Greek banks prepare for Emu
Greece’s entry into the eurozone from the start of 2001 is bound to have a profound impact on local banks. Already the country’s successful convergence campaign, characterized by sharp drops in inflation and interest rates, has fuelled competition and accelerated consolidation. There is little doubt that competition will intensify from 2001 onwards, forcing Greek banks to re-think their long-term strategies and consider foreign partners.
Faced with shrinking margins on traditional assets and volatile financial income - but hopeful of strong loan volume growth ahead - Greek banks face a challenge. Should they acquire or merge with other domestic banks, or link-up with foreign, eurozone headquartered institutions? Such partners might well find Greece an attractive market.
"Pressure on spreads will continue, so in about three years spreads will be about at the same level as in Emu. However I do not think it [the gap] is going to close overnight," says David Watson, managing director at Piraeus Bank.
While tighter net interest margins have certainly squeezed the profits of Greek banks this year, as the central bank stuck to its high medium and long-term interest rate policy, Watson remains optimistic, pointing out that the effect of tighter spreads will be counterbalanced by a sharp rise in the demand for loans in the next few years.