Banks look across Aegean

Domestic banks are turning their attention to the rapidly developing Turkish market. National Bank of Greece’s stated strategic aim is to expand into the neighboring country by buying out a Turkish bank, while last week Eurobank announced the acquisition of a stockbrokerage firm in Istanbul. The large size of the Turkish market with a population of 72 million, the great growth potential of the economy and the European prospects of the country are the main points attracting interest in local enterprises. The political situation may still be a worrisome element, but tension has clearly eased in the last few years and Greece and Turkey have shown good will. Yet despite the positive developments of recent years, many fronts remain open and could potentially cause friction in the Greco-Turkish relations. Eurobank officials, commenting on negotiations for the purchase of the Turkish company, stressed there was no problem due to the Greek origin of the bank. On the contrary, they insisted that the fact that Eurobank is Greek was probably in its favor. However they also acknowledged that there still are many problems and that time is also required for conditions to mature before the bank proceeds to a large-scale move. Improved figures The improvement in Turkish economic figures over the last few years has been impressive. Today inflation is close to 9 percent, while in 2002 it exceeded 80 percent. The drop in interest rates is very sharp, standing at 17 percent today from 26 percent in 2003. After the great recession in the economy in 2001, when Turkey’s gross domestic product declined dramatically, by 10 percent, in the last three years average growth has stood at 7 percent. The Istanbul stock market is one of the most dynamic among emerging markets. In 2004 its returns were as high as 34 percent (in US dollar terms), considerably higher than the MSCI Emerging Markets index, at 21 percent. At the same time, daily trading volume has increased considerably, rising to $900 million in this year’s first quarter from $600 million in 2004 and $400 million in 2003. Total stock market capitalization is now $90 billion, while free-float shares are at particularly low levels, at just 27 percent. The participation of outside investors in the Turkish capital market is also very high, with foreigners controlling some 62 percent of free float. NBG’s plans The acquisition of a bank is one of the main priorities of NBG’s management and, according to sources, bank officials have already had primary contacts with Turkish banks. The bank is also eyeing a stronger position in Romania. Having the fourth-biggest presence in the region internationally, NBG’s aim in Turkey and Romania is the purchase of banks with a large branch network so that it can increase its shares rapidly. NBG owns Banca Romaneasca in Romania with 29 branches and is about to be strengthened with another 15 branches, although NBG intends to acquire one or more Romanian banks. In case efforts to make an acquisition in Romania fail to bear fruit, NBG will turn to autonomous expansion. On the contrary, more purchase opportunities appear in Turkey, the market that is the bank administration’s greatest challenge. In Serbia and Montenegro, NBG will double its branches from 15 to 30 within 2005, while in Bulgaria it controls UBB with 119 branches and has the strongest presence among all Greek banks. Also strong is its presence in the Former Yugoslav Republic of Macedonia, where it controls Stopanska Banka, the country’s largest with a 50-branch network. Eurobank in Turkey EFG Eurobank’s purchase of 96 percent of Turkey’s HC Istanbul Holding, parent company of stockbrokerage firm HC Istanbul Menkul Degerle, will cost $25 million. HC’s management will remain in Turkish hands, headed by Elif Bigli, who has the post of CEO and the company’s remaining shares. HC Istanbul, listed on the city’s stock market, has been active in the Turkish capital market for four years. The total share of the company in 2004 was 1.52 percent, but in February 2005 it rose to 2.3 percent, bringing it to the market’s 15th spot. The Eurobank group’s immediate plans include an expansion into new activities, such as buying bonds in Turkish currency and foreign exchange as well as management of institutional portfolios. According to Eurobank officials, the group is definitely interested in securing a stronger presence in the Turkish market, although it is also clear that any such steps will be gradual, careful and dependent on political developments and the improvement of the Greco-Turkish relations. EFG Eurobank Ergasias has invested about 160 million euros for the acquisition of companies in Romania, Bulgaria, Serbia and Cyprus. The contribution of its activities in Southeastern Europe to its 2004 profits reached 4 percent, aiming at 20 percent by 2009.

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