A general view of the Finansbank headquarters is seen in the Mecidiyeköy neighborhood of Istanbul. Bloomberg photo
Greece’s largest bank is relying on Turkey to pull it through an economic crisis at home.
The National Bank of Greece, or NBG, plans to open 75 branches from Ankara to İzmir this year to benefit from Turkish economic growth that is forecast to reach 5.2 percent. NBG earned more last year at its Istanbul-based Finansbank unit than it did in Greece.
The ascent of Turkey, a nation of 72 million straddling Europe and Asia, stands in counterpoint to the decline of neighboring Greece. The Turkish economy is forecast to expand faster this year than any in the European Union, the 27-nation bloc that has refused to admit Turkey in part because of Greek opposition.
“There is an ironic element to this, because Turkey used to be seen as a very problematic banking system,” said Ioannis N. Grigoriadis, an assistant professor at Bilkent University’s Department of Political Science in Ankara. “With the benefit of hindsight, Finansbank has been a very successful investment. It appears it’s the most solid leg of NBG right now.”
NBG has spent more than $5 billion since 2006 to acquire Finansbank. The Athens-based company earned 425 million euros ($540 million) in Turkey last year, more than the 398 million euros it made in Greece. The gap may widen as the Greek economy shrinks under austerity measures aimed at reducing the budget deficit, which reached 13.6 percent of gross domestic product in 2009.
The government agreed to cuts amounting to 13 percent of the GDP as part of an unprecedented 110 billion-euro bailout from the European Union and the International Monetary Fund. The European Commission, the EU’s executive arm, estimates the Greek GDP will shrink about 4 percent this year and 2.6 percent in 2011.
“Our international operations will provide a big cushion for us,” said Paul Mylonas, chief economist at NBG in Athens. He predicts lending to expand more than 20 percent in Turkey this year and expects NBG to grow even more.
Learning the lesson
Turkey emerged from a banking crisis at the beginning of the last decade. Since then, it has recapitalized banks, reduced inflation to 10.2 percent from more than 30 percent in 2002, cut state debt and opened the industry to international competitors, including NBG and Athens-based EFG Eurobank Ergasias.
NBG’s expectations for Turkish growth may be thwarted by local lenders also bent on expansion.
Intensifying competition may curb revenue growth for the banking industry this year and prove “a big challenge” for all lenders, including Finansbank, said Haluk Akdoğan, an analyst at ING Groep in London.
“Competition will increase in Turkey, but that is to be expected and is a healthy sign of growth,” said NBG’s Mylonas. “As in all emerging markets, the large margins will narrow over time.”
Garanti Bank, in which General Electric holds a 21-percent stake, reported revenue growth of 49 percent last year. Profit rose 69 percent and it opened 46 new branches in the fourth quarter, bringing the total to almost 800 outlets.
Turkey’s banking industry is “much better regulated and supervised” relative to Greek lenders, said Tolga Egemen, deputy chief executive officer of Garanti. “It’s difficult to make money in Greece from real banking.”
NBG’s reliance on Turkey shows how the tables are turning for the countries, which have fought four major wars since Greece won independence from the Ottoman Empire in the 19th century. Greece’s credit rating was cut below investment grade by Standard & Poor’s on April 27, with a negative outlook. Turkey is rated one step lower, with a positive outlook, meaning the rating is more likely to rise than fall.
Turkey ranks 61st on the World Economic Forum Global Competitiveness Report of 133 nations, ahead of Greece in 71st place and in front of EU members Romania, Latvia and Bulgaria.
Berlin-based Transparency International’s 2009 Corruption Perceptions Index places Greece 71st, tied with Bulgaria and Romania. Turkey is ranked 61st, ahead of Italy.
Greece’s four largest banks saw their combined profit drop 41 percent last year after an increase in customer defaults pushed up credit provisions. NBG and Piraeus Bank, the fourth-largest Greek bank, posted a loss in the fourth quarter.
Widening margins
Turkish banks increased profit by almost 50 percent as lending margins widened, outweighing an 82 percent jump in bad loan provisions, Fitch Ratings analyst Levent Topçu said. This will be a “more balanced year” as margins narrow and loan losses decrease, leaving profit lower than last year and higher than in 2008, Topçu said.
“Our view of Turkish banks is on the positive side,” said Topçu. “They’re funded by straightforward, plain customer deposits. They don’t have fancy funding or leveraged products, are not subject to wholesale funding and don’t issue any bonds, which makes them more immune than the banks facing big funding problems.”
NBG has a capital adequacy ratio of 11.3 percent, compared with Garanti’s 19.2 percent and İşbank’s 18.3 percent.
NBG is valued at 6.3 billion euros, less than half Akbank, Turkey’s largest publicly traded bank, which is valued at 27.8 billion Turkish Liras. NBG is also valued at less than three other Turkish banks whose shares trade on the Istanbul Stock Exchange, including Garanti, after the stock fell 43 percent this year in Athens trading.
What used to be a benefit for Finansbank, ownership by Greece’s largest lender, may be turning into a liability relative to Turkish peers when it comes to funding costs.
“Finansbank could borrow at equal or cheaper costs than other Turkish banks because of NBG six months ago,” Akdoğan said. “Now that’s reversed and Finansbank’s cost of borrowing will be similar, if not more.”
Top Greek lender relying on Turkey for growth
A general view of the Finansbank headquarters is seen in the Mecidiyeköy neighborhood of Istanbul. Bloomberg photo
Greece’s largest bank is relying on Turkey to pull it through an economic crisis at home.
The National Bank of Greece, or NBG, plans to open 75 branches from Ankara to İzmir this year to benefit from Turkish economic growth that is forecast to reach 5.2 percent. NBG earned more last year at its Istanbul-based Finansbank unit than it did in Greece.
The ascent of Turkey, a nation of 72 million straddling Europe and Asia, stands in counterpoint to the decline of neighboring Greece. The Turkish economy is forecast to expand faster this year than any in the European Union, the 27-nation bloc that has refused to admit Turkey in part because of Greek opposition.
“There is an ironic element to this, because Turkey used to be seen as a very problematic banking system,” said Ioannis N. Grigoriadis, an assistant professor at Bilkent University’s Department of Political Science in Ankara. “With the benefit of hindsight, Finansbank has been a very successful investment. It appears it’s the most solid leg of NBG right now.”
NBG has spent more than $5 billion since 2006 to acquire Finansbank. The Athens-based company earned 425 million euros ($540 million) in Turkey last year, more than the 398 million euros it made in Greece. The gap may widen as the Greek economy shrinks under austerity measures aimed at reducing the budget deficit, which reached 13.6 percent of gross domestic product in 2009.
The government agreed to cuts amounting to 13 percent of the GDP as part of an unprecedented 110 billion-euro bailout from the European Union and the International Monetary Fund. The European Commission, the EU’s executive arm, estimates the Greek GDP will shrink about 4 percent this year and 2.6 percent in 2011.
“Our international operations will provide a big cushion for us,” said Paul Mylonas, chief economist at NBG in Athens. He predicts lending to expand more than 20 percent in Turkey this year and expects NBG to grow even more.
Learning the lesson
Turkey emerged from a banking crisis at the beginning of the last decade. Since then, it has recapitalized banks, reduced inflation to 10.2 percent from more than 30 percent in 2002, cut state debt and opened the industry to international competitors, including NBG and Athens-based EFG Eurobank Ergasias.
NBG’s expectations for Turkish growth may be thwarted by local lenders also bent on expansion.
Intensifying competition may curb revenue growth for the banking industry this year and prove “a big challenge” for all lenders, including Finansbank, said Haluk Akdoğan, an analyst at ING Groep in London.
“Competition will increase in Turkey, but that is to be expected and is a healthy sign of growth,” said NBG’s Mylonas. “As in all emerging markets, the large margins will narrow over time.”
Garanti Bank, in which General Electric holds a 21-percent stake, reported revenue growth of 49 percent last year. Profit rose 69 percent and it opened 46 new branches in the fourth quarter, bringing the total to almost 800 outlets.
Turkey’s banking industry is “much better regulated and supervised” relative to Greek lenders, said Tolga Egemen, deputy chief executive officer of Garanti. “It’s difficult to make money in Greece from real banking.”
NBG’s reliance on Turkey shows how the tables are turning for the countries, which have fought four major wars since Greece won independence from the Ottoman Empire in the 19th century. Greece’s credit rating was cut below investment grade by Standard & Poor’s on April 27, with a negative outlook. Turkey is rated one step lower, with a positive outlook, meaning the rating is more likely to rise than fall.
Turkey ranks 61st on the World Economic Forum Global Competitiveness Report of 133 nations, ahead of Greece in 71st place and in front of EU members Romania, Latvia and Bulgaria.
Berlin-based Transparency International’s 2009 Corruption Perceptions Index places Greece 71st, tied with Bulgaria and Romania. Turkey is ranked 61st, ahead of Italy.
Greece’s four largest banks saw their combined profit drop 41 percent last year after an increase in customer defaults pushed up credit provisions. NBG and Piraeus Bank, the fourth-largest Greek bank, posted a loss in the fourth quarter.
Widening margins
Turkish banks increased profit by almost 50 percent as lending margins widened, outweighing an 82 percent jump in bad loan provisions, Fitch Ratings analyst Levent Topçu said. This will be a “more balanced year” as margins narrow and loan losses decrease, leaving profit lower than last year and higher than in 2008, Topçu said.
“Our view of Turkish banks is on the positive side,” said Topçu. “They’re funded by straightforward, plain customer deposits. They don’t have fancy funding or leveraged products, are not subject to wholesale funding and don’t issue any bonds, which makes them more immune than the banks facing big funding problems.”
NBG has a capital adequacy ratio of 11.3 percent, compared with Garanti’s 19.2 percent and İşbank’s 18.3 percent.
NBG is valued at 6.3 billion euros, less than half Akbank, Turkey’s largest publicly traded bank, which is valued at 27.8 billion Turkish Liras. NBG is also valued at less than three other Turkish banks whose shares trade on the Istanbul Stock Exchange, including Garanti, after the stock fell 43 percent this year in Athens trading.
What used to be a benefit for Finansbank, ownership by Greece’s largest lender, may be turning into a liability relative to Turkish peers when it comes to funding costs.
“Finansbank could borrow at equal or cheaper costs than other Turkish banks because of NBG six months ago,” Akdoğan said. “Now that’s reversed and Finansbank’s cost of borrowing will be similar, if not more.”
