ECONOMY

Geniki to turn profitable this year

Greece’s Geniki Bank, majority-owned by France’s Societe Generale, will turn profitable in 2006, its chief executive said yesterday, though tougher competition would compress lending spreads. «In 2006 we should have our first profitable year after spending 18 months building a new bank,» Geniki’s Chief Executive Jacques Tournebize told Reuters in an interview. Taken over by SocGen in 2004 and restructured, Geniki is seen by analysts as a small but feisty bank, ready to take on the Greek heavyweights. «The bank is now ready to compete,» Tournebize said. «The first half will show the trend as regards earnings. But we do not plan to pay a dividend in 2006.» In 2005, Greek banks enjoyed a bumper year in retail lending. Wide spreads on mortgages and consumer credit fed net interest income, boosting their earnings. The big question now is whether the party will wind down, leading to an erosion of spreads. Based on the latest data from Greece’s central bank, growth in household credit – mortgages, credit cards and consumer loans – picked up to an annual rate of 26 percent in October. Greek household indebtedness has reached 61 billion euros or about 33 percent of last year’s annual output (GDP). Although rising, it still trails European averages. Spread compression Geniki’s Tournebize expects the credit boom to slow this year. «Growth will go on but not at the same pace. I imagine competition will be fierce in 2006. Margins on consumer loans and mortgages are very high compared to Europe. This can’t go on,» he said. Tournebize forecast that a soft landing in credit growth will squeeze mortgage spreads to about 100-150 basis points from an estimated 220 basis points currently, as lenders fight it out for market share. This will benefit borrowers. «Right now banks are looking to increase market share and gain clients and are willing to pay a high price. This race will go on because the story of Greek banks told to the market is one of growth, growth, growth,» Tournebize said. Also pressuring the market’s current margins will be more equity release products – home equity loans – allowing borrowers to refinance existing consumer loans more cheaply. This will likely cannibalize the lucrative spreads in unsecured credit. Competition and a likely price war will make its appearance via new products, including mortgage refinancing offers. Mortgage growth is likely to decelerate to the «mid-teens from the high 20s in 2005.» Tournebize said Geniki was determined to expand through other channels besides «bricks and mortar,» including Internet banking to be launched in February and phone banking later on. «Our 2 percent market share is not enough for us. We need to develop further to increase it. By end-2006 our branch network will number 150 branches (from 130 currently),» Tournebize said. «We are here for the long term, we want to build a strong bank,» he pledged.

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