Banks profiting from high debt

The Bank of Greece’s recommendation to the banking system institutions to avoid misleading advertising matches its continuing concern about the high level of consumer credit. The torrent of advertisements for credit cards and consumer and housing loans certainly does not reflect the real terms of loans, but it does reflect the main tendency of commercial banks. The sector’s profit margins are by far the highest in the Greek economy and some of the highest in the European Union. More importantly, they do not derive from well-targeted investment initiatives. The Greek banking system is far from being a major lever for development. Bankers enjoy boasting in public about a contribution that is well below what is actually required. When it comes to loans for small- and medium-sized enterprises, banks place no emphasis on innovative ideas – that is, on the future prospects of a business. Instead, they cling to the traditional, one-dimensional perspective of secure guarantees. However, profits must not come from the easy method of legal usury but from the substantive production of wealth. Unfortunately, the main tactic of the banking system is to bleed bank account holders and borrowers dry. Their profits come from two sources: First, the abundance and variety of commissions; and second, from the excessive discrepancy between interest on deposits and the interest on loans. This discrepancy is almost double the European average, and it hits the already overburdened lower-income citizens the hardest. Given that more households are resorting to credit to meet even basic consumer needs, the situation is a becoming major social problem. Middle-income earners are also in serious debt. They are using credit to maintain their level of consumption. But not even the growing demand benefits the economy because it feeds imports rather than local production. Despite acute advertising rivalry, the market is basically an oligopoly. That being so, the issue of commissions and unacceptably high interest rates on loans must be raised institutionally. It would be good if the initiative came from the credit system itself. Otherwise, both the BoG and the Competition Commission should inquire into the causes that allow easy profiteering to continue.