The Banking sector in Greece is undergoing some important developments such as large international players entering the Greek market and Greek banks undertaking a series of mergers/ acquisitions and strategic alliances, creating new conditions in the way banks operate and grow. Two are the most visible characteristics today: intense competition for retail market share and high profitability. One of the most recognisable results of this competitive environment is the amount of lending and investment products that are launched daily, aiming at the individual client.
The topmost banks are major audit and non-audit clients of PwC in the Greek Banking & Capital Markets Industry.
The topmost banks are major audit and non-audit clients of PwC in the Greek Banking & Capital Markets Industry.
The growth margins of the Greek banking industry have been considered quite significant compared with those of the European Union, with increasing competitiveness and concentration. This has made the Greek financial market very attractive. The articles in this special issue present the most recent studies concerning the Greek Banking Industry through the implementation of advanced mathematical techniques such as data envelopment analysis, mathematical programming, econometric analysis techniques, etc. The use of these methodologies contributes to the overall evaluation of the performance, operation and efficiency of the Greek Banking System within this issue.
- Guest Editorial Constantin Zopounidis
- "The Determinants of Banks’ Profits in Greece during the period of EU financial integration" – Kyriaki Kosmidou
- "Cost efficiency impact of bank branch characteristics and location: an illustrative application to a greek bank branches" – Dimitris I Giokas
- "Customer Switching Behaviour in Greek Banking Services Using Survival Analysis" – Maria Mavri and George Ioannou
- "Consolidation in the Greek Banking Industry: Which Banks are Acquired?" – Fotios Pasiouras and Constantin Zopounidis
- "Investigating cost efficiency in the branch network of a Greek bank: An empirical study" – Athanasios G. Noulas et al
The Greek Banking Sector
The banking sector constitutes the backbone of the Greek financial
system, while continuing to be the main financier of the national
economy, despite the fact that the depth of the capital and money
markets has gradually increased over the last decades. Undeniably,
the Greek banking sector currently represents one of the most sophisticated
and modern sectors of the Greek economy.
Until the mid-1980s, the Greek
banking system operated in an environment
characterized by selective
credit controls and regulations,
which gradually led to allocative inefficiencies
and serious distortions
in the functioning of the financial
system. Since then, the Greek
banking landscape has altered
significantly. During the last two
decades, it has undergone substantial
developments, mainly
rooted in the modifications that occurred
in the external environment,
as a consequence of the increasing
monetary and financial integration
in the European Union, in particular
in the context of the progress
towards the Economic and Monetary
Union (EMU) and the introduction
of the Euro, as well as in the
deregulation of the domestic financial
system and in the gradual
and extensive liberalization of
capital flows.
Indeed, the significant economic
growth, the continuous improvements
in macroeconomic fundamentals,
the liberalization of interest
rate determination, the annulment
of various regulatory credit
ceilings, the introduction of advanced
information and communication
technologies, the internationalization
of banking activities,
the product and service innovation
in financial markets, and the phenomenon
of disintermediation have
triggered major structural changes
in the Greek banking environment.
These developments enhanced
competition in both price and quality
levels of the products and services
offered by the banking sector,
resulted in robust credit expansion
to the private sector, especially
households (consumer credit and
mortgage lending), caused significant
modifications in the balance
sheets and profit and loss accounts
of banks, gave impetus to the establishment
and operation of new
credit institutions, led to domestic
mergers and acquisitions, and
forced Greek banks to expand their
presence throughout the South
Eastern European region.
In fact, in an attempt to diversify
their sources of income and profitability,
Greek banks have invested
a significant amount of their
capital in acquiring financial institutions
in the countries of the
South Eastern European region.
THE BANKING SECTOR
IN THE REGION
Banks play a dominant role in the
financial system and economy of
the South Eastern European countries;
capital markets are practically
limited to the equity markets and
are, in general, quite fragile and
underdeveloped. During the last
decade or so, there have been rigorous
and progressively accelerating
improvements in the South
Eastern European banking systems,
aiming at enhancing the
sectors’ solvency, sustainability
and credibility, and improving
their performance. At the beginning
of the transition process
these nascent economies faced
the difficult task of embarking on
prudent macroeconomic stabilization
efforts and transforming their
financial systems, which, at that
point in time, were merely something
of a book-keeping mechanism
for recording the authorities’
decisions regarding the allocation
of resources among various sectors
and enterprises. Building viable
and healthy banking systems has
proved to be a challenging task. Indeed,
during the second half of the
1990s banking reform efforts were
impeded either by internal setbacks
or by external shocks.
Nevertheless, after a long period
of economic restructuring, these
countries have achieved significant
rates of economic growth, adopted
sound macroeconomic policies,
and implemented structural reforms.
Subsequently, they have
managed to attract a substantial
flow of portfolio and foreign direct
investments, in order to build up
their production capacity and modernize
their infrastructure. The role
of Greece in this process should
not be overlooked. Greek firms
are among the top three foreign investors
in most of the South Eastern
European countries. Greek
banks in particular provided significant
resources and, through their
subsidiaries, supported the economic
stabilization and reforms.
Also, Greek banks facilitate the
flow of remittances from the hundreds
of thousands of immigrants
in Greece; in some cases these remittances
are the main source of
foreign receipts (most notably in
Albania).
Moreover, during the last decade
or so, significant efforts were directed
towards improving the legislation
related to the banking sector,
while there have been continuous
amendments to the banking super
vision regulatory system, aiming at
its harmonization with the European
Union regulatory regime and
the international standards of effective
supervision. These laws have
increased the attractiveness of the
banking industry to foreign investment,
strengthened prudential
standards and practices in the
banks’ operations, enhanced corporate
governance, and improved
efficiency in the banking operations
and supervision. The European
Bank for Reconstruction and Development
(EBRD) index on banking
sector reform identifies this
progress (Table 1).
Thus, the macroeconomic stability
and the “opening up” of the South
Eastern European countries’ financial
systems have enhanced
banking intermediation. Domestic
credit to the private sector, although
at unequal pace among the
South Eastern European countries,
increased significantly in the period
1995-2005 (Table 1). Bank credit
to households contributed the
most to credit expansion. Indeed,
rising disposable income and the
desire to improve the standards of
living have given a boost to household
consumption. However, despite
this growth, the degree of financial
penetration through banking
products and services is lagging
behind that of both other
emerging markets and the European
Union.
The noticeable increase of credit expansion
in the region coincides
with significant progress in the privatization
process. This process
was so extensive and foreign investors’
demand so high that in
most countries foreign banks already
control the largest proportion
of the banking system. The asset
share of state-owned banks has
been reduced significantly, falling
at levels below 8 per cent in all
South Eastern European banking
sectors, except that of Serbia,
where the privatization process
has advanced but is not yet completed.
Foreign banks, and among them,
in a pivotal role, Greek banks,
have played an important role in
the development of the South
Eastern European banking markets.
This is not only due to the
capital investment from abroad -
which lowered the fiscal costs of
bank restructuring and provided a
vote of confidence of the international
financial system for the ongoing
transformation of these
economies - but often because privatization
to reputable foreign
owners was the only way to decrease
moral hazard problems induced
by previous repetitive
bailouts. The motivation for this
policy is that foreign banks can immediately
import financial management,
organizational skills,
and general banking experience,
which are likely to be in short supply
among domestic entrepreneurs.
Also, foreign banks are
considered as “safer” by local
depositors, who recognize that
foreign banks are not manipulated
by the political authorities, and
also realize that these banks are
supervised by experienced directors
at home. Thus, allowing foreign
entry, in the form of both
greenfield and takeover investments,
has been widely regarded
as a springboard for increasing the
efficiency and competitiveness
of the banking sectors in the region
GREEK BANKS IN THE REGION
Greek banks viewed the South
Eastern European region as a natural
extension of their home market.
With their wide network, Greek
banks are a significant integrating
element in the region and, along
with their corporate clients, are becoming
important pillars for the
rapid development of these countries.
They expanded their activities
to take advantage both of the
significant rates of economic
growth experienced in the South
Eastern European economies and
of the credit expansion potential,
as well as to follow the more general
expansion and operation of
Greek industrial and commercial
enterprises in the region. Furthermore,
this penetration provides
Greek banks with the opportunity
to increase their size and differentiate
the sources of their operating
income, which have both hit a
ceiling within the relatively smallsized
Greek financial market.
Greek banks offer a wide range of
products and services closely linked
to the evolution of the host
economies. They are already well
established in Bulgaria, Romania,
Albania, FYROM, and Serbia, representing
at least 20 per cent of the
entire banking system according to
balance sheet aggregates [total assets],
while in some of these countries
their share is between onethird
and two-thirds (Bank of
Greece, 2006). Actually, the fact that
Greek banks have been able to retain
a very high share of these
markets is an indication of some
sort of comparative advantage in
the provision of financial services,
which allows them to thrive within
an internationally competitive environment.
Undoubtedly, Greek
banks are better capitalized than
their competitors, a fact that explains
their access to more diversified
source of funds. According to a
recent report published by the Bank
of Greece “their better capitalization
allows them to take somewhat
higher risks, as shown by the fact
that their loans to the private sector
are generally a higher share of their
assets than for the average bank. Although
they take somewhat more
risk, they are profitable overall,
more than their average competitors.
This signifies that Greek banks
in the region have some competitive
advantages.” Among these are the
direct geographic adjacency, the
cultural proximity, the increasing degree
of economic ties and unification
with these countries, and the
superior organization structure and
know-how.
According to figures obtained from
the Bank of Greece, as of end 2005,
Greek credit institutions controlled
18 affiliated banks and 6 networks
of subsidiary companies in these
countries, with roughly 1,000 official
units [branches] and 15,000 employees.
Indeed, all these figures have
tripled since 2000. It should be
pointed out that direct investments
of the Greek banking sector in the
region approached €400 million in
2005. Moreover, these investments
positively contributed to the financial
results of Greek banks; gross income
from the operations in the
South Eastern European economies
approached 10 per cent of their
total operating income.
The degree of penetration of
Greek banks varies from country
to country. Particular emphasis
has been given on the banking
market of Bulgaria (361 official
units as of 2005) and Romania
(263 official units). Infiltration is
also marked in Serbia, where the
number of official units has
reached that of 286, compared
with a tally of fewer than 30 operating
during the previous year. The
recent acquisition of Finansbank,
the 5th largest private bank in
Turkey, by the National Bank of
Greece, and of 70 per cent of a
smaller Turkish bank, namely Tekfenbank,
by Eurobank (these two
Greek banks acquiring a combined
capital of roughly €2.5 billion),
as well as the purchase of an
Egyptian bank (Egyptian Commercial
Bank) by the Bank of Piraeus,
is transforming even more
the landscape of the Greek banking
sector, which is becoming
more extrovert and, one could
even dare say, international.
This expansion in the South Eastern
region mainly represents a future
investment of the Greek credit
institutions that will counter the
slack bound to occur if the pace of
credit expansion in Greece starts
to cool down. Benefiting from a
more competitive domestic market,
and one that is increasingly
subject to international practice,
Greek banks can be expected to
continue to strengthen their presence
in the wider region over the
next decade, through the exporting
of their successful local business
model.
The banking sector constitutes the backbone of the Greek financial
system, while continuing to be the main financier of the national
economy, despite the fact that the depth of the capital and money
markets has gradually increased over the last decades. Undeniably,
the Greek banking sector currently represents one of the most sophisticated
and modern sectors of the Greek economy.
Until the mid-1980s, the Greek
banking system operated in an environment
characterized by selective
credit controls and regulations,
which gradually led to allocative inefficiencies
and serious distortions
in the functioning of the financial
system. Since then, the Greek
banking landscape has altered
significantly. During the last two
decades, it has undergone substantial
developments, mainly
rooted in the modifications that occurred
in the external environment,
as a consequence of the increasing
monetary and financial integration
in the European Union, in particular
in the context of the progress
towards the Economic and Monetary
Union (EMU) and the introduction
of the Euro, as well as in the
deregulation of the domestic financial
system and in the gradual
and extensive liberalization of
capital flows.
Indeed, the significant economic
growth, the continuous improvements
in macroeconomic fundamentals,
the liberalization of interest
rate determination, the annulment
of various regulatory credit
ceilings, the introduction of advanced
information and communication
technologies, the internationalization
of banking activities,
the product and service innovation
in financial markets, and the phenomenon
of disintermediation have
triggered major structural changes
in the Greek banking environment.
These developments enhanced
competition in both price and quality
levels of the products and services
offered by the banking sector,
resulted in robust credit expansion
to the private sector, especially
households (consumer credit and
mortgage lending), caused significant
modifications in the balance
sheets and profit and loss accounts
of banks, gave impetus to the establishment
and operation of new
credit institutions, led to domestic
mergers and acquisitions, and
forced Greek banks to expand their
presence throughout the South
Eastern European region.
In fact, in an attempt to diversify
their sources of income and profitability,
Greek banks have invested
a significant amount of their
capital in acquiring financial institutions
in the countries of the
South Eastern European region.
THE BANKING SECTOR
IN THE REGION
Banks play a dominant role in the
financial system and economy of
the South Eastern European countries;
capital markets are practically
limited to the equity markets and
are, in general, quite fragile and
underdeveloped. During the last
decade or so, there have been rigorous
and progressively accelerating
improvements in the South
Eastern European banking systems,
aiming at enhancing the
sectors’ solvency, sustainability
and credibility, and improving
their performance. At the beginning
of the transition process
these nascent economies faced
the difficult task of embarking on
prudent macroeconomic stabilization
efforts and transforming their
financial systems, which, at that
point in time, were merely something
of a book-keeping mechanism
for recording the authorities’
decisions regarding the allocation
of resources among various sectors
and enterprises. Building viable
and healthy banking systems has
proved to be a challenging task. Indeed,
during the second half of the
1990s banking reform efforts were
impeded either by internal setbacks
or by external shocks.
Nevertheless, after a long period
of economic restructuring, these
countries have achieved significant
rates of economic growth, adopted
sound macroeconomic policies,
and implemented structural reforms.
Subsequently, they have
managed to attract a substantial
flow of portfolio and foreign direct
investments, in order to build up
their production capacity and modernize
their infrastructure. The role
of Greece in this process should
not be overlooked. Greek firms
are among the top three foreign investors
in most of the South Eastern
European countries. Greek
banks in particular provided significant
resources and, through their
subsidiaries, supported the economic
stabilization and reforms.
Also, Greek banks facilitate the
flow of remittances from the hundreds
of thousands of immigrants
in Greece; in some cases these remittances
are the main source of
foreign receipts (most notably in
Albania).
Moreover, during the last decade
or so, significant efforts were directed
towards improving the legislation
related to the banking sector,
while there have been continuous
amendments to the banking super
vision regulatory system, aiming at
its harmonization with the European
Union regulatory regime and
the international standards of effective
supervision. These laws have
increased the attractiveness of the
banking industry to foreign investment,
strengthened prudential
standards and practices in the
banks’ operations, enhanced corporate
governance, and improved
efficiency in the banking operations
and supervision. The European
Bank for Reconstruction and Development
(EBRD) index on banking
sector reform identifies this
progress (Table 1).
Thus, the macroeconomic stability
and the “opening up” of the South
Eastern European countries’ financial
systems have enhanced
banking intermediation. Domestic
credit to the private sector, although
at unequal pace among the
South Eastern European countries,
increased significantly in the period
1995-2005 (Table 1). Bank credit
to households contributed the
most to credit expansion. Indeed,
rising disposable income and the
desire to improve the standards of
living have given a boost to household
consumption. However, despite
this growth, the degree of financial
penetration through banking
products and services is lagging
behind that of both other
emerging markets and the European
Union.
The noticeable increase of credit expansion
in the region coincides
with significant progress in the privatization
process. This process
was so extensive and foreign investors’
demand so high that in
most countries foreign banks already
control the largest proportion
of the banking system. The asset
share of state-owned banks has
been reduced significantly, falling
at levels below 8 per cent in all
South Eastern European banking
sectors, except that of Serbia,
where the privatization process
has advanced but is not yet completed.
Foreign banks, and among them,
in a pivotal role, Greek banks,
have played an important role in
the development of the South
Eastern European banking markets.
This is not only due to the
capital investment from abroad -
which lowered the fiscal costs of
bank restructuring and provided a
vote of confidence of the international
financial system for the ongoing
transformation of these
economies - but often because privatization
to reputable foreign
owners was the only way to decrease
moral hazard problems induced
by previous repetitive
bailouts. The motivation for this
policy is that foreign banks can immediately
import financial management,
organizational skills,
and general banking experience,
which are likely to be in short supply
among domestic entrepreneurs.
Also, foreign banks are
considered as “safer” by local
depositors, who recognize that
foreign banks are not manipulated
by the political authorities, and
also realize that these banks are
supervised by experienced directors
at home. Thus, allowing foreign
entry, in the form of both
greenfield and takeover investments,
has been widely regarded
as a springboard for increasing the
efficiency and competitiveness
of the banking sectors in the region
GREEK BANKS IN THE REGION
Greek banks viewed the South
Eastern European region as a natural
extension of their home market.
With their wide network, Greek
banks are a significant integrating
element in the region and, along
with their corporate clients, are becoming
important pillars for the
rapid development of these countries.
They expanded their activities
to take advantage both of the
significant rates of economic
growth experienced in the South
Eastern European economies and
of the credit expansion potential,
as well as to follow the more general
expansion and operation of
Greek industrial and commercial
enterprises in the region. Furthermore,
this penetration provides
Greek banks with the opportunity
to increase their size and differentiate
the sources of their operating
income, which have both hit a
ceiling within the relatively smallsized
Greek financial market.
Greek banks offer a wide range of
products and services closely linked
to the evolution of the host
economies. They are already well
established in Bulgaria, Romania,
Albania, FYROM, and Serbia, representing
at least 20 per cent of the
entire banking system according to
balance sheet aggregates [total assets],
while in some of these countries
their share is between onethird
and two-thirds (Bank of
Greece, 2006). Actually, the fact that
Greek banks have been able to retain
a very high share of these
markets is an indication of some
sort of comparative advantage in
the provision of financial services,
which allows them to thrive within
an internationally competitive environment.
Undoubtedly, Greek
banks are better capitalized than
their competitors, a fact that explains
their access to more diversified
source of funds. According to a
recent report published by the Bank
of Greece “their better capitalization
allows them to take somewhat
higher risks, as shown by the fact
that their loans to the private sector
are generally a higher share of their
assets than for the average bank. Although
they take somewhat more
risk, they are profitable overall,
more than their average competitors.
This signifies that Greek banks
in the region have some competitive
advantages.” Among these are the
direct geographic adjacency, the
cultural proximity, the increasing degree
of economic ties and unification
with these countries, and the
superior organization structure and
know-how.
According to figures obtained from
the Bank of Greece, as of end 2005,
Greek credit institutions controlled
18 affiliated banks and 6 networks
of subsidiary companies in these
countries, with roughly 1,000 official
units [branches] and 15,000 employees.
Indeed, all these figures have
tripled since 2000. It should be
pointed out that direct investments
of the Greek banking sector in the
region approached €400 million in
2005. Moreover, these investments
positively contributed to the financial
results of Greek banks; gross income
from the operations in the
South Eastern European economies
approached 10 per cent of their
total operating income.
The degree of penetration of
Greek banks varies from country
to country. Particular emphasis
has been given on the banking
market of Bulgaria (361 official
units as of 2005) and Romania
(263 official units). Infiltration is
also marked in Serbia, where the
number of official units has
reached that of 286, compared
with a tally of fewer than 30 operating
during the previous year. The
recent acquisition of Finansbank,
the 5th largest private bank in
Turkey, by the National Bank of
Greece, and of 70 per cent of a
smaller Turkish bank, namely Tekfenbank,
by Eurobank (these two
Greek banks acquiring a combined
capital of roughly €2.5 billion),
as well as the purchase of an
Egyptian bank (Egyptian Commercial
Bank) by the Bank of Piraeus,
is transforming even more
the landscape of the Greek banking
sector, which is becoming
more extrovert and, one could
even dare say, international.
This expansion in the South Eastern
region mainly represents a future
investment of the Greek credit
institutions that will counter the
slack bound to occur if the pace of
credit expansion in Greece starts
to cool down. Benefiting from a
more competitive domestic market,
and one that is increasingly
subject to international practice,
Greek banks can be expected to
continue to strengthen their presence
in the wider region over the
next decade, through the exporting
of their successful local business
model.
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