The government’s unwillingness to embrace the doctrine of national champions has lessened the possibility of a pick up in merger and acquisition activity among the big five Greek banks. This policy has left the door wide open to foreign financial institutions interested in establishing a presence in the small but fast-growing Greek market. In addition to France’s Credit Agricole (CA), which is the leading candidate for assuming control of Emporiki Bank, Greece’s fourth largest bank, there are reasons to believe the time may have finally come for another foreign bank to get its foot into the Greek banking sector. If this turns out to be the case, then it is more likely the potential target will come from the league of small- and medium-sized banks. Unlike Italy (where loan growth is not satisfactory) and Spain (where relatively fast loan growth rates are accompanied by tight margins), Greece offers another model. Its economy is growing fast and is projected to continue growing in the next couple of years, which is a major plus for banks since loan volume growth is a function of economic activity. Analysts predict it will take Greece many years to get its loan-to-GDP ratio, estimated at about 75 percent, to the eurozone average if its economy continues to grow at 3 percent or more, outpacing the projected average economic growth in the area. Moreover, a fruitful ground for takeovers is provided by still-strong growth rates in mortgage and consumer loans, under-leveraged small and-medium sized companies (SME), an underdeveloped insurance market and a nascent asset management industry. The Greek banking market is not as underdeveloped as it was a few years ago, and households are not as under-leveraged as they used to be. To this extent, concerns about a significant slowdown in loan volume growth in the next two or three years do exist and make sense. Even so, loan disbursement is expected to remain higher than in other eurozone countries while credit quality appears to be better than before, partly due to banks’ enhanced internal risk management and loan administration systems and partly to the central bank’s more hawkish approach. In addition, a potential foreign acquirer may expect to do more on the cost side, that is, driving down expenses to enlarge the impact on the potential target’s bottom line. This is more so with Emporiki Bank and small and medium local banks exhibiting a cost-income ratio of more than 60 percent and sometimes the 70 percent. This is not the case with the large four banks, namely National Bank of Greece, Alpha Bank, EFG Eurobank Ergasias and Piraeus Bank, estimated to have an efficiency ratio below 57 percent and even below 50 percent. Moreover, four out of the five large Greek banks have also to show an extended franchise in neighboring countries with poorly developed and leveraged economies such as Romania and Bulgaria, who are seeking to enter the European Union in the next couple of years. This makes them a good vehicle for international banks interested in getting their foot into those highly promising markets. However, this is not the profile for local banks with small branch networks focusing in the domestic market. Of course, a foreign bank could enter the Greek banking market by itself and start building its own branch network from scratch. Nevertheless, analysts and others point out the small size of the Greek market and stage of maturity to argue that it does not pay for a foreign bank to pursue this policy. Contrary to that, it makes sense, they say, for the interested foreign player to buy a sizeable equity stake in a local bank and use it as a springboard for further expansion in Greece and the Balkans. However, unlike the 1990s and early 2000, international banks are nowadays interested in acquiring a controlling stake in the management instead of a good equity stake. This may partly explain the lack of M&A activity in the Greek banking sector so far, since it is harder to get the major shareholders to agree on a deal when they know they basically lose control of their bank. Agreeing to a fair price for the deal is another obstacle but it is less of a problem with small banks than large banks. Bankers confirm representatives of well-known European banks, predominantly French, have held talks with the management and major shareholders of large and small local banks with an eye to expanding into Greece in the past. The quest for higher return of equity for their shareholders, given the prospects of slow growth in their domestic markets, partly explains their interest in the Greek market. The availability of cheap liquidity, their strong capital base and the vision of a pan-European market of financial services down the road also give them enough reasons to look outside their home market. Excluding Credit Agricole, which is an obvious candidate for assuming control of Emporiki Bank provided it reaches an agreement with the state on a potential deal, the names of other foreign banks, such as BNP Paribas and Caisse d’Epargne, have been heard before as potential acquirers. But market rumors and press reports involving these two foreign banks and even Societe Generale, the majority owner of local Geniki Bank, have either been denied or not confirmed so far. Could it be different this time around? Nobody knows for sure. Pundits, however, say it is more likely to see a deal involving one or more medium-sized banks and a major foreign bank in the next three months or so. They argue that the major shareholders of medium-sized banks can see more clearly than ever that their banks cannot walk alone in a market which is bound to become more competitive in the years ahead. They also add foreign banks interested in expanding in the fast-growing Greek market cannot continue to put off their decisions for ever. If this is the case – and already stock market participants appear to be siding with this view as they keep on bidding the share prices of a few mid-sized banks in the last couple of weeks – a new potential consolidator may emerge in this mid segment of the banking market, leading to a significant realignment in the industry.