Loan portfolios vary
The tremendous increase in loan demand in recent years does not mean that all banks offer the same loan products in subcategories. Commercial banks’ loan portfolios vary considerably, reflecting each bank’s business orientation and their appetite for risk-taking. While some banks like to focus on business credit, others prefer housing loans or consumer credit, a policy that involves varied profit margins, and, of course, different risk exposure. Obviously, a consumer or a small business loan entails an entirely different level of risk compared to mortgages. However, a common trait in banks’ loan portfolios is the increasing contribution of retail borrowing. The deregulation of retail banking in recent years and a consequent steep increase in loan demand have resulted in a radical change in the composition of banks’ loan portfolios, with as much as almost 50 percent of such portfolios currently accounting for by household borrowing. In recent years, rapid growth in retail banking has greatly boosted the sector’s profitability to spectacular levels. The high returns are explained by the high interest rate margins on loans to private customers, especially consumer credit. In contrast, domestic medium and large-sized businesses enjoy considerably lower rates, which certain bank officials say does not correspond to their actual credit potential. Rates currently offered to large enterprises may be even lower than 1.9 percent, while mortgages stand at 2.2 percent and consumer credit at 8 percent. It goes without saying that the more consumer loans a bank has in its portfolio, the more profit it makes, at least theoretically. But such loans are certainly associated with greater degrees of risk. A critical issue in handling risk is the management system used by each bank and their effectiveness in filtering loan applications to refuse the risky ones. According to first-quarter data, the country’s banking sector will see a strong year in 2007, driven primarily by credit expansion. Total loans granted in the first quarter by EFG Eurobank amounted to -37.4 billion, up 30.3 percent compared to the same period a year earlier. Household borrowing grew by 28.2 percent, while housing loans were up 34.1 percent and consumer loans 22.6 percent. Eurobank’s business credit rose by 32.1 percent, at -19.8 billion, with small business loans up 39.1 percent and large enterprises 37.7 percent. Alpha Bank data on retail banking showed a housing loan increase of 24 percent, while consumer credit growth stood at 21 percent. Small business loans were up 13.1 percent and credit to very small businesses (under -90,000) rose by 18.8 percent. Piraeus Bank’s overall loan portfolio recorded an impressive increase of 34 percent, with mortgage rising by 29 percent and consumer loans moving up 28 percent. Piraeus also recorded a significant growth in business credit, with SME borrowing surging by 43 percent.
