How the banking landscape in Europe is changing

Last November, speaking before the European Parliament’s Committee on Economic and Monetary Affairs for the last time before the end of his five-year term (having been appointed in January 2019), the Chair of the European Central Bank Supervisory Board Andrea Enria set the tone for what was next for the European banking sector: "More work remains to be done, in particular on completing a fully integrated banking union… a more integrated banking sector would be a more resilient one, which would rely less, not more, on any collective safety nets," he said.

Having left behind the financial crisis of 2008 and the sovereign debt crisis that followed, threatening the very foundations of the euro, the ECB has in recent years focused its policy on promoting a banking sector union, which, through the equal treatment of national and cross-border banking activities, separating the financial soundness of the banks from the finances of the country where they are established, and early intervention when banks face problems, will make the banking system more secure.

For Frankfurt technocrats, banking consolidation plays an important role in smoothing out local financial shocks. According to (Mario) Draghi, the man who handled the crisis as head of the ECB from 2011-2019, since local banks are usually heavily exposed to the local economy, a recession in their region would once again cause big losses. But if cross-border banks are operating in all parts of the Union, they can offset any losses incurred in the recession-hit area with profits in another and continue to provide credit to healthy borrowers.

European bank ‘networks’ in other countries

To make banks more resilient to local financial shocks, the Single Supervisory Mechanism also encourages mergers in the banking sector, whether local or cross-border. Speaking to MEPs, Enria called on banks to consider mergers based on their business strategies and market perceptions, as well as focusing on more competitive sectors.

In this spirit, UniCredit in November announced the acquisition of the 8.9% held by the Hellenic Financial Stability Fund (HFSF) in Alpha Bank as part of the Fund’s strategic divestment of the shares it held in Greek banks since the period of the crisis. Through cooperation with the Italian group, which is considered one of the leading institutional strategic investors in Europe with a presence in 13 markets, Alpha Bank and UniCredit will merge their subsidiaries in Romania, creating the third largest bank in the local market, while, at the same time, they will also be cooperating through a joint venture on the provision of portfolio management and life insurance products.

Furthermore, other financial organisations that have arrived in the country in recent years are considering their further expansion in the Greek market. With the arrival of the new year, one of the fastest growing banks in South East Europe, TBI Bank, which is already active in Greece in the BNPL (Buy now, Pay later) market, is also introducing deposit products, bringing with it its significant expertise in the digitisation of services. The Spanish Santander Consumer Finance has also invested in our neighbouring market, having a portfolio in Europe that exceeds 800 billion in consumer and business loans while being very active in Greece in the financing of car purchases.

With an eye on Cyprus

The Cypriot banking sector has also attracted investor interest. The purchase of 29.2% of Hellenic Bank by the Eurobank Group is considered to be a very important move that gives a vote of confidence to both the Cypriot banking system and the Cypriot economy more broadly. Recently, the same Group entered into binding agreements to increase its total percentage to 55.3%, which makes it the main shareholder, with the obligation to submit a Public Offer for all Hellenic shares once the transaction receives the relevant approvals and is completed, something which is expected in the first months of '24. The more active involvement of the Greek group in the Cypriot banking system, where it has already been active since 2007 through Eurobank Cyprus, expresses the strategy to consolidate its presence in key foreign markets, while also being consistent with Frankfurt's stated desire for a smaller and stronger banking sector in the member states.

In the same vein, in the previous months, AstroBank came close to acquiring CDB, a move that, although it did not bear fruit, indicated the bank's orientation towards further strengthening itself and expanding into business loans, but also the shift of the sector as a whole towards mergers and stronger organisations. The latter element was also pointed out in a CNA interview with Andrea Enria at the beginning of the year following his visit to Cyprus, which saw him positioning himself in favor of cross-border mergers: "Mergers are an important tool that European banks can use because they are the most transformative opportunity for business models. So, to make the business models more profitable, generate more capital, and put banks on a steadier course going forward," he said.