LONDON – The Greek financial industry has undergone a significant transformation in recent years while adjusting to the structural changes taking place in its operating environment, but the transformation process has yet to be completed, says a report on the Greek banking industry published yesterday by Standard & Poor’s credit rating agency. «The Greek banking system enjoys attractive medium-term growth prospects and is maturing quickly, but it is still less developed and subject to higher economic and industry risks than that of most of its EU-15 peers,» said Standard & Poor’s credit analyst Elena Iparraguirre. This view is reflected in Standard & Poor’s ratings on the major Greek banking groups, which, in the «BBB» category, are lower than those for top banks in the other 14 EU countries. The process of the modernization of the Greek banking system continues. Banks are playing an increasingly important role in the intermediation of the country’s savings and credit. They are enlarging their product offerings, improving service quality, modernizing their branch networks, investing heavily in technology, and significantly improving their internal processes. Their credit profiles, however, remain riskier than those of comparable peers in Western European countries. Despite improvement, the Greek system still carries high balances of problem assets and reports comparatively high delinquencies for the current positive phase of the economic cycle. Furthermore, as credit is a fairly recent development in Greece, more time will be needed for sound credit risk to settle between both lenders and borrowers. In addition, in Standard & Poor’s view, over the next few years Greek banks will be challenged to both prove that they can build up a pattern of stronger, more consistent results, sustaining the improving trend in core profitability seen since 2003, and contain the rapid erosion of their core capital bases, which could be subject to further downward pressures given the banks’ ambitious lending strategies and the potential recognition of pension fund shortfalls following the implementation of International Financial Reporting Standards (IFRS). «Greece’s more stable macroeconomic environment following its entry into the EMU and strong economic performance in recent years – which has resulted in a rapid convergence of wealth standards – has provided a very supportive framework for the banking system’s development,» said Iparraguirre. «Nevertheless, and despite still-attractive near-term growth prospects, the Greek economy is not exempt from challenges, the most imminent being the need to correct fiscal imbalances and reduce the public sector’s extremely high debt burden,» she added. In addition, Greece’s still-weaker wealth levels than most of the rest of EU-15 economies, rigid labor market and high unemployment, strong degree of public sector involvement in the economy and slow implementation of structural reforms, confront the country’s financial system with higher economic risk than that of its European partners.