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DEVELOPMENT BANKING IN GREECE 1963-2002<br />
Table 4: Return on equity: summary statistics<br />
ETEBA Investment Bank ETBA<br />
1964-74 1975-86 1987-2001 1963-74 1976-86 1987-97 1967-74 1975-86 1987-2002<br />
Mean 0.06 0.14 0.20 0.06 0.004 -0.72 0.02 0.02 -0.47<br />
Median 0.05 0.14 0.18 0.06 0.02 -0.32 0.01 0.01 -0.21<br />
Std. Dev. 0.04 0.03 0.10 0.07 0.09 1.51 0.02 0.02 0.66<br />
Min. 0.01 0.08 0.08 -0.07 -0.24 -3.67 0.00 0.00 -1.93<br />
Max. 0.13 0.20 0.43 0.15 0.11 1.47 0.04 0.08 0.10<br />
Other interesting measures of performance are the net profit margin and the gross<br />
profit margin (Jain, 1989) 8 . To calculate this indicator we first obtained the average cost<br />
of debt (ACD) by dividing financial charges by total borrowed funds. Then, subtracting<br />
the ACD from the ROEA (net profits plus financial charges over loans and securities<br />
held), we obtained the average net profit spread or net profit margin (NPM) in percentage<br />
terms. On the other hand, gross profit margin is obtained by adding to the latter<br />
the operating expenses ratio (OER) which in our case is the ratio of personnel charges<br />
over earning assets. Hence, the two margins were calculated as follows:<br />
NPM = ROEA−<br />
ACD<br />
GPM = NPM + OER<br />
Figure 5 shows that ETEBA was the only bank that maintained a positive gross<br />
profit margin for the whole period of its operation. However, this margin decreased<br />
from 0.04 (4%) in 1965 to 0.01 (1%) in 1968 and remained at this level for most of the<br />
period until 1979. ETEBA shows a rising trend in its gross profit margin, reaching 0.08<br />
(8%) in 1986, while from 1987 onwards gross profit margin falls and remains close to<br />
0.03 (3%). On the other hand, Investment Bank’s gross profit margin is positive only<br />
during the period 1965-74 and for 1992, while it remains close to zero until 1989 with<br />
fluctuations. Subsequently, it follows a falling trend until 1992 when it again reaches a<br />
positive value. The situation is even more blurred for ETBA, which exhibits quite large<br />
fluctuations. It has positive margins for the years 1975 (0.01 or 1%), 1992 (0.27 or 27%)<br />
and for the period 1982-89, when it fluctuates between 1% and 5%.<br />
8 Jain (1989) calculates the ratio net profit margin as the gross profit margin minus the operating<br />
expenses ratio or<br />
, while gross profit margin is obtained by subtracting<br />
the average cost of debt from the average return on the loan portfolio. However, since<br />
we do not have data on the rates of return on loan portfolios, in our paper we will obtain indirectly<br />
the gross profit margin using Jain’s (1989) relationship as<br />
, but we<br />
will calculate the net profit margin as the difference between the return on earning assets<br />
(ROEA) and the average cost of debt (ACD). We think that our approach follows the spirit of<br />
Jain’s (1989) definitions to the extent that the ROEA does not include operating expenses and<br />
hence qualifies for a measure of a profit margin net of such administrative expenses.<br />
~ 239 ~
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