimizing relations with clients, segmenting markets, catering to individual client requirements and forecasting the performance of new products. Rationalization and the elimination of practices that no longer produce value for clients and shareholders are seen as playing an important role in Greek banks’ evolution.