Banks’ profits do not impress investors

Investors seem unimpressed by banks’ record-high profits in the first quarter of 2006. The negative climate in capital markets internationally has brought anxiety, brushing aside the impressive performances of domestic banks. Major banks’ stocks on the Athens bourse recently recorded losses of between 7 and 20 percent, a decline associated with the reversal of the good mood of investors and the fear that the three-year rising course of capital markets internationally could be coming to an end. The local market is even more nervous, due to the excessive stock market profits in the last three years, particularly in banking stocks. The bright Q1 results of banks are displaying some worrying signs. The main worry is the significant decline in spreads seen on the horizon. What concerns analysts most is whether spreads will decline significantly in the coming months. They worry about banks entering a «bloody war» period for an increase in their market shares. The signs are particularly alarming, particularly after the surprise move by National Bank to introduce a mortgage loan by which money is «returned» to borrowers. This was immediately copied by all major banks and it remains to be seen what the effects on banks’ profit margins will be in Q2. Worse, the boost by the Q1 financial results will be lost, especially after the sudden deterioration in the positive mood on the markets. The loss of extraordinary profits and the likely quick reduction in banks’ profit margins could reverse the record profits we have recently become accustomed to.

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