Regional expansion drive nearing end for Greek banks

The quest for opportunities to expand into new markets in the broader region of Southeastern Europe has been among the priorities of the big Greek banks in recent months. The privatization programs for banks in several of the countries in the region are nearing completion and their value has risen significantly, although the remaining opportunities are few. At the same time, high on the Greek banks’ agenda are mergers and acquisitions in the domestic market itself. What might be the chief considerations for bankers seeking the right opportunities? «Until recently, the big Greek banks had not felt a pressing need for mergers or acquisitions (M&A). The high net interest rate margins and the high growth rates in turnover and revenues (consumer and mortgage lending have been increasing at rates of around 40 percent) contributed to a significant increase in profitability, which lessened the urgency for drastic M&A moves. Also, the state protection enjoyed by banks in which the government held large stakes discouraged such moves,» said Nikos Christodoulou, Greek chief strategist at Accenture, an international consultancy firm active in 50 countries. However, the projected slowdown in the growth rates of banking business in Greece, in combination with rising provisions for bad debts and the further privatization of the market (Postal Savings Bank, Emporiki) is changing the scene. Fueled also by the expectations of institutional investors, M&A considerations are being rekindled. Careful planning Greek labor regulations are considered too restrictive and an important obstacle to M&A. Accenture’s international experience shows that for M&A moves to succeed, they must be very carefully planned. A recent global analysis study it conducted on M&A among large organizations showed that about half of the resulting schemes failed and only about 20 percent succeeded in producing significant capital gains. The remaining 30 percent merely managed to recover costs. For acquisitions to be meaningful, they must aim not only at reducing costs but also at creating capital gains through higher revenues. «The problem does not lie in different corporate cultures or labor regulations. To be successful, a merger or acquisition must be expected to create significant capital gains through the complementarity of services or products and cross-sales to customers,» said Christodoulou. The problem, therefore, in the Greek market at least, lies in creating capital gains by increasing revenues. Multiple cover of distribution channels, products and clients makes the quest for revenue synergies difficult. Products are copied in minimum time and targeted moves are addressed to similar groups of clients. The most crucial factor for success is post-merger integration, which requires well-structured change process. As pointed out by Steve Forbes, «mergers and acquisitions look attractive on paper but the difficulties lie in the details – how to make the operation work right.» Another issue always in consideration is the possibility of strategic alliances between big foreign banking corporations and Greek groups. «The foreign groups are seeking geographical expansion and potential for significant revenue growth. It is not a coincidence that several large foreign groups, like Unicredito and Fortis, entered neighboring Turkey in a very short space of time. The Greek market is small and its attractiveness lies in the positions of its banks in the markets of the broader region. The advantage, therefore, belongs to those groups that can provide access to these markets.