ECONOMY

The promises and dangers of a young retail market

Bernard Payne, head of wealth management at international banking group HSBC in Greece, brims with enthusiasm when asked about the prospects for the Greek retail banking market, a sector that took off with a big bang in recent years thanks to falling interest rates but which has shown unmistakable signs of slowing down since the beginning of the year. «It’s very exciting, but then every young retail banking market is,» he says. In the runup to Greece’s membership of the eurozone, Greek banks slashed their interest rates to converge with European Union averages and in the process sparked off a consumer credit boom. For the first time in many decades, Greeks enjoyed the benefits of single-digit lending rates. According to the Bank of Greece statistics, credit expansion was running at a rate of 19 percent in June, down from a peak of 30 percent in March 2000 but still a robust pace. Loans outstanding at the end of June amounted to 79.56 billion euros. Much has been made of the fact that Greek indebtedness is still significantly below EU average, which theoretically means considerable room for growth for banks. Greece’s mortgage to GDP ratio, for example, is a low 10 percent compared to 45 percent in other countries. There are risks to such an assumption, says Payne. «What worries me is that everybody is looking at this number almost as if we (are obliged) to lend to the retail market to get us to the EU level,» he says. «It’s a temptation for banks to seek to cover the gap.» In the rush to satisfy demand for mortgage and consumer loans, questions have been raised about the quality of the credit risks taken on by the Greek banking industry. Payne says the emphasis should be on responsible lending. «Banks should focus on responsible lending, otherwise the results of not lending responsibly could be catastrophic for the Greek retail market,» he warns. Telling clients of the risks and dangers is equally important. Spurred in part by complaints that banks tend to obscure the small print in loan contracts while others do not brief clients on the numerous fees and commissions charged to them, the Bank of Greece last week unveiled a code that makes it mandatory for financial institutions to keep their clients informed of the entire process. Payne says HSBC is already a step ahead in this issue. «My job is to educate clients, not because they are idiots or because they can’t understand but because this is new to them. At HSBC, we want to make sure that when a client is entering a financial commitment, they really understand what it is all about. It’s really about trust and responsibility,» he says. The implementation of a state-of-the-art customer relations management system next year is expected to strengthen the link between HSBC and its clients. Greece will be the first European country to have the automated CRM system, which seeks to provide an extremely personalized service to clients. «For example, when a client goes overseas, we call them to ask what we can do for them, we tell them if their credit card balance is big enough and let them know they can use their ATM card in HSBC machines free of charge. In essence, it’s a system that makes life easier for clients,» he says. HSBC’s eclectic approach extends to its network as well. With close to 30 branches around Greece, the bank is in no rush to open up more outlets to compete with Greek banks. Payne says it’s possible HSBC could add five to six branches to its network in the next two to three years, but the emphasis is more on banking services via call centers and the Internet as befits 21st-century banking. So, what can the Greek retail banking sector look forward to as loan growth starts easing up? Payne says other more substantial, long-term activities augur well for the sector. «The 2004 Olympic Games, the slew of infrastructure projects currently under construction and Greece’s geographical position in southeast Europe, these reasons tell me that in the medium term we can be very confident of the Greek retail market,» he says.