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Digging For Gold In The Balkans


Athens has no reputation as a European banking hub in the mold of London or Frankfurt. But Europe's finance chieftains have good reason to envy Greece's big five banks. They're on a tear, enjoying double-digit profits thanks largely to a booming economy. Greek economic growth is expected to top 3.3% this year -- double the anemic euro zone average -- fueled in part by a boom in consumer loans and business borrowing. And the best may be yet to come. Greek banks are extending their reach into neighboring Southeast Europe, which is growing twice as fast as their homeland. "Greek banks are experiencing very rapid domestic growth with sort of an 'option' on the Balkans," says Paul Mylonas, chief of strategy at National Bank of Greece (NBG).

The Greeks see opportunity in a region where many foreign businesses have feared to tread: Albania, Bulgaria, Romania, Serbia & Montenegro, and the Former Yugoslav Republic of Macedonia. Over the past five years, Greek lenders have spent an estimated $1 billion buying up bank assets in the Balkans, still known more for civil war and post-Soviet economic dislocation than for bank accounts and home mortgages. And in the past few months, NBG, Alpha Bank, Eurobank, Emporiki, and Piraeus Bank have all stepped up their commercial and retail banking investment.

Take Alpha Bank, the country's largest private bank by assets. In January it announced plans for a $190 million acquisition of Serbia's Jubanka, paying a slight premium over book value. Alpha hopes to earn a fifth of its profits from its Balkan neighbors by the end of 2007, up from 5% now. Eurobank, Greece's No. 2 private bank, has just completed a buyout of Bulgarian Post Bank, in which it already owned a 48% stake, for an undisclosed sum. Eurobank also is mulling an acquisition of a Serbian lender. It, too, expects 20% of profits to come from the Balkans -- but by 2009. "These are long-term, direct investments, and they are already proving their worth from our perspective," Eurobank group CEO Nicholas Nanopoulos said in a speech when his bank kicked off retail operations in Serbia in February.

Not to be outdone, Piraeus Bank ponied up $61 million in January for Bulgaria's Eurobank PLC (no relation to the greek bank of that name), while rival NBG says it's opening 100 new branches under its own name in the next two to three years throughout Southeast Europe. Both Greek banks say they expect to earn about 10% of their profits from the greater Balkans in the next three years. In addition, all five of the big Greek banks have been expanding their branch networks in the region. Meanwhile, NBG is pulling back from Western Europe by closing uncompetitive branches in Frankfurt, Paris, and Amsterdam.

The lure of the Balkans is that the area is seriously underbanked, especially on the retail side. The five nations have a combined population of 46 million potential customers, four times the size of the Greek domestic market. (There is less interest in markets such as Bosnia, Croatia, and Slovenia.) Yet private-sector lending in the Balkans adds up to only about 20% of gross domestic product, compared with 71% in Greece and 92% for the euro zone as a whole.

THEY ARE NOT ALONE

That presents Greek banks with an opportunity to make the most of their proximity to the region. Of course, it will be a while before many Southeast Europeans are ready for the full array of financial products. Bulgaria, probably the richest of the Balkan countries, has a GDP per capita of only $3,101. "For the Greek banks it is too early to say how they will do in the Balkans," says Janos Strohmayer, associate principal with consulting firm McKinsey & Co. in Athens.

One reason is that the Greeks are not alone. Now that peace reigns, other foreign banks have moved in, including Bank Austria Creditanstalt (a unit of Germany's HypoVereinsbank), Austria's Raiffeisen, and Italy's Unicredito Italiano and Banca Intesa. But political risk lingers: In Serbia, anti-Western sentiment is still strong, the country remains under partial sanctions, and the status of Kosovo is unresolved. And in Romania and Albania, corruption and organized crime are facts of life. For now, though, the Greeks are betting on the potential of the Balkans -- and smiling all the way to the bank.

By Alkman Granitsas in Athens


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