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19/03/2018 10:59:43 AM

THE GREEK FINANCIAL SYSTEM

The intervention of the Greek government by strict management and restriction in the banking system had brought a negative impact. Greece was isolated with other EU countries in the competitive banking scenario until the early 1980s. According to Chatzoglou, Diamantidis & Vraimaki (2010), under a numerous of legislation of the state control, there was a direct influence on the ranges of price and the relative inefficiency of finance system. In the late 1980’s, for the purpose of improving the strength and competitiveness of the domestic banks in the globalization trend in banking sector, the deregulation of banking system had put into application in Greece. The restriction on direct credit was eliminated, so the structure of the Greek financial institutions and their financial services were adjusted. In addition, the technology, which has developed quickly, has been applied efficiently in the banking sector and the number of off-balance sheet transactions have increased. These lead to the liberalization of Greek banking system. Since the last decade, Pasiouras (2012) emphasized that under the mergers and acquisitions activity, domestic and international banks were merged on the way to become a part of larger-sized of the financial markets. Through mergers and acquisition activities, the Greek banking system has also been reconstructed (Tsolar & Charles 2015). Those M&A activities had not only positive effects but also negative influences on the growth of the Greek stock market.

Over the period from 1997 to 2009, although there was a significant increase in stock market capitalization, the Greek economic growth was still lower than the average growth recorded in EU countries, at 46% compared to 76% respectively. In addition, Greece also experienced a significant increase in the number of bank branches by near 1500 (Pasiouras 2012). During the same period, in other euro countries, there was a mixed influence of banking sector. Due to the decrease in the number of bank branches, some countries like UK and Germany experienced a slow economic growth. However, at that time, the growth in France and Portugal were stable as the result of increasing in number of bank branches.

In the Greek financial system, non-banking institutions such as mutual funds, investment firms and insurance funds have accounted for a small proportion while banking institutions have had considerable contribution. On the other hand, the amount of total assets managed by the investment funds had significant development from 8.4 billion euros in 1997 to a peak at 23.3 billion euros in 2005. However, in the next few years, the operation of investment funds could decline steadily due to the financial crisis. According to Pasiouras (2012), during the period from 1998 to 2009, the Greek average economic growth was stable before increasing by 6%. He also pointed out that there was a significant amount of growth in Athens stock exchange (AXS). From this point, the AXS not only get a worldwide standard, but also exceeded other EU countries.

Although insurance, stock exchange and investment have took into account a large proportion in the growth of the banking as well as become more and more important, they still kept a small part of GDP in comparison with other EU countries. 

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