A solution to the problem of bank employees’ auxiliary pension funds is the prerequisite for further moves by foreign players in the Greek banking sector, according to the annual report on the sector by Kantor Capital. According to International Financial Reporting Standards (IFRS) adopted earlier this year, provisions for pensions and severance payments must show up on banks’ financial statements as liabilities. Regarding mergers and acquisitions, last year was relatively calm, with the exception of Societe Generale’s acquisition of a majority stake in Geniki Bank. According to Kantor, the major upcoming moves might include a buyout of the Postal Savings Bank, with its extremely valuable portfolio of mortgage loans, by a major domestic or international bank. Smaller banks are targeting the Bank of Cyprus. The report adds that NovaBank and Egnatia Bank would add value to Geniki and Aspis banks respectively. Last year, bank personnel declined 2 percent to 77,116. Only Piraeus Bank had a significant rise in personnel (9.4 percent). Productivity rose 10.2 percent overall, with big banks gaining 11 percent and small banks 3.6 percent. Total pretax profits rose 19.4 percent to 2.4 billion euros, with the steepest rise coming from commissions. The report estimates that most big banks have adequate capital reserves to support an expansion of their activities. Moreover, the likely securitization of part of banks’ loan portfolios will further improve liquidity and capital adequacy. However, Greek banks are still relatively small compared to their European counterparts; only two Greek banks are among Europe’s 100 largest. Kantor also remarks that, despite years of focused efforts, Greek banks’ presence in other Balkan countries remains small, with a 15 percent market share. According to the report, many banks will need to increase their provisions, mostly because of the IFRS requirements. This will not only hurt profitability but may also limit credit expansion. To offset this, banks are likely to move to get a better return out of their property portfolios. Greece’s banking sector is highly concentrated, with the three largest banks capturing a 59 percent market share and the eight largest 91 percent. According to a measure devised to gauge the completeness of bank networks, Greece is close to the EU average. The measure divides a country’s GDP (gross domestic product) by the number of branches in that country. According to that measure, Greece has one bank branch per 46.5 million euros of generated GDP, while the EU average at 50 million euros. Capital structure In 2004, total deposits in Greek banks rose 6.6 percent, while their share of the banks’ liabilities remained constant at 74 percent. At the same time, credit expanded 17.9 percent, and was equivalent to 60.7 percent of liabilities, from 55.3 percent in 2003. The credit-to-deposits ratio increased to 0.82 for the bigger banks, from 0.73 in 2003 and 0.64 in 2002, while for smaller banks, the ratio stood at 0.83, from 0.81 in 2003 and 0.78 in 2002. Average capital adequacy increased to 13.6 percent in 2004 from 13.3 percent in 2003, mostly due to an upward revision in the value of their properties, absorption of subsidiaries and the selling of shares to institutional investors. Total capitalization on the stock market increased 34.4 percent, to 24.9 billion euros.