Report Summary
Greece's positive economic environment is discussed in more detail later in this report.
The Greek economy continues to grow strongly and activity is likely to remain reasonably buoyant over the medium term. That said, to mitigate downside risks, the authorities will need to step up reform efforts in order to strengthen the supply side of the economy and boost international competitiveness.
The Greek economy continues to surprise on the upside. Real GDP increased by a better-than-
Output growth in recent quarters does not appear to have been much affected by fiscal tightening (the government successfully contained the budget deficit to below 3% of GDP in 2006, resulting in the European Commission recommending that Greece exit the excessive deficit procedure). Nor has it been accompanied by an upturn in inflation: the headline rate declined to 3.2% in 2006 and to 2.7% in Q107.
The only drawback is the deterioration in international competitiveness, as shown by the increase in the current account deficit as a proportion of GDP to double digits in 2006.
According to provisional Q1 data, growth was led mainly by increased investment activity, followed by final consumption. Net exports had a negative contribution as imports increased more compared to exports.
Final consumption remained robust, growing by 2.7% y-o-y and contributing 1.7 percentage points (pps) to real GDP growth. Private consumption is the main driver of final consumption since government consumption remains low, following Greece's successful efforts at fiscal consolidation. Government consumption is expected to pick up slightly going forward as the departure from the excessive deficit procedure should permit some increase in social spending; the electoral cycle is likely to play a role as well.
At the same time, investment spending increased by 15% y-o-y, and remained the main contributor to GDP growth, accounting for 3.4pps of the overall growth rate. The impressive growth was due to housing sector activity and, to a lesser degree, investment in non-residential construction and equipment.
Robust domestic demand was dented somewhat by the widening of the external trade deficit in real terms.
While exports of goods and services increased by a respectable 9.4% y-o-y, imports rose by 14.4%, resulting in net exports subtracting 0.8pps from real output growth.
Greece Commercial Banking Report Q3 2007 Business Monitor International Ltd Page 10 Reflecting the economy's strong performance, employment increased by 1.5% in 2006 and the unemployment rate fell to 8.9% (from 9.8% in 2005), although it remained above the EU average.
Employment growth is expected to continue at the 2006 rate in the medium term, in line with GDP growth, while unemployment is projected to fall by an average of 0.4% annually and converge towards the EU average.
In light of the government's success in reining in the budget deficit and the generally favourable outlook for the economy, credit rating agency Fitch recently changed its outlook for Greece from stable to positive. Moody's made a similar move earlier in the year. Although Fitch praised Greece's fiscal improvement, the agency also emphasised that further reforms are needed to mitigate the fiscal and economic problems associated with an ageing population.
The Commercial Banking Sector As at the end of 2006 total assets, loans and deposits amounted to US$394.0bn, US$222.0bn and US$274.1bn, respectively. Greece's commercial banking sector remains fairly large relative to those of most Central and Eastern European (CEE) countries. The only other country in the region with a comparably sized sector is Russia, a country with at least 10 times Greece's population and four times it's GDP.
Greece has experienced a steady growth in assets, loans and deposits through the 12 months to the end of December 2006. In local currency terms total assets, loans and deposits rose 14%, 17% and 13% respectively. Relative to other countries in the CEE region, growth in assets for Greece was fairly low and Greek loans were also comparatively low. Deposit growth remained around the regional average and was relatively poor in a broader international context.
Greece's loan/deposit and loan/asset ratios have remained unchanged during the last quarter at 81.0% and 56.3% respectively. However, there has been a change in the loan/GDP ratio, which has dropped from 156.6% to 73%, changing the country's ranking from fourth to 19th among the 59 countries that BMI surveyed. Greece's loan/GDP ratio is now closer to the average range for the CEE region.
Greece continues to have the largest regional bonds portfolio, valued at US$62.5bn, and with year-onyear (y-o-y) growth of 14.1%. This figure represents 15.9% of the banks' total assets. BMI considers this to be neither a highly nor a lightly exposed position in an international context.
Press Reports Recent Greek and international press reports reflect two issues. First, strong growth of the economy continued and the government remained committed to its program of reform. Reflecting this, the government will reportedly privatise a greater portion of the Greek Postal Savings Bank (GPSB). Press reports said a further stake of about 15% in the GPSB were to be sold. The Greek state owns about 65.2% of GPSB directly and indirectly via the Greek Post Office.
The second key issue is that bankers within Greece and Cyprus have been jostling for extended market control. During the first quarter of 2007, Piraeus Bank and Marfin Popular Bank (MPB) were engaged in a mutual takeover battle, eventually declaring a truce by the end of the period. The stand off was reported to have been somewhat damaging to the reputations of both banks with overseas institutional investors. However, after two months of conflict, both banks agreed not to undertake hostile bids for each other during the next four years. Subsequently, Piraeus, withdrew its earlier bid for Cyprus-based MPB.
In addition Piraeus agreed to sell its 8.1% stake in Bank of Cyprus to Marfin Popular for about EUR500mn.
During the quarter MPB elected as its new chairman, Soud Ba'Alawy, the executive chairman of Dubai Group. MPB's main shareholder is Dubai Financial, a subsidiary of Dubai Group.
Contents
Executive Summary
Key Issues
Changes To The Commercial Banking Forecast
Greece Commercial Banking SWOT
Latest Developments - Q307
International Context
Lending Trends And External Accounts
Total Assets, Loans And Deposits
Year-On-Year Growth Rates
Per-Capita Deposits
Macroeconomic Trends And Developments
Economics: BMI Core Scenario
Politics: BMI Core Scenario
Business Environment:
Economic Activity
Industry Forecast Scenario
Comment On Forecasts
Comment On Trends
Banks' Bond Portfolios
Competitive Landscape
Market Protagonists
“Greece Commercial Banking Report Q3 2007” is available from Report Buyer. For more information go to: http://www.reportbuyer.com/
Piribo Product ID: BMI00481
