With Romania and Bulgaria on their way toward joining the EU and their economies growing by more than 5 percent yearly, Greek banks have found fertile ground for investments with immediate returns, turning themselves into coveted targets for foreign investors. Bulgaria and Romania have made the most important steps toward creating the appropriate institutions and the legal framework required for their economies to operate as free markets, according to an Alpha Bank economic report. By contrast, growth in the other countries of Southeastern Europe is rather fragile and continues to be hampered by considerable risk and uncertainty, the report suggests. Greek banks have made large investments in both Romania and Bulgaria. Expanding into the region is the biggest growth challenge for them as well as other enterprises, and generally for the Greek economy. Domestic banks have established a significant presence, increasing all the time, in the neighboring countries and expectations about the region’s development are particularly high. Banking circles consider the Balkans as the vital environment for Greek companies to expand, with banks taking the lead in the effort. They are making strides in a rapidly developing market that exceeds 60 million people and whose banking system remains at a stage of infancy compared with that of the EU. Ground-shaking changes are expected in the region’s countries in the coming years and there are reasonable expectations that investments there will be a crucial source of revenues for Greek banks. Expansion of credit to households has only just begun there. Although lending increases to the private sector in 2003 were at 60 percent in Bulgaria and at 74 percent in Romania, the report points out that this is the result of the very low starting base and does not indicate excessive indebtedness. The levels of credit to the private sector remain particularly low: At the end of 2003, total credit to the private sector stood at 14.3 percent of gross domestic product (GDP) in Romania and at 25.2 percent in Bulgaria, while in Greece it was at 67.4 percent and in the then 15 EU members at 111.6 percent. The two EU candidates are far ahead of the rest of the region in credit growth. Additionally, prospects in the region offer a considerable advantage to the domestic banking system compared to the European banks, which could make all the difference if used well. Expansion in the Balkans is in effect the sole opportunity for Greek banks to obtain some noticeable international presence. Greek banks’ advantages This, in turn, has attracted foreign investor interest in domestic banks’ shares in the last couple of years, reflected in the impressive rise of the banking index on the Athens Stock Exchange. This month, as well as in early 2004, there has been an avalanche of reports from international investment firms exalting the advantages of Greek banks. There are two main advantages that excite foreign observers and are always repeated in their reports: The first is the Greek banking sector’s large scope for growth, as all lending indices related to GDP are at levels considerably lower than those in the rest of Europe. Total lending by domestic banks was at 66.3 percent of GDP, as opposed to 116 percent in the EU. Similarly, loans to enterprises in Greece were at 40 percent of GDP against 67.6 percent in Europe; loans to consumers at 26.3 percent against 48.4 percent; and mortgage credit at 17.4 percent in Greece, while in Europe it was at 32.4 percent. Bankers forecast a convergence with the EU average, translated in banking works worth hundreds of millions of euros in the next three years. The positive climate in Europe regarding Greek banks is mirrored in the titles of reports by foreign consultants, referring to a «Margin Paradise» or the «Greek Charge in the Balkans.» The large investments made by domestic banks in the region are the second point that make a difference: Today all five large banks (National, Alpha, Eurobank, Emporiki and Piraeus) have invested extensively in Southeastern Europe, both through the autonomous development of their network and by purchasing local banks, while their strategy is to increase their presence there, recognizing the Balkans as crucial for their growth. The National Bank of Greece has invested 2 billion euros in the neighboring countries, corresponding to 4 percent of the group’s total assets, while its new management has clarified that its main strategic priority is a swift strengthening of its presence in the region, making the bank a point of reference for the population of the Balkans. Alpha and Eurobank also include making a strong presence in Southeastern Europe among their top priorities, with the latter appearing more active at present. Emporiki is also readapting its international presence, pulling out of unsuccessful investments in remote countries and focusing on the Balkans.