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Subsidiary branches of Greek banks in South-eastern Europe and Turkey can become their lifeline. The foresight shown by the managements of the Greek financial and credit institutions during the past 10 years, to invest in emerging markets of the former Eastern bloc, seems to be crucial for the future of their banks. For the last two years after the outbreak of the crisis the contribution of profits from abroad in their overall financial parameters reached levels that allowed the compensation of losses reported in the Greek market. Even after the 21 percent cut of bonds influenced the parameters of the second quarter, the end result for most of the banks was positive.

Today, the liquidation of subsidiaries outside Greece is part of the plans drawn up by bankers to restore capital, which will be lost by the exchange of bonds. Another reason for the liquidation are also the forecasts that will be made after the proposal by the Bank of Greece, based on research conducted by the audit firm BlackRock Solutions. Even though accurate predictions still cannot be made about the amount of capital needs that will arise and will need to be covered by the end of the third quarter of 2012, it is believed that private banks will be forced to proceed to a capital increase which may reach 30 billion euros. If this scenario comes true, under the current market conditions it is considered extremely difficult that such capital can be collected only from issuing new shares and bonds, without the support of the state.

In his speech to employees of the Bank of Greece their Executive Director Apostolos Tamvakakis said that the main objective is the desire to avoid the intervention of the Fund for financial stability, which otherwise will get a right to vote in making decisions by the management. Within the framework of this strategy, the sale of minority stakes, or even 100 percent of the subsidiaries, is one alternative for raising capital for all internationally represented banks.

Subsidiaries abroad by themselves are an entire banking system, with assets worth over 50 billion euros, a network of over 3,500 branches and 40,000 employees, which at this stage can contribute to keeping the control of banks by their current shareholders.

Despite the adverse conditions in terms of liquidity, during the first nine months of 2011, profits of the six largest Greek-Cypriot banks from their activities in the Balkans, Eastern Europe, Turkey and Russia, amounted to 332 million euros. In particular, since the middle of the summer the situation has become worse because of the reported deposit outflow, as a result of the negative news about Greece. "Under normal conditions the recovery of the economies in Southeast Europe would have been an opportunity for Greek banks to increase their profits and their share on the local markets", said a senior bank official who visited a Greek financial-credit institution in the Balkans and added that "we do not have the needed “fuel " to meet the demand for loans."

The position of the Central Bank regarding the sale of subsidiaries is positive

In February the Central Bank will send a “bill” to the Greek banks regarding their needs for new capital. After that they will have almost 2 months to submit their action plans. Except for increase in the capital it is expected that they will include the sale of assets. Sources from the Central Bank indicated that the bank will not oppose even the sale of majority stakes from subsidiaries of the banks. The total value of overseas subsidiaries reached 15 billion euros, an amount that could theoretically cover most of the capital needs of Greek banks, and also release a significant amount of liquidity.

Sale of subsidiaries abroad

Objectives and revenue expected by Greek banks

Within the framework of the recapitalization plan, launched earlier in 2011, banks have already taken steps towards selling some of their subsidiaries. In its plan to strengthen capital the National Bank has included a sale of a minority stake to Finansbank, Turkey, but deteriorating market conditions did not allow the completion of the transaction. The initial goal was the sale of 20 percent of the Turkish subsidiary bank for a minimum of 1 billion euros. Final decisions are expected to be made after the completion of the PSI (Program for the Greek bonds exchange). On the other hand Eurobank sold 70 percent of Polbank in Poland for 490 million euros and is currently working on selling up to 70 percent of the Turkish Bank Tekfen, which according to estimates made earlier this year, can bring about 400 million euros.

Piraeus Bank also announced its subsidiary branch in Egypt - Piraeus Bank Egypt for sale. Standard Chartered showed interest in it, but events in the region did not allow reaching agreement and signing the contract.

Furthermore, under its restructuring plan ATEbank will proceed to organizing an international tender for the sale of its subsidiary ATEbank Romania. The management of the bank hopes the sale will be completed by the end of the first half of 2012.

Plans for the acquisition of independence

* With regards to liquidity the managements of Greek banks have begun to implement plans for the acquisition of independence from their affiliated branches abroad. This acquisition of independence is considered necessary due to the inability of the parent banks to finance themselves on the free market. Liquidity problems negatively affect the activities of Greek banks in Southeast Europe.

* This situation is evident in the results of subsidiaries abroad for the first nine months of 2011, with the annual report of decreases in credit balance, in some cases of even over 10 percent. An exception is the subsidiary of the National bank, Finansbank which is expanding rapidly, both because of the powerful development of the Turkish economy and because of its financial-credit independence. The management of the National Bank recently presented a plan to create a united "umbrella" under which there will be all of its subsidiaries in Southeast Europe. This way it will be easier and cheaper to provide the necessary liquidity.