Tag Archives: “toxic” bonds

Greek Banks in the Balkans: the big crunch

Ms. Athanasia Dimitriadou, M.B.A. Student – Specialization in Finance

Dr. Periklis Gogas, Associate Professor

Department of Economics

 

Democritus University of Thrace

Mergers and acquisitions are often used as a means of bank expansion both nationally and even more so internationally. Greece joined the EMU in 1999 and was in the first group of EU countries that abandoned their national currencies and adopted the euro in its physical form in 2002. From that point on the Greek banking sector became an integral part of the European monetary and economic union. There were multiple benefits from this integration. On the top of the list was the stability that was guaranteed by the European Central Bank (ECB) and its supervision mechanisms. This stability and the related risk minimization was reflected in the low financing costs of the European banks in general and Greek banks specifically. This fact significantly widened the spread between lending and deposit rates for Greek financial institutions so that profit margins increased. These margins were sufficiently large that Greek banks did not need to invest (at least not greatly) in financial instruments such as Asset Backed Securities (ABS) or other derivative financial instruments that appeared to have high yields. After the crash in the markets were these assets were traded they became widely known as “toxic bonds”.

Greek banks did not have a high exposure to these bonds as they found an alternative source of high revenues: the expansion to neighboring countries in the Balkans. These emerging economies started their financial liberalization process and opened their financial sector to international investors. In Table 1 below we report the most important investments of Greek banks in the Balkans before the Greek Debt Crisis. The five major Greek banks were very active in investing in the Balkans. These were more specifically: the National Bank of Greece, Eurobank, Piraeus Bank, ATE Bank and Alpha Bank. In the first column of Table 1, we present the Greek bank that invested in the Balkans, in the second column we report the acquired foreign bank, in the third column we report the country of the acquired bank and in the final column the percentage stake of participation. In all, fifteen banks were acquired in total or in a major stake by the five systemic Greek banks.

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