Roaring profits for banks
In a sheer show of strength, Greek banks in the first half of 2007 recorded impressive performance with record-high profits, setting themselves in the lead of all listed companies. Listed companies’ profitability in the first half of the year could be seen as being divided into two: the almighty banks and all the other firms watching in envy the banking sector’s strong growth and impressive profits. National Bank’s profits alone stood at -878 million, equaling the total profitability posted by OTE (-277 million), Coca-Cola HBC (-221.7 million), Hellenic Petroleum (-181.1 million), Titan (-124.5 million) and PPC (-99.4 million). Overall profits posted by the four major banks – National, Eurobank, Alpha and Piraeus – in the first half of the year rose to the impressive level of -2.1 billion, a light year away from any other single sector. Should medium-sized banks’ profits also be taken into account (e.g. Marfin Popular Bank, Bank of Cyprus, Emporiki Bank, ATEbank and the Postal Savings Bank), then the gap separating the specific sector from all listed firms could take on an astronomical dimension. But one may wonder where this extraordinary profitability comes from? The heart of banks’ achievements in recent years has been the domestic market. The deregulation of retail banking in the 1990s gave rise to a new sizable market, which craved financing. Retail market Indicatively, in 1995 mortgages stood at -3.6 billion, while the current figure is at -58.3 billion, an increase of 1,528 percent. With regard to consumer credit, loans in 1995 merely stood at -1.2 billion, reaching its current figure of -27.7 billion, or a 2,209 percent rise, in just over 11 years’ time. But beyond the emergence of a relatively virgin market, banks did have luck on their side, as the deregulation coincided with a period of declining interest rates, which eventually hit historically low levels, making bank borrowing especially attractive. Major investments Another strong point that makes the difference and is gradually turning into growth leverage regards the foreign investments that Greek banks have been making in the wider region of Southeastern Europe. By making bold moves even in the early stages of their expansion, banks were wise to pour large funds into investments that now give them extensive geographic activity, stretching from the Ukraine and Poland to Turkey and Egypt. To provide an example, 40 percent of National Bank’s profits in the period under review come from its activities outside Greece: Profits from Turkey’s Finansbank stood at -244 million, contributing 31 percent to the overall profitability of the domestic banking group. Both EFG Eurobank and Piraeus Bank’s foreign activities recorded a high performance, and both banks are now going ahead with share capital increases to facilitate their targets to further expand operations beyond Greek borders. Holdings On the other hand, a major contribution to banks’ record-high profitability comes from extraordinary factors, such as the sale of holdings. National saw profits of nearly -100 million come in from the sale of its stake in cement company AGET Iraklis, while Piraeus Bank took profits from the sale of its holding in Bank of Cyprus, and Alpha Bank from the sale of the group’s insurance company. These are profits of millions that greatly add to the sector’s thrilling image, but they are unrepeatable. Financial results also boosted the sector’s profits, owing to the excellent conditions prevailing in domestic and global markets in recent years. However, given that such profits are highly fluctuating, they could change dramatically according to market conditions. What’s almost certain is that banks’ successes drive them to over-emphasize the achievement of high short-term results. With high pressure from foreign banks, bank officials underline some non-conformity between the impressive profits and growth, on the one hand, and their lagging behind in certain areas, such as loan portfolio quality (domestic banks face double the amount of bad loans than their European counterparts), investing in new technology and infrastructure and preparation for the time when the maturing of the domestic market coincides with a period of weak economic growth. This impressive picture, however, does include some exclusions. For instance, Emporiki Bank and Geniki Bank, both under French management, seem to be missing out on the profits that most major banks see. Emporiki, still in the midst of implementing an extensive restructuring program, saw its profits drop 33 percent, while Geniki recorded continued losses leading to the conclusion that France’s Societe Generale probably greatly underestimated the troubles facing the Greek bank when it bought it in 2004.
