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DEVELOPMENT BANKING IN GREECE 1963-2002
whole period, initially by 17% during 1965-74 and 1975-86 and subsequently by
60% when moving on in the liberalization era. Solvency was certainly a problem
for all banks during the crisis years when they all maintained high loss ratios of
about 0.05-0.07 on average. Furthermore, solvency seems to have preoccupied
ETEBA’s management
during the liberalization era, as expected, because of the higher risk in its operation,
which justified average ratios of about 0.07, similar to those of the crisis
years (although median values are much lower). The puzzling issue, however, is
the reverse trend in both average and median values of loss ratios for ETBA, especially
during the deregulation period when the average value was only 0.02
with very small variability, although the same ratio is fairly stable between 0.06
and 0.05 during the two previous periods.
Table 7: Loss ratio: summary statistics
ETEBA Investment Bank ETBA
1964-74 1975-86 1987-2001 1963-74 1976-86 1987-97 1965-74 1975-86 1987-2002
Mean 0.03 0.07 0.07 0.02 0.07 0.06 0.06 0.05 0.02
Median 0.04 0.07 0.02 0.02 0.07 0.06 0.06 0.06 0.01
Std. Dev. 0.02 0.03 0.07 0.01 0.02 0.04 0.01 0.01 0.01
Min. 0.00 0.04 0.01 0.00 0.05 0.01 0.04 0.03 0.00
Max. 0.05 0.12 0.17 0.03 0.09 0.11 0.07 0.07 0.05
An indirect measure of the degree to which the banks could service their obligations
is the average cost of debt. We have seen this measure when calculating
the net and gross profit margins. However, a separate examination of this ratio is
interesting, especially in terms of the comparison of the cost of debt from various
sources between banks and between periods.
The average cost of debt (ACD) (Jain, 1989) is obtained by dividing the financial
charges by the total borrowed funds. However, in our case the variable ‘debt’
includes only long-term borrowing plus bond issues while the numerator pertains
to total financial expenses. Hence, this measure is an approximation of the average
cost of debt.
Figure 8 shows the evolution of the average cost of debt over time.
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