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Turkey Buoying Greece Is National Bank’s Strategy May 12, 2010

Posted by Yilan in Turkey, Yunanistan.
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Greece’s biggest bank is relying on Turkey to pull it through an economic crisis at home.

National Bank of Greece SA plans to open 75 branches from Ankara to Izmir this year to benefit from Turkish economic growth that is forecast to reach 5.2 percent. National Bank earned more last year at its Istanbul-based Finansbank AS 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 Greece, its centuries-old adversary. The Turkish economy is forecast to expand faster this year than any in the European Union, the 27-nation bloc that has so far declined to admit Turkey, in part because of tensions with Greece over Cyprus and territorial rights in the Aegean Sea.

“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 National Bank right now.”

National Bank 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.

‘Big Cushion’

The government agreed to cuts amounting to 13 percent of 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 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 and chief of strategy at National Bank in Athens. He predicts lending to expand more than 20 percent in Turkey this year and expects National Bank to grow even more.

National Bank soared 1.98 euros, or 19 percent, to 12.34 euros by 1:39 p.m. in Athens trading, the steepest intraday gain since at least 1992, after the European Union announced a loan package worth almost $1 trillion and a program of bond purchases seeking to halt Greece’s debt crisis from spreading. Alpha Bank SA rose 13 percent to 5.49 euros. EFG Eurobank Ergasias SA, the second-largest Greek bank, added 13 percent to 5.45 euros.

‘Challenge’ to Growth

Turkey emerged from a banking crisis of its own at the beginning of the last decade. Since then, it’s recapitalized the 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 National Bank and Athens- based EFG Eurobank Ergasias SA.

National Bank’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 Akdogan, an analyst at ING Groep NV in London.

“Competition will increase in Turkey, but that is to be expected and is a healthy sign of growth,” said National Bank’s Mylonas. “As in all emerging markets, the large margins will narrow over time.”

Turkiye Garanti Bankasi AS, in which General Electric Co. 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.

Competitiveness, Corruption

Turkey’s banking industry is “much better regulated and supervised, and we’re highly capitalized” relative to Greek lenders, said Tolga Egemen, deputy chief executive officer of Garanti in Istanbul. “It’s difficult to make money in Greece from real banking.”

National Bank’s reliance on Turkey shows how the tables are turning for the countries, which 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.

‘Straightforward’ Funding

Greece’s four largest banks saw their combined profit drop 41 percent last year after an increase in customer defaults pushed up credit provisions. National Bank and Piraeus Bank SA, the fourth-largest Greek bank, posted a loss in the fourth quarter.

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 Topcu 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, Topcu said.

“Our view of Turkish banks is on the positive side,” said Topcu. “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.”

Funding Costs

National Bank has a capital adequacy ratio of 11.3 percent, compared with Garanti’s 19.2 percent and Istanbul-based Turkiye Is Bankasi AS’s 18.3 percent.

National Bank is valued at 7.4 billion euros, less than Akbank TAS, Turkey’s biggest publicly traded bank, which is valued at 29.4 billion liras ($14.8 billion). It is also valued at less than three other Turkish banks whose shares trade on the Istanbul Stock Exchange, including Garanti, after the stock fell 32 percent so far this year in Athens.

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 National Bank six months ago,” Akdogan said. “Now that’s reversed and Finansbank’s cost of borrowing will be similar if not more.”

–Editors: Frank Connelly, Tim Quinson.

To contact the reporters on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net; Mark Bentley in Istanbul at mbentley3@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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