ECONOMY

Banks cut profit margins to face increasing competition

Banks are preparing to face the gradual maturation of the domestic market while they concentrate their firepower on the markets of Southeastern Europe. Last week a move by EFG Eurobank grabbed the headlines, as the bank abolished the commission for several banking services, which will certainly be followed by other banks. Under the pressure of competition, banks will sacrifice commissions (a significant portion of their revenues), shrink their interest rate margins and still aspire to further growth in profits in the coming years. According to the business plan of Piraeus Bank for the 2007-2010 period, the group’s profits will record an average annual increase of 24 percent over the next four years, which is particularly high. Marfin Popular Bank has set its target even higher, at a rise of 32.1 percent for the 2007-2009 period in its business plan presented a few days ago. Other major banks also appear ambitious and optimistic about their figures and profits: National Bank of Greece will announce its new business plan on February 22; EFG Eurobank will reveal its plans in end-March, while the business plan of Alpha Bank is even more eagerly anticipated. Bank of Cyprus and Emporiki Bank will also present their new plans and targets. The common feature of those business plans is that they will all focus on strengthening the banks’ presence in the region of Southeastern Europe. The development of the neighboring states may become the factor that makes the difference in the future results of local banks, as their successful growth in the region is key for their survival. As far as the local market is concerned, bank officials recognize that the conditions in the banking market year after year have become ever more demanding, yet they note that as long as the economy grows by high rates, retail banking will expand by 15-20 percent, which means the growth of banks is secured. Initially, pressure will only apply to less efficient banks which will see their market shares shrink as they are unable to adjust to the new conditions. Later on, pressure will mount on more banks. Chairman and CEO of National Bank Takis Arapoglou told Kathimerini that the game will gradually shift from an increase in revenues to the effective control of costs and the quality of services provided. Service quality will be the future battlefield of banks, believes the head of the NBG. Vyron Ballis, deputy CEO at EFG Eurobank, spoke to Kathimerini after the group’s decision to abolish various forms of charges. «The strong growth of the economy, at rates above 4 percent, expands the growth margins of banks. Furthermore, the degree of penetration of the banking system in the local economy, in comparison with Europe, remains at low levels.» Ballis also notes that the costs from reductions in commission will be offset by the rise in customer turnover. «The system operated in an obsolete way, as high charges discourage economic activity. We are taking all these services onto an electronic platform and reducing the costs to such an extent that allows us to provide these services for free.» «I believe that the upgrade of the services offered, combined with the reduction of costs will encourage economic activity, which will eventually positively affect the financial results of banks,» predicts Ballis. Credit institutions the motor of the Athens stock market’s growth In the stock market, too, banks are at the center of attention, both in terms of growth and in expectations, so that they are the main engine of the Athens stock market for one more year. Still, it is clear that beyond the expectations of the market and investors, the sector is undergoing serious developments. NBG is at the forefront as it is transforming into the first bank from Greece dominating the region, having an international share base. The acquisition of Finansbank in Turkey has attributed a new dimension to NBG in terms of size and international presence, so that it now stands out from other local banks. The expansion into Turkey has neither helped Citibank buy out NBG from the back door, nor created a massive flight of deposits from Finansbank to other banks, nor brought NBG to the point of collapse. Today NBG has a strong presence in Southeastern Europe, led by its key position in the rapidly developing Turkish market which attracts more and more foreign institutionals. On expectation level, the focus remains on the Piraeus Bank – Bank of Cyprus – Marfin Financial Bank triangle: Bank officials believe that there will be some merger movement among the three banks.