Fitch Ratings says in a special report that recent strong growth of consumer lending in Greece has heightened the risk profile of Greek commercial banks. While consumer lending represents an opportunity to diversify lending and improve revenue generation, it could – if not properly managed – increase credit costs should economic conditions in Greece deteriorate and eventually put downward pressure on ratings, according to the report. «Given the lack of seasonality particularly in unsecured consumer lending, there is a risk that narrowing spreads due to fiercer competition and a less benign economic environment would negatively affect Greek banks’ asset quality and overall performance,» says Cristina Torrella, a director in Fitch’s Financial Institution Group. «Greek customer loan spreads are, however, still wide and compensate for higher risks attached to consumer loans,» she adds. On the back of financial sector liberalization, eurozone accession and a benign economic environment, Greek consumer lending has witnessed annual growth rates of above 20 percent in the last five years. In 2005, it accounted on average for around 15 percent of total bank lending. «Although Fitch expects growth rates of consumer lending to decelerate, prospects for the next two to three years remain good,» Torrella says. «Greek customers are still underleveraged compared to their peers in Western European countries. Consumer lending represented a mere 1 of GDP in 2005, which is considerably less than the European Union average of 16 percent.» Like most aspects of the Greek financial sector, consumer lending is concentrated and the top five lenders commanded a 77 percent market share at end-2005. While all Greek banks rated by Fitch have benefited from consumer loan growth, EFG Eurobank has the biggest market share, but other private sector banks like Alpha Bank and Piraeus Bank are catching up. Smaller banks and non-banks remain relatively insignificant with the exception of Egnatia Bank, which has a strong niche franchise in car finance. Although risk management and pricing systems are still weaker than in many other developed markets, Greek banks are making significant investments in improving systems and controls. Bank data derived from a survey conducted by Fitch in spring 2006 show that most banks have tightened underwriting criteria or intend to do so in the coming 12 months, which provides some comfort. Credit default data for retail customers is improving as the local credit bureau builds up a more comprehensive data base. However, Fitch emphasises that the data might underestimate actual default rates as it has been gathered in a favorable economic environment.