NBG confident about profits, thanks to prudent lending

With uncertainty in the global economy increasing, commercial banks’ main concern is to rein in costs and reduce risk exposure, says Andreas Vranas, deputy governor of the National Bank of Greece (NBG), the country’s largest. He notes in an interview that NBG is not so interested in its market share in the domain of corporate finance as in the quality of its portfolio. After a period of apparently intense interest in business deals, Greek banks are showing signs of fatigue. How near reality is this impression? The Greek banking system completed the first wave of mergers and acquisitions in the 1998-2000 period, in anticipation of the new competitive environment inside the eurozone. Since the beginning of last year, the emergent groups are placing emphasis on the integration of the concerns that were absorbed. During this period, NBG made strategic moves with a view to strengthening its presence in SE Europe. It acquired two neighboring Balkan banks, Stopanska of the Former Yugoslav Republic of Macedonia (FYROM) and United Bulgarian Bank, with respective market shares of 29 and 12 percent. At home, we absorbed the National Mortgage Bank and merged the group’s four insurance companies into Ethniki General Insurance, which is now the country’s largest. In the USA, we bought Yonkers Financial Corporation, which has a network in New York State. Do your see any important developments in the international banking market that may affect Greek banks, and how? No enterprise has been left unaffected by the global recession. Many European banks are facing problems, mainly as a result of their exposure to a number of large Latin American enterprises that went bankrupt, to a slower revenue growth rate and to a shrinking of revenue from important sectors such as investment banking and asset management, which is leading them to sell their holdings outside the financial sector. Moreover, many banks have increased their provisions for bad debts. Due to these factors, a top priority for banks in Europe now is to restrict costs and reduce risks from exposure to markets that present problems. Efforts to promote mergers and augment assets have not disappeared but have essentially been relegated to second place. Within this framework, we have yet another opportunity for restructuring in the Greek banking market, development of business and rationalization of costs, which can lead to stronger groups. There are sectors, such as coastal shipping, that appear overdebted. Are you overexposed to these sectors? NBG’s participation in the financing of coastal shipping is about 15 percent of the total in shipping as a whole, that is, about 150 million euros. It was part of syndicated loans with other Greek and foreign banks, granted within the framework of the program for modernization and renewal of the Greek coastal shipping fleet. These loans are secured by mortgages on the new ships. Given the long-term duration of investments in shipping, we consider that the cash flows from the new vessels will service such loans adequately. In NGB we possess the know-how necessary to work out solutions to problems that may arise. The slowdown in the global economy also affects sectors such as information technology, tourism, textiles and retailing, but such problems were foreseeable. In consultation with us, many firms have developed new profitable activities in anticipation of the difficulties. At the same time, through risk dispersal, the bank took care to ensure controlled exposure to risks in the sectors affected. Have you seen a rise in non-performing loans in recent months? The fall in revenues and poor results by a number of enterprises is bound to give rise to liquidity problems in the short term. These can be dealt with gradually with adaptation to lower activity levels, depending on how demand develops. Adaptation to conditions is a matter for management. We always offer our assistance to firms restructuring their operations. Reducing exposure to risk is no doubt a prudent policy. Nevertheless, the bank’s profitability is markedly reduced. What are the prospects for the short-term future? It is true that NBG’s results were down in the first half of this year, but this is exclusively due to lower trading profits from the stocks and bonds portfolios, due to the market downturn. The group’s operating profitability is showing an improvement due to stronger net interest results, higher commission revenue and successful efforts to control operating costs. For Greek banks, the prospects are particularly positive in view of the very broad growth potential. For NBG, an additionally favorable factor is the expansion of business in SE Europe, along with the growth of prosperity of countries in the area and the establishment of more Greek firms there. We are presently making considerable investment in distribution networks. NBG has the largest ATM network in the country, with 1,020 positions, of which 236 are outside branches. We are planning to have installed 400 new ATMs by mid-2003. NBG seems to be trimming its market share in corporate financing. Is this a deliberate policy? A liquidity problem does not necessarily mean inability to service loans. In recent years, we have exercised a particularly careful lending policy. Non-performing loans after provisions represent 2.3 percent of the total portfolio and are more than adequately secured. We give priority to our loan portfolio’s quality and performance, not to the total market share in lending.