Banks told to take merger path

The country’s central bank has called on lenders to seek strategic alliances that will make them big enough to survive the economic crisis, in comments likely to fuel talk of takeover activity taking place in the sector. In a financial stability report, the Bank of Greece said yesterday that lenders should initiate strategic deals as the deepening recession cuts into their profits, reducing credit volumes and upping bad loans, while also creating liquidity problems. «Restructuring in the banking system would help Greek banks to acquire a critical mass that would allow them to benefit from economies of scale and more quickly regain access to international money and capital markets,» it said. Lenders need to «proactively» adapt to the changing environment by maintaining capital levels above regulatory minimums, establishing impairment charges, rationalizing operating costs and managing resources prudently, it added. After recent calls by Finance Minister Giorgos Papaconstantinou for banks to join forces, Piraeus Bank made the first move in the sector last month by offering to buy controlling stakes in state-owned Hellenic Postbank (TT) and ATEbank for 701 million euros. The government has appointed advisers to consider the deal as market talk grows that more banks will seek strategic deals over the summer, sending bank shares sharply higher. Bank stocks have gained 42 percent over the last month, versus a 22.5 percent advance in the broader market. TT shares lead the advance, jumping 84 percent, followed by a 63 percent rise in Eurobank EFG. The Bank of Greece also said it expects a better end to the year after the country’s large fiscal and external imbalances triggered successive credit rating downgrades of sovereign debt in the first few months of 2010, leading to an economic and liquidity crisis. Pressure on financial stability is expected to ease in the coming months with the return of market confidence due to implementation of the government’s fiscal and structural adjustment program and the trilateral support mechanism for the Greek economy, it added. [email protected]