RECENT FINANCIAL CRISIS AND BUSINESS PERSPECTIVE OF GREEK BANK SUBSIDIARIES IN SERBIA

Grčka je jedna od država najteže pogođenih krizom u evrozoni, pri čemu je i dalje prisutan rizik da se krizne tendencije sa tržišta porekla kapitala (Grčke) preliju i negativno utiču na poslovnu aktivnost banaka koje u Srbiji posluju sa većinskim grčkim kapitalom, s obzirom da se na ove banke odnosi 14 % bilansne sume bankarskog sektora Srbije. U momentu ulaska na tržište Srbije grčke banke su se rukovodile različitim motivima, a kao najznačajniji su se potvrdili visoka kamatna marža, neiskorišćen dužnički potencijal privrede i stanovništva i potraga za novim klijentima. Podaci o performansama banaka sa grčkim kapitalom su “mešoviti”. Podaci o ROAA i ROAE su ispod proseka za bankarski sektor, ali su postojano pozitivni u periodu koji prethodi krizi. S druge strane, pre krize podaci o neto kamatnoj marži (NIM) pokazuju stanje bolje od proseka za sektor. Nakon izbijanja krize NIM beleži pad, ali je većina banaka i dalje iznad proseka za bankarski sektor. Negativne vrednosti indikatora profitabilnosti znače da banka nije u stanju da ostvaruje prihode na nivou koji je dovoljan da pokrije rashode (dohodak po osnovu kamata i ostali dohodak iz poslovanja), iako je neto kamatna marža (NIM) grčkih banaka koje posluju u Srbiji iznad proseka bankarskog sektora.


Introduction
It is beyond any doubt that the economic and financial issues were put in the centre of the world affairs after the global crisis of 2008.The ongoing crisis is not just one of the many that countries or regions have already been through, but is the one that have left serious consequences on the world financial landscape.Although the intensity of the crisis has been reduced, the uncertainty is still present, especially in the Eurozone countries.Having in mind that the Serbian economic and financial sector (according to the latest data for the first quarter of 2015, 75% of banking sector assets is in foreign ownership, NBS, 2015, p. 3.) is contingent on the Eurozone, it is reasonable to conclude that it depends on foreign resources.In 2015 the Greek bank subsidiaries accounted for 14% of total assets in the Serbian banking system.Greece was hit the hardest by the crisis compared to other Eurozone countries and there is a real threat that the risk overflow from the Greece home markets could have negative consequences on the activities of their subsidiaries in Serbia.However, it is necessary to note that four subsidiaries of Greek banks that operate in Serbia are not legally dependent on their parent banks.The potential withdrawal of any Greek bank subsidiary from the market will mean that the parent bank could sell operations to another owner who will continue the operations.If any other institution is interested in buying any of these subsidiaries, it will have to obtain the permission from the National Bank of Serbia to realize this transaction.Finally, all banks in Serbia operate as separate legal entities with capital that cannot be withdraw as long as this entity operates in the domestic market.In this sense, they are independent from their parent banks.
The aim of this paper is to analyse the performance of Greek bank subsidiaries in Serbia in relation to the global economic crisis.For this purpose, we used selected business performance indicators in order to determine whether the patterns of the global economic crisis spilled over to the Greek bank subsidiaries operating in Serbia.The article has the following structure.After the introduction, the overview of used references is presented.The subsequent parts are devoted to the analysis of general conditions in Eurozone and Greece.The fifth section features the data analysis and the research discussion.The conclusion refers to the relatively uncertain business perspective of Greek bank subsidiaries in Serbia.

Foreign market entry motives-the theory of multinational banking
The Serbian banking industry has changed dramatically since 2000.The trend of internationalization and structural changes has led to the restructuring, the entrance of foreign banks, a decreased number of banks and the increased capacities.The final result has been that more than 75 percent of banking assets is in foreign ownership, while the assets, equity and other banking indicators have risen.Among the first foreign banks that entered the Serbian market were the Greek banks.Usually this is justified by one of the theories of multinational banking which were derived from theories of multinational enterprises.

Analiza ekonomskog ambijenta u evrozoni i Grčkoj
Od momenta kada se kriza počela širiti iz SAD u Evropu, problemi u evrozoni narastaju, a posebno snažno zahvataju zemlje takozvane evropske periferije: Grčku, Portugaliju, Irsku, Španiju i Kipar.Međutim, pojavni oblici krize, odnosno njen obrazac se razlikuje od države do that the decrease of risk exposure is one of the reasons for entering foreign markets.Specific banking regulations can be a limiting factor for internationalization.The examples include the USA regulations such as Glass-Steagall Act and subsequently Gramm-Leach-Bliley Act.The changes in exchange rates can make foreign acquisitions realistic.Finally, it was proven that very important patterns of bank internationalization are country similarities, such as distance, colonial relationships, common language, cultural and historical resemblance.It is considered that these variables are in direct relation to the probability of establishing an affiliate (for details look at Buch and De Long (2004), Claessens and Van Horen (2006)).The Greek banks had various reasons for entering the Serbian market which could be considered as a mix of the mentioned theories.The profit and market opportunity is the most influential theory, and in the first years, this theory was valid for almost all Greek bank subsidiaries in Serbia.After the crisis, the situation changed and we will illustrate this in the subsequent analysis.However, other theories contributed, too.Until foreign banks entered the Serbian banking market, there were none or a small number of innovative products or services such as e-banking or mobile banking.The Greek banks had competitive advantages in relation to the domestic banks, but not to the other foreign banks that entered the market.After the liberalization of the economic and financial market, a number of foreign investors rushed to Serbia, a significant number of which were Greek domiciles (Hellenic Petrol, Veropulos -one of the largest FDI in Serbia, Coca-Cola Hellenic, etc).After they started their operations in Serbia, the banks followed their cue.Serbia is marked as a developing country, whereas before the crisis Greece was in the group of developed countries.The markets of these two countries are quite different and the risk diversification theory is possible.The limitations concerning the regulations gave a specific direction to the internationalization of the Serbian banking market.While in 2001 the Serbian central bank granted five operating licensees to foreign banks, among them two Greek banks, this practice was discontinued and other Greek banks had to enter the market by M&A with the existing banks.When entering foreign markets, especially the developing ones like Serbia, banks have to be very careful because there are usually large exchange rates fluctuations.This is why banks keep over 60% of assets in foreign currencies or indexed with a foreign currency clause.Finally, maybe the most characteristic theory for Greek subsidiaries is the one concerned with economic and historical heritage similarities.
Recent research on banks in Serbia (not just the Greek ones) showed that the most important motives at the time of the decision to enter the market were concerned about the theory of profit growth and market opportunities: the search for new customers, high competition in the country of origin of capital, high interest margins in the domestic market and unused debt potential of households in the domestic market.The range of motives changed after the banks entered the market and at the time when the research was conducted, the most important ones were: risk diversification, high interest margins, untapped debt potential of the corporate and retail sectors and the search for new clients.The increasing importance of diversification should not be surprising if we take into account that the survey was conducted immediately after the acute phase of the financial crisis (Marinković, et. al, 2011, pp. 527-528).

Analysis of business conditions in Eurozone and Greece
When the global economic crisis spread from the USA to Europe, the problem within the Eurozone exacerbated and the greatest impact was on peripheral countries: Greece, Portugal, Ireland, Spain and Cyprus.However, the patterns of the crisis in these countries are different.In this section, we analyse the causes and conditions that led to the crisis in Greece.
Certain problems in the Eurozone began rather early, and have their roots in the conditions set up for joining the EMU (the socalled convergence criteria).Even though these criteria were supposed to ensure the monetary and economic convergence, compromises were often made.If a country (Belgium, Italy and later Greece) did not satisfy these criteria, but države.U ovom odeljku analiziraćemo uzroke koje su dovele do pojave krize u Grčkoj i njene posledice.
Alpha banci je odobrena dozvola za rad 2002.godine i ona na ovo tržište ulazi preko grinfild ulaganja.Tokom 2005, Alpha banka preuzima made a serious effort to meet them, joining the Eurozone was enabled (Ljumović, Pavlović, 2013, p. 58).Greece entered the EMU with the help of creative accounting regarding the statistics on debt and deficit.Indeed, the Greek government made a great effort and reduced its budget deficit by nine percent between 1993 and 1999, yet these efforts have not been continued.Essentially, the Greek government was obtaining social peace through large public spending and governmental borrowing.The entrance of Greece to the Eurozone was followed by the reduction of country risk and therefore funding was available at a lower interest rate (Jovanović, Ljumović, 2012, p. 443).
The turning point for Greece and the Eurozone happened in October 2009 when the newly elected Greek government announced that the projected budget deficit for 2009 was 12.7 percent of GDP, rather than the 5.1 percent projection appearing in the 2009 Spring Commission forecast (Katsimi, Moutos, 2010, p. 568).The crisis erupted once the risk premiums grew and the public debt reached the level at which the financial markets offered loans to over-indebted Greece at the interest rates of 10 percent, three times higher than they were charging Germany at the same time.This led to the increased cost of borrowing for banks, enterprises and population.To avoid a sharp reduction in the lending policies and preserve financial stability, numerous international institutions implemented the packages of policy measures to support Greece.
The Vienna Initiative, introduced in early 2012 at the time when the crisis amplified, was most important for Serbia.It aimed to strengthen regional coordination to control the negative effects of reducing the European banks' exposure to the emerging markets.During the same year, the largest Greek banks were recapitalized by 18 billion euros (National Bank of Greece (NBG) 7.43 billion, Alpha Bank 1.9 billion, EFG Eurobank Ergasias SA 3.97 billion and Piraeus Bank SA 4.7 billion) from the EU aid sources and the IMF.The intention was to cover bank losses from write-offs of public debt due to the fact that local banks were major owners of the Greek government bonds (NBS, 2011, p. 96).
In 2013, the central theme in international finance was the banking crisis in Cyprus.
Traditionally, Cypriot banks and the state itself hold the high level of Greek government bonds.As the crisis in Greece was emerging, Cypriot banks were forced to haircuts (i.e.forced to give up substantial sums owed to them by the Greek government).The fall in prices and high haircuts imposed on the Greek bonds led to a decline in the value of assets of Cypriot banks, increasing debt and lack of capital.Given the size of the banking sector in Cyprus (it is estimated that the banks were holding more than eight times the country's GDP), it caused a deep crisis and the growth of indebtedness.Nevertheless, the presence of Cypriot banks in Serbia is limited to one bank that had the market share of 0.81 percent at the end of 2014.
During 2014 and 2015 there were strong geopolitical tensions, primarily caused by political instability.Banks in Greece were faced with the withdrawal of deposits, fall of liquidity and problems in financing business activities.However, these tensions did not largely transfer to the Serbian economic and financial sector.

Historical overview of the Greek banking in Serbia
In this section, we will present a short factual analysis concerning the Greek bank subsidiaries that operate in Serbia.Since 2000, five Greek subsidiaries entered the Serbian market, but one of them was later sold to a Cypriot investor.Let us review each case separately.
Alpha bank was granted a license to operate and entered the market as a greenfield investment in 2002.During 2005, Alpha bank acquired 88.64 percent of the state owned shares in Belgrade Jubanka, spreading its network through the local organizational branches of Jubanka.At the time, this privatization was one of the large-scale ones in the banking sector in Serbia.In the course of 2005 by exercising its legal rights, Alpha bank became the owner of 99.99 percent of Jubanka equity.In

Data analysis and discussion of results
Total assets of the Serbian banking industry (Figure 2, right hand axis) increased by almost ten times during the period 2002-2014, mostly as a result of the new investments made by foreign banks that entered the domestic market.The new capital infusion to the local banking markets was vital to increase the lending activities both in the retail and corporate sector.At the same time, total assets of the Greek bank subsidiaries increased by slightly more than seven times.They are important for the Serbian banking market as they currently account for about 14 percent of total assets.The highest share that the Greek bank subsidiaries held was in 2008 (17.84%) but when the crisis hit, their share started to decrease.Generally, the pattern of assets growth is obvious in all banks, but the strength of the growth trend depends on several factors, including the asset base of the acquired bank, investments made by the acquiring bank, reputation of an acquiring bank, modes of entry, etc. Figure 2 presents the total assets of the Greek banks subsidiaries (left hand axis), and the total assets of the Serbian banking industry (right hand axis).It has to be noted that the time series starts in 2002.At that time, most of the banks were still domestic-owned.Large jumps in the assets value of certain banks are explained by the acquisition accomplished in that period.In addition, the asset growth trend rose after the foreign investment in all individual banks. 1 Neto kamatna marža (NIM) je količnik dohotka po osnovu kamata (prihod po osnovu kamata umanjen za rashode kamata) i iznosa kamatonosne aktive, obično iskazan u procentima.Prinos na prosečnu aktivu (ROAA) ukazuje na to kakva je profitabilnost kompanije merena u odnosu na angažovanu prosečnu ukupnu aktivu, dok prinos na prosečan akcijski kapital (ROAE) sagledava odnos ostvarene neto dobiti (profita) i prosečne vrednosti akcijskog kapitala.
The concept of profitability is extremely important in economic theory.Based on the initial investment, shareholders demand an adequate return.NIM, ROAA, ROAE are standard indicators of bank profitability 1 .
If we compare the average bank profitability in respect to the country of origin (according to the controlling share), we see that banks owned by shareholders from Slovenia, Hungary, Belgium, Cyprus, France and Greece are faced with the strongest challenges.However, the participation of the first four groups of banks in the total net assets of the banking sector is around 4 percent.The French and Greek banks recorded weaker and in certain periods (2008-2012) even negative results.In contrast, the banks whose majority owners are the Austrian and Italian shareholders operated on average with net profit and their profitability ratios were at rather high level.
Figures 3 and 4 illustrate ROAA and ROAE developments for the Greek bank subsidiaries (columns) together with the average for the total banking sector (line).The analysis shows that the Greek subsidiaries generally stay below the average regarding ROAA and ROAE.Nevertheless, this is not unusual in the periods that immediately follow the crises.Certain studies have supported this phenomenon in which the acquired banks (from foreign counterparties) were on average less profitable, but they were better capitalized than the domestic ones (Havrylchyk and Jurzyk, 2008;Miklaszewska and Mikołajczyk, 2008).According to the CBD -Statistics on Consolidated Banking Data, the data for Greece are available for the period 2008-2010.Since 2008 these indicators felt dramatically (ROAE from 10.53% to 2.19% and -4.35% in 2010; ROAA from 0.58% in 2008 to 0.14%, and -0.31% in 2010; NIM from 2.6% to 2.48% to 2.59% in 2010).However, a firm conclusion based on this indicator cannot be drawn.1 Net interest margin (NIM) is a ratio of net interest income (interest income minus interest expenses) to total interest-bearing assets, usually expressed in percentage terms.Return on average assets (ROAA) indicates how profitable a company is relative to its total average assets.Return on average equity (ROAE) is the amount of net income returned as a percentage of average shareholders' equity.

Zaključak
Kriza koja je pogodila evrozonu imala je ozbiljne posledice za grčku privredu, njen finansijski sistem i svaku banku ponaosob.Kriza se prelila  The position regarding ROAE is similar to the previous indicator.All the way until the financial crisis, the Greek bank subsidiaries had a positive trend regarding this indicator, while after the crisis only EFG managed to sustain the positive trend and stay above the average for the total banking industry.
There is strong evidence that in the developed banking industries the net interest margins are narrower, and that the level of concentration is higher than in the less developed ones.It is, therefore, reasonable to conclude that the net interest margin of the total banking sector is higher than in the developed countries that are home markets to foreign banks that operate in Serbia.Before the crisis the Greek subsidiaries recorded the NIM above the industry average.After the crisis, the NIM decreased, but most of the banks are still above the average.Negative profitability figures may indicate that the bank is not able to generate net interest or other operating income (as key categories of net income), at the level that is sufficient to cover the operating expenses.Although the NIM of the Greek subsidiaries operating in Serbia is above the average for the banking sector, the interest income is insufficient to cover the operating expenses, possibly due to the low level of economy of scale or because of the high amount of bad loans.Low economy of scale is due to the high share of fixed non-interest operating expenses (wages, salaries, other personnel expenses and depreciation costs) in the operating income.Although all Greek subsidiaries operating in Serbia acquired the local banks, and thus their client base, the economy of scale is at a low level most likely due to the inadequate procedures for the acquisition of clients.It must be noted that the Greek subsidiaries operating in Serbia are oriented to traditional banking products offered by almost all banks, which hinders the successful acquisition of clients in a situation where competitors already control a significant market share.On the other hand, the high share of bad loans, in addition to the direct impact of the high expenses arising from impairment and provisions, adversely affect the tendency of banks to take risks, and therefore inhibit the growth of credit activity and investments which are the basic banking products.This way, the problem of low economy of scale is further aggravated.

Conclusion
The Eurozone crisis has left serious consequences on the Greek economy, its financial system and individual banks.In addition, it also spilled over to the Serbian economy and financial market, with effects such as the slowing economic growth and credit activity.
Sve dok su banke koje posluju unutar međunarodnih bankarskih grupacije međusobno povezane kreditnim aranžmanima, postoji rizik da tok kreditnog kapitala može promeniti smer, odnosno da priliv kapitala može biti zamenjen odlivom kapitala.Srećom, u momentu kada je izbila kriza, kreditna izloženost analiziranih matičnih banaka prema lokalnim zavisnim društvima nije bila značajna.Ipak, ako grupa kao celina doživi snažan udar na likvidnost, uvek postoji rizik da će matično društvo posegnuti za likvidnošću na lokalnim tržištima i redukovati obim poslovne aktivnosti na lokalnim tržištima.Na osnovu procenjenog stepena profitabilnosti u ovom momentu banke sa grčkim kapitalom koje posluju na tržištu Srbije ne predstavljaju posebno dragocenu investiciju za svoja matična društva, jer negativno doprinose profitabilnosti grupacije (vrednost njihove franšize je ugrožena).I pored toga, nije verovatno da će matična društva pokazati spremnost da napuste svoje poslovne operacije na tržištu Srbije.S druge strane, same grupe nisu u stanju da dalje pružaju finansijsku podršku svojim bankama u Srbiji.Zbog ovoga originates from the fragility of the Greek economy.A huge share of assets of the Greek banks was allocated to the Greek public debt.In the times that preceded the crisis it was even the source of huge income for the Greek banks, since the global financial markets did not react in a timely fashion.High interest rates on the public debt were not compensated fully by the depreciated price.From the beginning, the global markets underestimated the Greek sovereign risk.After Greece experienced the joint banking and sovereign debt crisis, with bad debt placed equally to public and private claims, any attempt to solve the issue by reallocation between the private and public sector (tax reform, or public spending cuts) was no more an easy reachable solution and the Greek banks were forced to share the destiny of the Greek economy and society.
The position of the Greek banks' subsidiaries in Serbia should be highlighted from two angles.Firstly, they are members of international banking groups, so they may obtain the comparably higher levels of diversification (smooth return) if the local business cycles and credit conditions are non-perfectly correlated, or there are asymmetric business cycles across the different countries.The well-diversified international groups are less sensitive to the local economic shocks.They can more easily shift operations across the borders looking for the markets offering higher profit and/or lower risk.Because of the possible cross-subsidization (through the transfer prices or interest rates) among the members that operate inside the banking group, international banking groups could be comparably stronger than their onlylocally positioned competitors.They are able to sustain the pressure coming from the hostile local business environments longer than the competitors that have to act on their own.Secondly, for those banks the country of origin is most hardly hit by the recent economic crisis.
If the very nature of the shock is external, as it was the case in the recent financial crisis, the fact that a local bank operates within the international banking group may turn from being a strongpoint to being a weakness.A sound subsidiary is then expected to stand in defence of the group.
Inside an international banking group member banks can have multiple mutual links.Given that, according to the Serbian regulation the foreign bank capital entry must be in a form of a subsidiary (not a branch), the equity base of any local subsidiary is safe.It cannot be withdrawn, so that the soundness of the local subsidiary may be way higher than the soundness of the group.A prominent example is the case of Hypo Alpe-Adria bank which held very strong operations in the local markets despite the distressed position of the parent bank.
As long as banks that operate within the international banking group are connected through cross border finances, there is a risk that the credit capital inflow may turn into a credit capital outflow.Fortunately, at the time of the crisis the impact of the credit exposure of the parent banks to their local subsidiaries was meaningless.Nevertheless, if the group experiences a strong liquidity shortage there is always a risk that the parent company will drain the liquidity from some local markets and reduce the local operations.
According to the assessed profitability, local banking subsidiaries at the moment are not valuable assets of their parent groups since they negatively contribute to the groups' profitability (they do not hold the franchise value).Nevertheless, it is not likely that parent groups will stay ready to curtail their local operations.On the other hand, the groups are not in the position to support their local subsidiaries.This is why the business position of the Greek local subsidiaries is more similar to other local banks.They are no longer able to compete with the stronger foreign subsidiaries, which probably largely contributed to the loss of the market share.Moreover, the undermined reputation of the Greek banks remains a serious threat to the future position of their subsidiaries on the local (Serbian) markets.je poslovna pozicija grčkih banaka u Srbiji sličnija poziciji lokalnih banaka.Ove banke verovatno neće biti sposobne da uđu u borbu sa snažnijim konkurentima čiji kapital potiče iz inostranstva, što je verovatno jedan od glavnih razloga za narušen tržišni udeo.

Dijagram 1
Dinamika ulaska grčkih banaka na tržište Srbije Ljumović I., Marinković S. Aktuelna finansijska kriza i poslovne perspektive grčkih banaka u Srbiji Bankarstvo, 2016, vol.45, br. 4 the process of privatization.After acquiring the remaining shares in October 2007, it asked to be delisted from the Belgrade Stock Exchange and started operating as a private joint stock company.The National Bank of Greece Affiliation Belgrade was merged with Vojvođanska bank at the beginning of 2008.The Bank is still using the name Vojvođanska bank, a part of the NBG group.EFG bank has been present in Serbia since 2003 when it acquired Postbanka AD Beograd.In October 2006, it took over Nacionalna Štedionica -Banka AD Beograd and changed its name to Eurobank EFG Štedionica AD Belgrade.Since December 2012, it has been operating under the name Eurobank AD Beograd.Piraeus bank has been present in Serbia since May 2005 when it acquired Atlas bank AD Belgrade.In October, it became the owner of 88.23% of equity, and changed its name into Atlas-Piraeus bank.Piraeus banking group decided to change the name into Piraeus bank in September 2005 when it became the 100 percent owner.Laiki bank has been present in the Serbian banking market since 2006 by acquiring 90.43 percent of equity in Centrobanka AD Belgrade.

Figure 1
Figure 1 Year of entrance of Greek subsidiaries in Serbia

Figure 2
Figure 2 Total assets (in mil RSD)

Figure 3
Figure 3 ROAA of the Greek bank subsidiaries in Serbia

Figure 4 Figure 5
Figure 4 ROAE of the Greek bank subsidiaries in Serbia