Foreign investors continue to buy shares in Greek banks aggressively, apparently unconcerned at the size of their employees’ pension fund deficits, which will adversely affect their valuation and threatens unwelcome complications. What attracts foreign buyers and overshadows any uncertainties is the sector’s high growth rate, several times that of the average rate in other European countries. Credit expansion, especially in consumer credit, is expected to run well into double figures, providing a further boost to banks’ turnover and profits. Analysts forecast that over the next two years bank profits will grow about 30 percent annually. This forecast is based not only on credit growth but also on the expected corporate tax cuts which will benefit financial results. Therefore, despite the fact that current bank valuations are significantly higher than those for European banks, the prospect of big profits is a big draw. Foreign investors also like Greek banks’ expansion into the other Balkan markets. Many people were caught by surprise by the outstanding performance of bank stocks in 2003, though these were what carried the market to higher levels for the first time since 1999. Even fewer anticipated their continued strong performance in 2004. As a result, there are many who believe that the rally was too extreme, another «bubble» bound to burst. Still, banks stocks are going strong and they are mainly responsible for driving the index close to 2,700 points recently, from less than 1,500 points in March 2003. This year the ASE general index has risen 18.97 percent, while the banks’ sectoral index has gained 35.9 percent. The FTSE/ASE-20 index of blue chips has gained 26.3 percent, but middle- and small-capitalization stocks have failed to share in the rally: The FTSE/ASE Mid-40 has dropped 2.97 percent in 2004, while the FTSE/ASE Small-Cap 80 has declined 19.24 percent. The bank stocks’ rally was, and remains, foreign-driven. While domestic retail and institutional investors expressed their skepticism by ridding themselves of stocks, foreign institutionals bought, not indiscriminately but strategically. This began in 2003, when Alpha and Piraeus offered large chunks of their shares which were absorbed by foreigners. At the same time, foreign portfolios also bought stocks aggressively in the market – and continue to do so. It was also foreign institutionals that bought the first package of National shares offered by the state, under the previous Socialist government, and also the second package (7.5 percent of the total) offered by state portfolio management company DEKA in October, this latter offering at a price just under 23 euros. At present, foreign portfolios control 34 percent of Alpha Bank, 30 percent of National Bank, 28 percent of Piraeus Bank, 21 percent of EFG Eurobank Ergasias and 9 percent of Emporiki Bank. To these holdings, we must add strategic partnerships, such as Credit Agricole’s 11 percent stake in Emporiki, ING’s in Piraeus Bank (5 percent) and the acquisition of just over 50 percent of Geniki Bank by Societe Generale. International financial houses share foreign institutionals’ upbeat view of Greek banks’ prospects, as several recent reports confirm. Target share prices have been climbing ever higher.