Greek banks look abroad for growth

Greece’s largest banks spent more than $6.5 billion expanding into neighboring countries in the past decade. Now they’re counting on those purchases to help carry them through an economic crisis at home.

“The only growth engine for Greek banks in the near future is eastern and southeastern Europe,” Manos Giakoumis, research director at Euroxx Securities in Athens, said in an interview. “The only positive element at the moment is the gradual recovery of the macro-economic environment outside Greece.”

National Bank of Greece, the nation’s biggest lender, generated 31 percent of pretax profit from its Turkish unit, Istanbul-based Finansbank, in the first nine months of last year. That proportion may rise in 2010 as Turkey’s economy expands and Greece’s shrinks, analysts said.

Greek banks’ earnings may suffer as government austerity measures aimed at slashing a fiscal deficit that reached 12.7 percent of gross domestic product curb loan demand and drive up defaults. Fitch Ratings cut the credit ratings on National Bank, EFG Eurobank Ergasias, Alpha Bank and Piraeus Bank, the country’s four biggest lenders, last month, saying Greece’s economic woes will damage asset quality and cut profitability.

Eurobank posted the lowest earnings in a year in the fourth quarter, as did Alpha Bank. Piraeus had a loss. Greece’s four largest banks are based in Athens.

Decline in shares:

Investors have shunned their shares. Piraeus fell 21 percent this year through Wednesday, the biggest decline among the 52 companies in the Bloomberg Europe Banks and Financial Services Index, which rose 1.5 percent in the period. Eurobank fell 17 percent, while Alpha Bank and National Bank slid 14 percent.

Eurobank, which has units in Poland, Serbia, Bulgaria and Ukraine, forecasts economic conditions will “improve substantially” in eastern and southeastern Europe, with growth of 2.5 percent this year, the company said on March 11.

The economies of Poland and Turkey will probably expand as much as 3.5 percent, while Romania and Serbia will grow 1 percent and 1.5 percent, respectively, it predicted.

Eurobank expects its markets in southeastern Europe will “result in a substantial source of profitability in the future,” the lender said March 11.

After underperforming for at least the past year, “almost everyone forecasts that these countries will turn to growth,” Vassilis Raptis, an analyst at Proton Bank who rates National Bank “outperform,” said by phone. “This region may prove an advantage to the Greek banks.”

Battered economy:

Eurobank forecasts that the Greek economy will shrink as much as 2.8 percent in 2010.

Relying on nearby economies recovering from the effects of the global credit crunch is not a sure bet, analysts said.

The banks’ expansion “increases their risk profile given they operate in more volatile economies, but if the risks involved are well managed it should help provide business and revenue diversification which contribute positively to Greek banks,” said Cristina Torrella, a director at Fitch Ratings, in an interview. “But we cannot ignore the fact that there is a certain degree of volatility in the region.”

Eurobank reported a loss of 44.3 million euros in eastern and southeastern Europe last year, driven by losses in Poland, Romania and Ukraine. At Alpha Bank, pretax profit in southeastern Europe slumped 50 percent to 55.4 million euros last year after impairments jumped 81 percent.

Even so, business in the region may help cushion the impact of the economic contraction in Greece, Euroxx’s Giakoumis said. National Bank has the most potential in Turkey, while Eurobank can expect growth in Poland, he said.

Greek banks started investing in southeastern Europe more than a decade ago, and went farther afield when Piraeus Bank entered Egypt in 2005 and National Bank bought a controlling stake in Finansbank in 2006. Eurobank entered Ukraine in 2006.

“The large banks that have established operations in southeastern Europe are lucky now,” said Panagiotis Kladis, an analyst at National P&K Securities, in an interview. “This year we’re looking for banks with the most exposure outside Greece because Greece seems to be the weak link.”