The economics of greek banks’ internationalization in the south east european transition economies

Abstract

This thesis deals with the economics of Greek banks‟ internationalization. The analysisfocuses on specific aspects of Greek banks‟ expansion over the previous decade, aperiod to which little attention has been paid by the pre-existing literature. Seven Greekbanks expanded into the transition economies of South Eastern Europe (SEE), namelyAlbania, Bulgaria, FYROM, Romania, and Serbia, from 2000 to 2009. As a result ofthis expansion, all multinational Greek banks have managed to gain significant shares inthe SEE banking market. The size and pattern of this expansion is analyzed in variousparts of the thesis.The determinants of Greek banks‟ expansion in SEE are examined in theEclectic Paradigm nexus. Considering the expansion in this nexus, the extent to whichGreek banks followed their home customers abroad from 2000 to 2007 is highlighted.Rejecting the “follow the customer” hypothesis for the specific period, the econometricresults provide interesting findings regarding the validity of the three sets of advantagessuggested by the Eclectic Paradigm. Regarding ownership advantages, Greek banks‟intangible assets are found to be more significant than the respective tangible ones,while location advantages exhibit the highest significance among all sets of advantages.More specifically, favorable host country economic and regulatory conditions are foundto have affected significantly Greek banks‟ decision to invest further in the lessdeveloped economies of SEE. Moreover, similarities between host and homegovernance conditions, captured in a unique way in this thesis, are also proved to havebeen a significant factor of Greek banks‟ expansion. Lastly, regarding internalizationadvantages, this analysis casts doubts on the validity of the specific set of advantages. Inreality, it seems as though Greek banks expanded into SEE economies in order to followprofit opportunities, rather than simply to follow their home customers abroad. This thesis also examines the impact of the expansion of Greek banks in the SEEon the host economies. For the needs of the analysis, the ways in which Greek banksaffect the host economies indirectly are considered, mainly through two channels; thebank lending channel (BLC) and the resource allocation channel. The role that Greekbanks have played in the BLC of the domestic economies and in domestic creditstability, along with the contribution of Greek banks to domestic resource allocation,appears to have been crucial for the economic growth of SEE.A descriptive analysis illustrates Greek credit supply and credit stability in thehost economies. Also, the response of Greek banks to adverse host conditions and thetransmission of home adverse conditions to the five transition economies are illustratedthrough a panel of “crisis windows”. A “pull – push factors” descriptive analysisindicates that Greek banks did not respond significantly to non-monetary host shocksbetween 2000 and 2009. Regarding push factors, the research revealed that the onlynegative shocks (generated back in Greece) that Greek banks have transmitted to theSEE economies have been over the last two years of the sample period. This analysisprovides evidence in support of Greek banks‟ role in domestic credit volatility, andtherefore, in credit stability. The issue is further examined econometrically in thespecific context of BLC.In order to examine the role of foreign participants in a domestic BLC, theoperation of such a channel operating in this region is initially tested. The VAR autorecursivemodel and the respective variance decomposition analysis indicate an activeBLC and the beneficiary role of the Greek banks in buffering the negative effectsrelated to a tightening monetary policy. Controlling for demand factors, the workindicates that the decline in credit supply during periods of monetary tightening was driven by the weakness of banks to provide credit rather because of reduced creditdemand.Greek banks, apart from being a credit stabilizer for the five host transitioneconomies, have played an equally beneficiary role in the resource allocation in thedomestic economies. In particular, the extent to which Greek banks have stimulated thereallocation of domestic capital thereby enhancing domestic output growth, isexamined. By employing interactive terms in a fixed effects OLS econometric analysis,results indicate that Greek banks have stimulated economic growth in SEE by supplyingcredit in the region. Not only was it discovered that competition in domestic bankingsystems, being intensified by Greek banks‟ penetration, is positively related to hostoutput growth, but that Greek banks enabled a more efficient reallocation of host capitaland in so doing, stimulated host output growth.In addition to filling a gap in the existing literature of Greek internationalbanking, this thesis also provides an analytical framework for policy makers in order toevaluate the openness of the domestic financial systems in emerging economies. It mayalso serve policy makers as a guide for encouraging the participation of foreign bankinginstitutions in their domestic markets