Greece’s Banking Ambitions in Turkey Fading Away

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The construction of the 303-million-euro ($383 million) glass diamond-shaped skyscraper in the heart of Istanbul, Turkey,  is due to be completed. The pompous building will be the headquarters of Finansbank AS and for the Turkish bank’s Greek owner, National Bank of Greece (NBG), it reflects what might have been.

According to Greek newspaper “Kathimerini,” the purchase of Finansbank eight years ago was a rare success of the country’s drive to make its banks supreme in southeast Europe. Now, NBG faces the prospect of selling almost half the lender on the cheap to satisfy European banking rules after receiving state aid during a debt crisis triggered in Athens over the last five years.

This was the first major Greek-Turkish deal at a time when improvement in the relationship between two traditional enemies, Athens and Ankara, was still not an easy sell in Turkey, says Wolfango Piccoli, managing director at Teneo Intelligence in London. But last month, NBG hired Goldman Sachs, Morgan Stanley and Bank of America for a sale of Finansbank shares. This will mark the Greek banks’  retreat from the region, which during the previous decade considered their playground.

Citigroup estimates that the 40% stake NBG is required to sell by the end of 2015 might raise about one billion euros for the Greek lender, while at the same time it might start with a public offering of 20-25% in the next four months and, according to someone who asked to be anonymous and knows the process well, there is no plan to sell a majority stake. In late August, when asked if there is a plan to sell a majority stake, NBG CEO Paula Hadjisotiriou replied that the Greek bank was even reluctant to let go of the majority stake. As of last week, they said there is nothing to add on this statement. Finansbank accounts for about a quarter of NBG’s 111-billion-euro assets. Second-quarter profit jumped 28% to 85 million euros, more than the Greek company reported as a group after stripping out one-time gains.

The reluctance might be justified, according to Kerem Baykal, fund manager at Ak Yatirim in Istanbul, taking into account that prices for Turkish banks are relatively low at the moment. He said that the present price to book value for bank stocks implies a 24% discount compared with the five-year average. “NBG could get more value out of its stake, had it come to the market at a more favorable time,” he added.

In 2006, NBG fended off Citigroup, which later bought a stake in Akbank TAS. Spain’s Banco Bilbao Vizcaya Argentaria SA and Italy’s UniCredit SpA have also bought into the largest of Turkey’s private banks in recent years. At the time, Greece’s economy was growing at a pace of more than 5% a year, while Turkey was recovering from a financial crisis that had led to more than 20 banks collapsing or being saved by the government. Three years later, the situation was reversed and Greece was forced into a 240-billion-euro bailout program.

After being propped up by a 50-billion-euro state-aid fund, as part of European Union and International Monetary Fund rescue measures, all Greek banks need to significantly scale back in countries ranging from Serbia to Egypt after retracing the footsteps left by the Ottoman Empire, the precursor to modern-day Turkey, of which they were once a part. Of the four included in European Central Bank-led stress tests this month, only NBG has a reprieve to continue banking outside Greece, with the European Commission noting ”strong” Turkish operations.

The lender goes into the tests carrying 16 billion euros of bad loans, 20% of such debt from all Greek banks. The bad loan ratio for NBG’s domestic business is 29.3%, compared to only 5.5% for Finansbank. The caveat is that NBG must reduce its current 99.8% holding in Finansbank, a unit that has bolstered profit for eight years by tapping into an expanding Turkish economy that is already three times bigger than Greece.


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