Greece’s banks may well have overstretched themselves in their efforts to establish a strong regional position. Their officials are recognizing that expansion opportunities in the region have sharply diminished, while in some markets, like Romania, major opportunities are gone for ever. Valuations of banks for sale have now risen to price levels that hardly any Greek bank could meet. Even so, competition is especially tough as the major continental banks are also eyeing expansion into Southeastern Europe. Bankers admit that Greek banks’ limited size and capital potential hinder them from realizing their vision of capturing a dominant position in the regional market. The margins for dynamic penetration by single institutions are now much tighter, so from now on local credit institutions will either have to join forces to reach a greater capital base, or else seek international alliances. The funds which the National Bank of Greece (NBG), Alpha Bank, Emporiki, Eurobank and Piraeus Bank can invest today to acquire other banks are limited and could only be used for few, well-prepared choices, as they run the risk of throwing vital resources at failed investment opportunities at a time when the economic environment allows no room for mistakes. According to sources, NBG’s effort to expand to Turkey through an acquisition has stalled due to high valuations. Reportedly, it is impossible to buy a bank in Turkey for less than $1 billion (830 million euros), which is too high even for NBG, Greece’s biggest. The latter currently has the strongest capital base and could proceed with one or two aggressive bank acquisitions of significant size, but high valuations of NBG’s main target banks are preventing this. At the moment the process of selling Banca Comerciala Romana (BCR) and Casa de Economii si Consemnatiuni (CEC) has begun in Romania. They are the last opportunities for foreign players wishing to secure quickly an important and competitive foothold in the rapidly developing and much-promising Romanian market. A recent analysis by Alpha Finance at end-2004 showed that some 40 banks are active in Romania, 31 of which belong to foreign ones including Société Generale, Raifeinsen Group, ABN Amro, ING, Citigroup and Greece’s NBG, Alpha and Eurobank. With a 29 percent market share, BCR is the country’s biggest bank, while CEC lies fourth, holding a 6.5 percent share. Due to its size, BCR is beyond the Greek banks’ reach, but NBG and Eurobank have expressed their interest in CEC. Such an acquisition would be very difficult as they would have to clash with very strong and active Austrian banks like Raifeinsen, Bank Austria and Erste Bank. Officials from the two Greek banks recognize that at the present conjuncture, the purchase of CEC by a domestic bank is quite unlikely, as their European fellow suitors appear more determined and their size allows them the luxury of spending a few billion euros without worrying too much. Missed opportunities Although domestic banks had recognized early enough the growth prospects of the broader region and proceeded quickly to bold expansion moves (at a time when no one in Europe cared about the Balkans), they later dragged their feet. By giving priority to strengthening their positions in Greece and to making the most of the openings created by the liberalization of retail banking, they missed the chance to obtain crucial assets while they had an open field to play in. Today, Greek banks are estimated to control about 15 percent of neighboring states’ bank sectors, which are still largely in their infancy. Loans as percentage of the GDP reach 26 percent in Bulgaria and just 18 percent in Romania – the two most advanced countries in the region, which are expected to accede to the EU in 2007. While Greek banks have a notable presence there, everyone recognizes that maintaining, let alone strengthening, their market shares through organic development will be a very tough battle, as they will have to compete with and obtain market shares from European financial giants. Many doubt that domestic banks can truly compete against the big European ones and predict that the great advantages of the main continental players (including large capital bases and access to international markets with better terms) will quickly put them in a superior position. In this context, they say, there are two alternatives: Either promote mergers among big Greek banks to strengthen their capital base or else practice the «If you can’t beat ’em, join ’em» motto with the continent’s major players.