The global credit crisis has made life more difficult for Greek banks as the cost of money has gone up and loan growth has slowed down. However, measures to overhaul the country’s social security system are raising the awareness of the average Greek employee about the risks associated with his future pension benefits, making it easier for banks to generate more earnings from bancassurance. Mergers and acquisitions (M&A) may be the hot story in the Greek banking sector at the present time, following EFG Eurobank’s announcement on Friday of owning 5.7 percent of deposit-rich Hellenic PostBank (TT), formerly known as Postal Savings Bank, listed on the Athens Exchange. Still, their efforts to find new sources of revenue to meet their ambitious earnings targets in their business plans are also important. Credit expansion Greek banks have relied on strong loan growth to households in the form of mortgage and consumer loans along with decent lending to corporations to provide for a strong increase in income from net interest and commission fees which have underpinned their double-digit profit growth since trading income became scarce, following the bursting of the stock market bubble and the easy money earned from Greek government bonds in the 1990s. Of course, local banks have gone on an acquisition binge in neighboring countries in search of future growth in emerging markets in the region and this has started paying off. Nevertheless, except for the National Bank of Greece which earns more than 30 percent of its group profit from abroad, the exposure of other Greek banks in the region is still small although growing. It is estimated that the other three large banks earn between 8 and 18 percent of their net income from international operations. Exposure Moreover, the credit crisis has increased global risk aversion and highlighted some of the macroeconomic problems faced by some emerging markets, giving rise to second thoughts about the proper level of overall exposure to revenues and earnings from these countries, with high budget deficits and depreciating national currencies. This has put more premium on revenues derived from the more mature but less risky Greek market. Still, even in the more mature local market, there are some areas which promise plenty of growth for banks. Selling life insurance policies through their branch networks, known internationally as bancassurance, is perhaps the most promising. A look at comparative figures can show how underdeveloped the Greek market is in this area. According to Theodore Pantalakis, deputy CEO at Piraeus Bank, in Portugal, a small country which has many things in common with Greece, the market share of bancassurance in life insurance has reached 80 percent compared to 13 percent just a decade ago. Bancassurance in France accounts for 62 percent of total life insurance, which includes pension, health and other policies, and 53 percent in Italy. In Spain it shot from 3 percent to 71 percent. It is not surprising that bancassurance has been more successful in Southern Europe rather than in Northern Europe or the US. This may be explained by the fact that the latter had a well developed insurance industry when banks entered the picture, more than anything else. The merger in the US of the merger between Travelers Group and Citicorp in 1998, which gave its place to modern-day Citi, is perhaps the best known example. Progress Nevertheless, Greece has also made progress since the start of the current decade when bancassurance was considered an underdeveloped and promising area but slow in getting off the ground. It is estimated that 35 percent of life insurance policies are sold through the bank branch network today compared to a 10 percent market share in 2001. This has been fueled mainly by the sales of the country’s large five banks, that is, the National Bank of Greece, EFG Eurobank, Alpha Bank, Piraeus Bank and Emporiki Bank. Realizing the potential of the Greek insurance market, especially life insurance, large foreign groups such as the French AXA Group, have entered the local market in the last couple of years to compete with Allianz, ING, AIG Alico, Generali and Eureko’s Interamerican which have been in the market for years. Despite reservations on the part of the insurance industry about the ability of Greek bank employees to sell life-insurance policies, they have done well by cross-selling them with loans because they are usually standardized and easy to comprehend although the tax allowance at -1,200 per person is very small. Of course, there are complaints by executives at insurance firms that banks are sort of arm-twisting borrowers to take a life policy, which some may abandon a year later, but it still works. In addition to selling them along with loans, large banks have embarked on advertising campaigns to sell some pension products by providing clients with the required loan up front. Scope for growth Whatever the case, banks have started tapping an underdeveloped market with huge potential as more and more Greeks understand their guaranteed state pension on retirement may not be as generous as they previously believed and perhaps not even guaranteed, as the population ages and fewer employees support more pensioners. So banks have a great opportunity to compensate for some of the loan growth slowdown at home as interest rates go up with higher revenues from bancassurance to meet their profit targets in their business plans and please their shareholders. This is important even in a year dominated by M&A speculation in the banking sector and tougher conditions in the credit markets.