Greece Commercial Banking Report

Key Issues

Greece's commercial banking sector continues its rapid growth. Most domestic banks are very profitable and are seeking to make foreign acquisitions. This is being driven, in part, by the strength of the domestic economy, which is boosting loan and asset growth across the domestic banking sector. Relatively low interest rates and a large population base (compared with most in the central and eastern European region) have also underpinned the growth of Greece's domestic banking sector.

Most aspects of commercial banks' balance sheets have experienced reasonable growth (in EUR terms) over the last year, with assets and deposits rising, and a growing bond portfolio. This is being balanced by a similar growth in liabilities. The result of this is that the loan/asset, loan/deposit and loan/GDP ratios have all risen over the last year or so even though, by most standards, they were already at fairly high levels.

While projections for the absolute level of asset/deposit and loans are quite healthy over the next five years, there is a falling trend for loan/assets, loans/GDP and loans/deposits ratios, which is a cause for concern. Moreover, the growth in loans, assets and deposits, when compared across all 5 9countries, is not spectacular and Greece ranks in the bottom third of countries surveyed. Nevertheless, we believe that the acquisitive stance of Greek banks, at least in the more immediate region, should continue to be a major factor driving the growth in the domestic sector. A major weakness of Greece's banking system is that it remains more concentrated than in other countries and is relatively unexposed to foreign competitors.

Changes To This Quarter's Commercial Banking Forecast

We have made a number of improvements to the commercial banking reports this quarter. In particular, we have collated information about banks' capital and bond portfolios.

We have looked at capital primarily because we wanted to produce a clearer picture of the banks' balance sheets and, in particular, the liabilities side. We are now much better able to quantify liabilities that are not deposits.

We collated information about the bond portfolios because we wanted to gain additional insights about the risks with which the banks are involved. Across all the countries that we have surveyed, the commercial banks are major investors in government securities. In some instances, the banks are large holders of bonds - by any standard. In other instances, the banks' holdings of securities represent a very substantial portion of their total assets.