The vast majority of top Greek bankers were wrong when they predicted that the global financial crisis would ease in May or June. They must pray they are right this time, as they are trying to stick to their growth strategies amid signs of a weaker economic environment and the continuous rise in the costs of funding. It is a good bet but a risky one. It is embarrassing to recall comments that the majority of Greece’s top banking brass made at the end of 2007 and the beginning of 2008 and which turned out to be so wrong. According to their analysis at the time, the leaders of the country’s major banks expected the credit crisis to ease and even end with the announcement of first-quarter results by the big US and European banks or second-quarter results over the summer. The reason was simple. They hoped changes at the helm of Citigroup, Merrill Lynch and the replacement of other top executives at other large American and European banks would lead to drastic action to rid of their balance sheets of so-called toxic assets, such as collateralized debt obligations (CDOs), mortgage-backed securities and other derivatives, and shore up their capital. The biggest portion of this work was supposed to take place in 2007 and the first quarter of this year so the new CEOs, chief financial officers and other executives would have enough time to turn their banks around in the second half, get credit for it and receive some fat bonuses. At the same time, the forward-looking markets would realize that almost all of the skeletons were out of the banks’ closets and their hard-hit shares would rally, pulling up other shares of the financial sector globally, including Greek bank stocks. Although the top foreign bankers took heavy writedowns on their real estate-related securities and raised tens of billions from sovereign funds and other big investors abroad, the operation has not yet been a success. Just 10 days ago, Merrill Lynch sent shock waves worldwide by valuing its CDOs and other products at 22 cents per dollar when other banks had valued them at 50 or more cents, implying other banks will have to take more writedowns on similar toxic securities. Greek bankers have seen their stocks de-rated as financial stocks have become the dogs of the global investment community. These bankers have unloaded a good chunk of their shares and occasionally shorted them, that is, borrowing the shares and selling them, betting they can buy them at lower prices and bank the difference. Local banks have also been hit because, during times of uncertainty and market turbulence, international institutional investors tend to flock to large-capitalization companies with a more conservative profile whose shares are trading on the larger stock markets and not the smaller markets on the periphery of Europe, such as the Athens bourse. Greek banks’ expansion drive in the riskier markets of Southeast Europe and Turkey has not helped either because this has reinforced their risk profile. So it is somewhat of an irony that the interim financial results by two of the country’s largest credit institutions, Eurobank and Piraeus Bank, show local banks continue to reap the benefits of their strategy to expand abroad. Eurobank EFG saw its half-year earnings from international operations grow 280 percent year-on-year, accounting for 21 percent of net group profit of 436.2 million euros, which is up 7 percent compared to the same period last year. Piraeus Bank saw its net profits from abroad rise 188 percent year-on-year to 70.9 million euros, compared to net group profit of 284 million euros in the first half of the year. It is obvious that Greek banks are continuing with their growth strategies, although the global credit crisis is also knocking on their doors. Economic activity in Greece and abroad is slowing down while the cost of keeping deposits at home to finance loans continues to rise. The latter is the result of a switch by their customers from savings to time deposits and the reinvestment of maturing time deposits at higher interest rates. This shows that Greek bankers think the benefits from expanding their loan books exceed the costs of the more expensive funding. Even though they are trying to hike their lending rates to compensate for the higher cost of funding, they know there is a delicate balance between higher lending rates and loan volume growth, which may rock the boat if carried out excessively. In this regard, the bankers are betting the global credit crisis will ease, allowing international financial markets to re-open and provide funding at more reasonable rates to keep their growth strategy. It’s a better bet now than it was eight to 10 months ago but there’s no guarantee that they won’t alter this growth strategy model down the road if the crisis ends up similar to that of the 70s.