Economic Bulletin Number 24, January 2005 Economic Bulletin Ñ BANK of GREECE
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BANK OF GREECE Economic Bulletin Number 24, January 2005 Economic Bulletin ñ BANK OF GREECE Number 24, January 2005 BANK OF GREECE Economic Bulletin Number 24, January 2005 BANK OF GREECE 21, E. Venizelos Avenue 102 50 Athens www.bankofgreece.gr Economic Research Department - Secretariat Tel.+30210 320 2392 Fax +30210 323 3025 Printed in Athens, Greece at the Bank of Greece Printing Works ISSN 1105 - 9729 Contents Greek banking profitability: recent developments Heather D. Gibson 7 The effect of merger and acquisition announcement on Greek bank stock returns Panagiotis Athanasoglou Ioannis Asimakopoulos Evangelia Georgiou 27 The redistributional impact of inflation in Greece Theodore Mitrakos Stavros Zografakis 45 Socio-economic differences in the job satisfaction of high-paid and low-paid workers in Greece Ioannis Theodossiou Konstantinos Pouliakas 83 Working Papers 117 Monetary policy and financial system supervision measures 127 Decisions of the Bank of Greece 129 Statistical section 135 Articles published in previous issues of the Economic Bulletin 159 6 ECONOMIC BULLETIN, 24 1/05 Greek banking In an article co-authored with Barry Eichengreen for the Bank of Greece – Brookings conference on profitability: recent the Greek economy back in December 2000, we developments* argued that the Greek banking system was being driven by three main forces: catch-up, competi- tion and privatisation. We focused on the impact of these forces on various characteristics of the banking sector, including, in particular, its prof- itability (Eichengreen and Gibson, 2001).1 Since writing the article, a number of papers have been published on the Greek banking sector. Heather D. Gibson These focus on issues of efficiency and the related Economic Research Department question of whether Greek banks enjoy econo- mies of scale (Christopoulos and Tsionas, 2001, Christopoulos et al., 2002, Tsionas et al,. 2003, Kamberoglou et al., 2004), the existence of excess capacity (Kapopoulos, 2001) and the impact of mergers and acquisitions (Athanasoglou and Bris- simis, 2004). Mamatzakis and Remoundos (2003) and Athanasoglou et al. (2004) focus explicitly on the issue of profitability using data from 1989- 2000 and 1985-2001, respectively, and a similar framework to that found in Eichengreen and Gibson (2001). The results of the Mamatzakis-Remoundos paper suggest that profitability is strongly influ- enced by both bank and market characteristics, although they find little support for the Structure, Conduct and Performance hypothesis.2 Athanasoglou * The views expressed in this article are the author’s and do not necessarily reflect those of the Bank of Greece. The author would like to thank Vassilis Droukopoulos and Isaak Sabethai for their helpful comments on an earlier version. 1 The paper "Greek Banking at the Dawn of the New Millenium" was first presented at the conference "Greece’s Economic Performance and Prospects" organised by the Bank of Greece and the Brookings Institution in December 2000 and subsequently published in the edited volume from the conference. 2 The Structure, Conduct, Performance hypothesis states that profitability is positively related to the degree of concentration in the banking sector and banks with market power will use that power to extract higher profits. ECONOMIC BULLETIN, 24 1/05 7 et al. focus (2004) explicitly on the impact of the iour and characteristics. Section 2 re-estimates macroeconomic environment on bank profitabil- the profitability equations using data from 1993 ity and conclude that bank profits move procycli- to 2003 instead of to 1998 and re-examines the cally with a tendency to rise more quickly during various hypotheses put forward in the original expansions than they contract during recessions. article.3 The results suggest that the period of rapid structural change is perhaps coming to an The purpose of the present paper is to provide end with the banking sector settling down to an update of developments in the sector using more normal behaviour of profits. There is also data up to 2003 rather than 1998 as in the orig- evidence that banks with stronger market inal paper. We argue that the period since 1998 power earn higher profits. Finally, the impact of has largely been one of consolidation with the size on profitability is much weaker than in the result that the downward trend in the degree of earlier period; to the extent that size is signifi- concentration in the banking sector which had cant, the results indicate that growing bigger begun in 1985 has been reversed somewhat. did not help banks in the period examined to This might suggest a decline in the degree of increase profitability, something which is sug- competition. However, two factors have been gestive of the fact that economies of scale may countering the rise in concentration. First, the have been limited for the larger Greek banks. sector has moved further away from being dom- inated by one leader; instead a number of banks are now of sufficient size to compete with each 1. Banking sector structure and characteristics other for market share. Second, another wave of new entrants has occurred since 1998. At the Table 1 provides a first impression of the extent same time, the profitability of Greek banks has of structural change in the sector over the period exhibited rather erratic behaviour. To a great from 1993 to 2003. Of the banks in independent extent, this reflects the huge surge in profitabil- existence in 1993, the majority had disappeared ity provided during the years of the stock mar- by 2003, having been acquired by other banks in ket boom (1998-2000); more recently, prof- the system. Both in 2000 and again in 2003, itability has returned to more ‘normal’ levels there were a lot of new entrants, with the result and indications of a long-term downward trend that there are around 10 banks with market in profitability are evident from the beginning of shares of less than 1.5%. Table 1 also gives the liberalisation (towards the end of the 1980s) reader a picture of the banks in our sample and onwards. it should be clear from a cursory glance at the table that the majority of banks in the banking The remainder of the article is organised as fol- system are included. lows: In the next section, we provide some descriptive statistics for the banking sector, focusing, as in the original article (Eichengreen 3 Our dataset runs from 1980 to 2003 and is collected from and Gibson, 2001), on the impact of size and banks’ published accounts. From 1980 to 1993 we have only the major aggregates. From 1993 we have full sets of accounts which ownership on various aspects of bank behav- we use in the econometric analysis that follows. 8 ECONOMIC BULLETIN, 24 1/05 ECONOMIC BULLETIN, 24 Table 1 Market shares of individual banks at selected dates (based on total assets) (Shares in percentage points) 1980 1993 1998 2000 2003 1/05 Rank % Rank % Rank % Rank % Rank % National Bank of Greece 1 41.6 1 42.3 1 36.0 1 30.3 1 29.3 Agricultural Bank of Greece 2 16.6 2 12.2 2 13.1 4 10.9 4 10.6 Commercial Bank of Greece (Emporiki Bank) 3 12.0 3 10.5 4 9.8 3 10.9 5 9.9 National Mortgage Bank 4 8.1 4 7.0 –––––– Ionian Bank 5 5.3 7 4.6 5 5.6 –––– ∂∆µ∞ 6 4.7 6 5.6 10 1.8 7 2.1 –– Alpha Bank 7 4.6 5 6.2 3 12.5 2 19.8 2 17.6 General Bank 8 2.0 9 1.4 11 1.6 8 1.5 7 2.0 ∂∆∂µ∞ 9 1.6 13 0.6 14 1.0 11 0.9 –– Ergobank 10 1.0 8 3.1 6 5.2 –––– Investment Bank 11 0.6 –––––––– Bank of Crete 12 0.6 10 1.3 13 1.2 –––– Bank of Athens 13 0.3 20 0.3 –––––– Bank of Piraeus (including Piraeus Prime) 14 0.3 17 0.4 8 2.0 6 7.9 6 8.3 Bank of Macedonia-Thrace 15 0.3 11 1.0 9 1.9 –––– National Housing Bank of Greece 16 0.2 19 0.3 –––––– Bank of Attica 17 0.2 21 0.3 17 0.6 12 0.9 9 1.2 Bank of Central Greece 18 0.03 15 0.4 18 0.5 –––– Greek banking profitability: recent developments Eurobank ––12 0.6 7 3.8 5 10.8 3 15.6 Xiosbank ––14 0.5 12 1.5 –––– Interbank ––16 0.4 –––––– Credit Lyonnais Gréce ––18 0.4 NA NA –––– Egnatia Bank ––22 0.2 15 0.8 9 1.2 8 1.5 Dorian Bank ––23 0.2 20 0.3 14 0.6 –– European and Popular Bank ––24 0.1 16 0.6 13 0.8 10 1.2 Aspis Bank ––25 0.1 19 0.3 15 0.4 11 1.1 Novabank ––––––10 0.9 NA NA Investment Bank of Greece ––––––16 0.1 NA NA Unitbank ––––––17 0.02 NA NA Probank ––––––18 0.02 12 0.5 Omega Bank ––––––––13 0.5 First Business Bank ––––––––14 0.4 Panellinia Bank ––––––––15 0.1 Note: NA: data not available. – : bank not in existence as independent entity. Source: Own calculations using sample collected (see text). 9 Charts 1-3 provide a graphical representation of —OBS— activity) suggests that the downward the structure of the banking sector. The trend in concentration halted in the mid-to-late Herfindahl-Hirschman index (based either on 1990s; subsequently, concentration levels have total assets or total assets plus off-balance sheet been rising, without, however, reaching anything 10 ECONOMIC BULLETIN, 24 1/05 Greek banking profitability: recent developments like the levels witnessed in the 1980s.4 A qualita- Agricultural Bank and the Commercial Bank, which tively similar picture is drawn in Chart 2, which have had a roughly constant market share of around graphs three and four-firm concentration ratios.