A radically different environment is emerging for banks worldwide in 2008 as a result of the losses of billions of profits, leading to several dismissals of top executives and a crisis in confidence. The exact extent of losses has yet to be determined and market watchers are anxiously awaiting today’s announcement by Citigroup, the world’s biggest banking group, of 2007 results. Greek banking officials told Kathimerini that small increases in interest rates are expected soon and that the repercussions on the national economy will be limited. Takis Arapoglou, the president of National Bank, the country’s biggest, said last week that the Greek banking system remains strong. It is true that Greek banks are in an advantageous position, in the sense that they have had no exposure to the risky subprime loan crisis which triggered the current credit crunch, and have a strong foothold in the fast-growing southeast European markets. Timely moves National Bank made a bold move into Turkey two years ago, acquiring control of Finansbank, which last year contributed about a quarter to group profits. Eurobank and Piraeus Bank feel equally comfortable, having completed share capital increases a short while before the outbreak of the crisis last year in order to fund their expansion plans. But to be sure, in a crisis environment in the era of globalization no one will be left unaffected. Bank officials believe, nevertheless, that with their advantageous position, Greek banks will be little affected, mostly in the form of an increase in the cost of money and difficulties in borrowing in the wholesale market, they say. They note that their European peers have already hiked rates. In Greece, the increases will first come to corporate loans (Eurobank has already put them through) and then to household credit. «Circumstances are different and we cannot price risk today in the same way we did 12 months ago,» said Nikos Nanopoulos, CEO of Eurobank, recently. Other bank officials argue that the intensification of competition, particularly in mortgages, has led to excesses and a number of extreme offers which would have come to an end anyway. Now, the credit crisis is speeding up the rationalization in mortgages and is seen as causing an increase in Greek rate margins, which are still the lowest in the eurozone. The magnitude of the increases will depend on the duration of the crisis. As long as the cost of money on international markets remains high, banks will pass on that added cost in an increasing number of their products. But if the situation returns to normal and confidence is restored, the hikes will stop. Arapoglou predicted that the first half of 2008 will be a difficult period, but problems will start abating in the second half. Bank officials argue that the rate increases in Greece are not expected to have an appreciable impact either on the rate of credit expansion or business. They go as far as to say that the hikes also have their positive side, acting as a booster in attracting deposits, which had been sidelined in recent years due to the abundant liquidity. Consumers borrow avidly Greece is the only member of the eurozone where the volume of consumer credit rose in the last five-year period (2003-2007), according to a recent study by PricewaterhouseCoopers (PwC). The report, entitled «Precious Plastic 2008,» also found that the penetration of consumer credit in Greece as a percentage of declared GDP was the second highest after the UK, which was included in the research. This partly explains the high return on capital at Greek banks, according to the study. «Consumer credit is a cultural trait and seems to have largely won Greeks’ preference, in contrast to the citizens of many other eurozone countries. The key question now is how Greek consumers and households will respond to the new conditions of higher interest rates and, therefore, installments,» said PwC Hellas partner Emilios Yiannopoulos. He noted innovation is an appropriate way to increase the market penetration of consumer cards in developed markets. Examples of innovation are mobile, prepaid, contactless or «green» (where part of revenues go toward environmental causes) credit cards.