The financial sector's importance in Greece surpasses its proportional contribution to the country' s GDP, which in 1990 stood at about 3 percent. Besides its traditional functions in collecting savings and reallocating them by lending, the financial system in Greece, as in many advanced countries, has begun to perform a variety of other services such as underwriting new security issues, corporate services for acquisitions and restructuring, wealth and portfolio management, and leasing. In the early 1990s, the capital market for securities also has grown quickly, and the volume and frequency of transactions on the Athens Stock Exchange have multiplied.

The bulk of the financial flow in the Greek economy always has moved through the banks. The banking system consists of three kinds of institutions. One is the central bank (the Bank of Greece), which manages and controls the country's money supply and its exchange rate with other currencies. The bank accomplishes these tasks mainly by regulating the liquidity of other banks and by direct interventions in money markets (including the foreignexchange market). It is also the main supervisory agency for the quality of commercial bank portfolios, and the protection of the monetary system against bank failures. In line with requirements of the 1992 Maastricht Treaty, which standardized the financial organizations of EU member countries, the Bank of Greece must become independent of the government, and the bank must enforce strict limits on government use of the money supply as a source of loans. European central banks also will be jointly responsible for the management of the projected European common currency.

Commercial banks are a second type of financial institution in the Greek system. They are deposit institutions that traditionally have engaged in commercial and industrial lending. More recently, Greek commercial banks have expanded their operations to provide a wide range of wholesale and retail banking services. Their loans include commercial, industrial, consumer, and mortgage credits. They issue credit cards and travelers' checks, buy and sell foreign exchange, and issue letters of credit. They directly engage in securities underwriting. Through their subsidiaries, they also offer brokerage services and own mutual funds of Greek and foreign securities.

A third class of institution is the "specialized credit institution" such as investment banks, the Agricultural Bank of Greece, mortgage banks, and the Postal Savings Bank. The traditional role of these institutions was to offer credit in specifically designated areas. However, banking liberalization and European policies on a unified banking market have forced specialized institutions to diversify their operations. In the 1990s, specialization in a particular area must be determined by market conditions rather than by legislative constraint. The prime example of this change is the Agricultural Bank, which was legally restricted to granting agricultural credit, distribution of which it in turn monopolized. In 1991 the Agricultural Bank became a full-fledged commercial bank, at the same time that other commercial banks were allowed to enter the agricultural credit market. The same conversion occurred with mortgage and investment banks.

Commercial banks operating in Greece include both domestic and foreign institutions. The number of such institutions is constantly increasing. In 1992 twenty-two Greek and eighteen foreign banks were in operation. The foreign banks, which operate in Greece through locally established branches, control about 10 percent of assets and deposits in the Greek banking market. Among Greek banks, the Bank of Greece is by far the largest institution, controlling 29 percent of banking assets and 37 percent of deposits in 1991. The largest among the foreign banks is the New York-based Citibank, which in 1991 controlled about one-quarter of the assets and onethird of the deposits held by foreign banks in Greece.

A number of Greek credit institutions are either directly or indirectly controlled by the state. Some, such as the Industrial Development Bank of Greece, are 100 percent state-owned. A majority interest in others, notably the two largest commercial banks, the National Bank and the Commercial Bank of Greece, is held by employee pension funds that traditionally have been managed by the state. Recent changes in legislation seek to moderate state control by granting a degree of self-management to employee pension funds, and shares in the banks are now traded on the stock exchange. Smaller subsidiary banks, such as the medium-sized Ionian Bank of Greece, are owned by the Commercial Bank of Greece and the National Bank of Greece.

The major assets of commercial banks traditionally included credits and loans to the private sector. Since the late 1980s, however, the heavy borrowing requirements of the state have altered the portfolios of bank assets. Roughly one-third of their assets now are made up of government securities, equal to the share devoted to loans and security holdings of the private sector. The liabilities of commercial banks continue to be dominated by private deposits.

Since 1987 the Greek banking system has undergone almost complete liberalization. Interest rates are now set by market conditions, quantity controls on credit have been long abolished, foreign-exchange transactions and capital movements have been deregulated, and restrictions on entry into banking have been removed. In the implementation stage in 1995 were EU directives on the freedom of bank establishment among member countries, on the free provision of financial services across frontiers, and on common standards for capital adequacy. In short, banking is becoming a modern and very competitive business in Greece.

The Athens Stock Exchange (ASE) has also undergone significant modernization and revitalization since 1987. Legislation enabling the formation of brokerage firms and their participation as members of the exchange, the introduction of an automated trading system, and the establishment of a Central Securities Depository have been the main institutional changes of recent years. In 1993 market capitalization of the shares listed was US$13.5 billion, and the total value of market transactions was US$2.8 billion. Between 1990 and 1993, fifty-seven listings were added, bringing the total number of companies with listed stocks to 150. New capital raised in 1993 through stock issues amounted to US$436 million. Plans call for enhancement of stock-exchange operations by linking of the Athens exchange with peripheral terminals such as Thessaloniki and by encouraging foreign companies--most notably those in the Balkans--to list their shares on the exchange.

In the mid-1990s, government policies in the financial area are mainly directed to the maintenance of competition in banking, and to further strengthening of the role of the stock exchange. The new competition in banking is manifested mainly in the appearance of new products and services such as automated teller machines, whose introduction by market leaders soon forced most banks to follow suit. An initiative has been adopted to establish an automated interbank clearing and payments system in Greece.

The exchange rate of the Greek unit of currency, the drachma, has undergone gradual devaluation (called a "managed float") since 1987 (see Wages, Prices, and Inflation , this ch.). In mid-1994, elimination of Greece's short-term capital movement restrictions and a decisive defense of the currency by the large Greek banks deflected speculation on the drachma that could have resulted in sudden devaluation.

Data as of December 1994

NOTE: The information regarding Greece on this page is re-published from The Library of Congress Country Studies and the CIA World Factbook. No claims are made regarding the accuracy of Greece Banking and Finance information contained here. All suggestions for corrections of any errors about Greece Banking and Finance should be addressed to the Library of Congress and the CIA.