HELLENIC BANK ASSOCIATION HELLENIC BANK ASSOCIATION

88THTH INTERBALKAN FORUM OF BANKING ASSOCIATIONS INTERBALKAN FORUM OF BANKING ASSOCIATIONS

CROSS-BORDER SUPERVISORY COOPERATION CROSS-BORDER SUPERVISORY COOPERATION IN THE SE EUROPE REGION:IN THE SE EUROPE REGION:

THE BANK OF GREECE’s EXPERIENCETHE BANK OF GREECE’s EXPERIENCE

Panagiotis Kyriakopoulos Panagiotis Kyriakopoulos DirectorDirectorDepartment for the SupervisionDepartment for the Supervisionof Credit and Financial Institutionsof Credit and Financial Institutions

21

CONTENTSCONTENTS

Brief overview of the Greek banking sector.

Reasons for cross-border cooperation.

Bank of Greece’s experience.

The Multilateral MoU.

Concluding remarks.

22

31

33

Supervised Credit Institutions by the Bank of Greece

(1) In 2005 figures, Loans & Consignment Fund and Postal Saving Bank are included. The latter, in 2006 figures is treated as a commercial bank.

(2) Including both branches and subsidiaries of Greek banks established abroad.

--62,09362,09361,29561,2953,6373,6373,5433,54362626161Total DomesticTotal Domestic

5,7055,3812602422422Foreign BranchesForeign Branches

-5,5275,2032532362018EUEU

-4442,010414012Special CI’s (1)Special CI’s (1)

--

€ 6 mil.-

€ 18 mil.

€ 9 mil (up to 4 br.)

€ 18 mil.

Minimum Minimum Capital Capital

RequirementsRequirements

32,40932,409

946

178

54,998

2006

18,11018,110

875

178

53,029

2005

No. No.

EmployeesEmployees

No. No.

Business Units Business Units

No. No.

BanksBanks

2,0742,0741,1661,16648484848Commercial Banks Commercial Banks Abroad (2)Abroad (2)

1081261616Cooperative BanksCooperative Banks

7644Non Non -- EUEU

3,2653,0352121Commercial Banks Commercial Banks

DomesticDomestic

2006200520062005

--62,09362,09361,29561,2953,6373,6373,5433,54362626161Total DomesticTotal Domestic

5,7055,3812602422422Foreign BranchesForeign Branches

-5,5275,2032532362018EUEU

-4442,010414012Special CI’s (1)Special CI’s (1)

--

€ 6 mil.-

€ 18 mil.

€ 9 mil (up to 4 br.)

€ 18 mil.

Minimum Minimum Capital Capital

RequirementsRequirements

32,40932,409

946

178

54,998

2006

18,11018,110

875

178

53,029

2005

No. No.

EmployeesEmployees

No. No.

Business Units Business Units

No. No.

BanksBanks

2,0742,0741,1661,16648484848Commercial Banks Commercial Banks Abroad (2)Abroad (2)

1081261616Cooperative BanksCooperative Banks

7644Non Non -- EUEU

3,2653,0352121Commercial Banks Commercial Banks

DomesticDomestic

2006200520062005

41

44

Greek Banking System vs. Eurozone – 2006

Assets / GDP

161,5%

298,0%

Greece Eurozone

Corporate Loans / GDP

37,8%

45,9%

Greece Eurozone

Mortgage Loans / GDP

26,9%

38,1%

Greece Eurozone

Consumer & Other Loans / GDP

14,2%

15,7%

Greece Eurozone

51

55

Interest Rate Spreads (Gr – EuroArea)

2,18

1,00

-0,56

-0,05

-1,5

-0,5

0,5

1,5

2,5

3,5

4,5

JAN 2003 ΑPR JUL OCT JAN 2004 ΑPR JUL OCT JAN 2005 ΑPR JUL OCT JAN 2006 ΑPR JUL OCT JAN 2007 ΑPR JUL

-1,5

-1,0

-0,5

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

Consumer Loans with agreed initial rate fixation for over 1 and up to 5 years

Loans (up to €1 mil) to Non-Financial Corporations with agreed initial rate fixation forup to 1 yearHousing Loans with agreed initial rate fixation for over 1 and up to 5 years

Consumer Loans with agreed initial rate fixation for up to 1 year

Source: Bank of Greece and ECB.

61

66

ROA & ROE (on a consolidated basis) - NPL

ROEROE after taxes and extraordinary items: 14.0% in 2006.

ROAROA after taxes and extraordinary items: 1.0% in 2006.

0

4

8

12

16

20

2002 2003 2004 2005 2006

(%)

0,0

0,2

0,4

0,6

0,8

1,0

1,2

(%)

ROE (Greek Banks)left hand

ROE (EU banks) lefthand

ROA (Greek banks)right hand

ROA (EU banks)right hand

NPLNPL (above 3 months without taking into account collateral): 5,1% in

the first semester of 2007 from 6,3% in 2005.

71

77

Capital Adequacy ratio (on a consolidated basis)

Solvency ratio:Solvency ratio: 12.2%12.2% in 2006 (EU-27 banks: 11.8% in 2006).

Tier I solvency ratioTier I solvency ratio: 9.9%9.9% (EU-27 banks: 8.0% in 2006).

Evolution of Solvency ratio of Greek commercial banks

11,311,9

12,813,2

12,212,4

11,511,8 11,8

10,5

12,211,9

9,9

11,0

8,9

9,7 10,0

10,9

7

8

9

10

11

12

13

14

2001 2002 2003 2004 2005 2006

%

Solvency ratio - Greek banks Solvency ratio - EU banksTier I Solvency ratio - Greek banks Tier I Solvency ratio - EU banks

THE IMPACT OF SUB-PRIME TURMOIL TO THE GREEK BANKING SECTOR Not direct exposure. Mainly an impact on the cost of funding.

81

Reasons for cross-border cooperation Reasons for cross-border cooperation (1/2)(1/2)

Especially for SEE: to promote efficiency and stability of financial sectors in the region.

Increasing internationalization of SEE’s banking

systems due to the:

- Increasing public confidence in the financial system.

- Liberalization of the provision of financial services.

- Privatization of many state-owned banks.

- Benign macroeconomic environment.

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91

GREEK BANKS’ PRESENCE IN SE / CE EUROPEGREEK BANKS’ PRESENCE IN SE / CE EUROPE

Market shares in terms of assets as of end 2006 (approx.)

99

EMPORIKI 1.9%

PIRAEUS 7.6%

ALPHA 5.6%

NATIONAL 2.7%

ALBANIA 17.8%

EUROBANK 0.2%

NATIONAL 3.3%

TURKEY 3.5%

ALPHA 3.1%

NATIONAL 26.3%

FYROM 29.4%

EUROBANK 5.4%

ATE BANK 3.3%

PIRAEUS 1.8%

ALPHA 3.2%

NATIONAL 6.3%

SERBIA 20.0%

EUROBANK 0.5%

POLAND 0.5%

EUROBANK 9.2%

EMPORIKI 0.3%

PIRAEUS 3.7%

ALPHA 1.0%

NATIONAL 10.0%

BULGARIA 24.2%

EGNATIA 0.3%

ATE BANK 0.2%

EUROBANK 4.7%

EMPORIKI 0.3%

PIRAEUS 0.9%

ALPHA 3.9%

NATIONAL 1.8%

ROMANIA 11.5%

EUROBANK 0.2%

UKRAINE 0.2%

EMPORIKI 0.8%

PIRAEUS 0.1%

ALPHA 6.8%

NATIONAL 1.7%

CYPRUS 9.4%

EMPORIKI 1.9%

PIRAEUS 7.6%

ALPHA 5.6%

NATIONAL 2.7%

ALBANIA 17.8%

EUROBANK 0.2%

NATIONAL 3.3%

TURKEY 3.5%

ALPHA 3.1%

NATIONAL 26.3%

FYROM 29.4%

EUROBANK 5.4%

ATE BANK 3.3%

PIRAEUS 1.8%

ALPHA 3.2%

NATIONAL 6.3%

SERBIA 20.0%

EUROBANK 0.5%

POLAND 0.5%

EUROBANK 9.2%

EMPORIKI 0.3%

PIRAEUS 3.7%

ALPHA 1.0%

NATIONAL 10.0%

BULGARIA 24.2%

EGNATIA 0.3%

ATE BANK 0.2%

EUROBANK 4.7%

EMPORIKI 0.3%

PIRAEUS 0.9%

ALPHA 3.9%

NATIONAL 1.8%

ROMANIA 11.5%

EUROBANK 0.2%

UKRAINE 0.2%

EMPORIKI 0.8%

PIRAEUS 0.1%

ALPHA 6.8%

NATIONAL 1.7%

CYPRUS 9.4%

101

Reasons for cross-border cooperation Reasons for cross-border cooperation (2/2)(2/2)

The risks faced today do not end at national frontiers or even at the EU.

Trend for centralization of critical functions.

EU policies (CEBS promotes cooperation and convergence of supervisory practices, through guidelines, delegation of tasks and responsibilities)

Crises simulation exercises enhanced preparedness of supervisory authorities…

…room for further improvement.

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111

BILATERAL MoUsBILATERAL MoUs

Based on:

• Reciprocity / mutual trust & understanding.

• International guidelines & practices.

Objectives:

• Set basic elements of home-host supervisory responsibilities;

• Facilitate on-going supervision under normal times through regular information exchange; but…

• …no specific reference to financial stability, contingency plans & crisis management.

The Bank of Greece signed bilateral MoUs with countries were Greek banks had significant presence that served the need to establish a practical framework of cooperation at the early stages.

1111

121

PRACTICAL EXPERIENCEPRACTICAL EXPERIENCE

Overall positive experience Different starting points

Differences in regulation & supervisory practices

Gradual adoption of BIS standards

Orientation towards EU membership

Share common objectives

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131

POTENTIAL CONSTRAINSPOTENTIAL CONSTRAINS

Potential areas of conflict and obstacles cannot change overnight, but should be seen in a dynamic way and be resolved within an evolutionary and flexible process.

In this context, several issues are emerging and need to be addressed:

The lack of equivalent responsibilities of those provided for in Art 129 (model validation).

Regarding subsidiaries, due to catching up process, there is a growing need to evaluate risks from the home-country perspective.

Public interest considerations.

Identification of systemically important entities: • Subsidiary may be insignificant for home but systemic for host country.• Flexibility rather than explicit quantitative criteria.

Crisis management.

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141

MoU ON HIGH LEVEL PRINCIPLES OF CO-MoU ON HIGH LEVEL PRINCIPLES OF CO-OPERATION AND CO-ORDINATION IN SE EUROPEOPERATION AND CO-ORDINATION IN SE EUROPE

An effort to address some of the “obstacles”

Signed by the Governors of Central Banks of Albania, the Bulgaria,

Cyprus, Former Yugoslav Republic of Macedonia, Greece, Romania

and Serbia (July 2007) on the initiative of Mr. Nicholas Garganas,

Governor of the Bank of Greece.

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151

MoU’s KEY CHARACTERISTICS MoU’s KEY CHARACTERISTICS

Compliant with the existing legal framework

• Jurisdiction of each Party;

Set high level principles

• Avoid rigid application of detailed rules & procedures;

• Identify areas of concern & set principles of cooperation.

Best practices oriented

• Explore the degree of participation of other countries.

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161

MoU’sMoU’s OBJECTIVESOBJECTIVES

Structured cooperation to develop common culture.

Potential obstacles’ identification.

Information exchange.

Alleviate supervisory burden.

Allocation of tasks (on an evolutionary manner; reallocation in the long run).

Addressing issues concerning financial stability and enhance preparedness for managing cross-border crises.

Joint assessment of groups’ risk profile.

Combat AML/CFT acknowledging accentuated exposure of cross-border banking groups.

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171

CONCLUDING REMARKSCONCLUDING REMARKS

Convergence of supervisory practices should be regarded as the end of a rather long-term process…

…but we should start by developing a common understanding.

Not to wait for solving out the issues aroused but act proactively.

Strike a balance between the market pressure to reduce the supervisory burden and improve the efficiency of supervision with the mandate to safeguard financial stability in the region.

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181

Thank you very much for your attention…

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