Greek bank market fast maturing

The domestic banking market is maturing at a faster pace than expected, particularly in the field of home loans. According to bank sources, half of new home loans issued relate to refinancing of existing mortgages with interest rate spreads narrower than those offered in Spain. Data from National Bank show that the margin of new home loans is around 100 basis points, which is the same as that offered in Spain – a market considered to be mature. Bank sources said the speed at which the domestic retail market was maturing was surprising and predicted that by the end of 2009, private and business lending in Greece, as a percentage of gross domestic product (GDP), would be higher than average eurozone levels. Although deregulation of the banking sector has taken place only recently, lending rates have quickly approached levels seen in other European countries. According to estimates of bank officials, at the end of 2006 home loans reached 29 percent of GDP versus an average of 38 percent in the eurozone. On the consumer loan front, lending has reached 15 percent of GDP in Greece versus 16 percent of GDP in the euro area. The speed of the market maturing and efforts by banks to broaden or hold on to market shares is forcing them into a «bloody» price war that has led to loans being offered at continually more attractive interest rates. First-quarter earnings show that price pressure is being put on all lenders. Alpha Bank showed a considerable drop in its net interest margin (NIM) in a development raising profit concerns for investors while a small reduction appeared with Piraeus Bank NIM. In contrast, Eurobank managed to hold on to its lending margins, mainly due to an increase in its consumer loan portfolio. The average NIM of domestic banks remains above averages seen in the eurozone and this is due to old loans that had been issued at high rates and solid loan growth in Southeast European markets.