VIII. TRADE AND PROJECT FINANCING The Banking System The Greek banking industry is dominated by a few state-controlled banks, but has also a number of competitive and generally profitable private Greek and foreign banks. The banking and financial sectors have been liberalized considerably since 1987 primarily because of directives from the European Union (EU), and are basically free of state interference. The state-controlled banks and specialized financial institutions together control 77 percent of deposits and 75 percent of loans. Foreign-owned (including other EU-based banks), control 12 percent of deposits and 13 percent of loans. Greek-owned private banks have the remaining 11 percent of deposits and 12 percent of the loans. In the absence of a more developed money market, banks constitute the main source of finance. Bond and equity markets are still underdeveloped but the Greek Government has initiated legislation to encourage their growth, including a venture capital market. Capital market growth has been hampered by the predominance of small, family-owned firms, and the tendency to invest in real estate and government bonds, or hold savings in bank deposits. The establishment of a foreign bank in Greece must be approved by the Central Bank. Foreign participation in the capital of a Greek bank cannot exceed 40 percent. This limitation does not apply to banks of EU countries. Although there is no doubt that EU Single Market legislation and banking directives have contributed to the liberalization and deregulation of the Greek banking industry, American bankers point to some single market rules as favoring EU-based banks over banks based outside the EU. The Bank of Greece, which is the central bank, has the exclusive right to issue paper currency. It acts also as the depository for government accounts and for mandatory deposits by commercial banks and legal entities. The bank acts as a financial and fiduciary agent for the government's monetary policy decisions. It also supervises the commercial banks and establishes ceilings on specific types of credit. Interest rates are freely determined by credit institutions. The Bank of Greece influences interest rates by regulating liquidity through manipulation of the discount rate and other rates in the interbank market. Checks are used for commercial transactions, but usage is still limited. Credit cards are widely available. Most of the liabilities of the commercial banks are in the form of savings deposits. The majority of bank loans are short and medium term and only one-fifth are long-term. Foreign exchange controls have been progressively relaxed since 1985. Medium and long-term capital movements have been fully liberalized. Remaining controls on short-term capital operations for Greek residents were lifted as of May 16, 1994. This brought Greece in line with EU rules on free movement of capital but some bureaucratic obstacles still remain. Greek capital markets allocate credit on market terms and a sound business has no problem with financing availability. Interest rates, however, are extremely high, currently 35 percent. The Greek banking system consists of a central bank, 42 commercial banks, 3 investment banks, 3 specialized banks, the postal savings bank and the Consignments and Loans Bank. Twenty- two of the commercial banks are foreign, five of which are American. Of the Greek commercial banks, the largest is the National Bank of Greece, which accounts for about 45 percent of the country's banking business. Following is a list of Greek commercial banks with correspondent U.S. banking arrangements in New York: National Bank of Greece: The Atlantic Bank of New York, Chase Manhattan, Citibank, Chemical Bank Ionian Bank: Chase Manhattan, Banker's Trust, American Express, Bank America International, Citibank, Chemical Bank Bank of Attica: Bank of New York Bank of Piraeus: Bank of New York Commercial Bank: Chemical Bank, Bank of America International, Chase Manhattan, Citibank, Banker's Trust Credit Bank: Bank of New York, Banker's Trust, Bank of America, Chase Manhattan, Chemical Bank, Citibank, Morgan Guarantee Trust Bank Ergo bank: Banker's Trust, Bank of New York, Citibank, American Express Egnatia Bank (Thessaloniki): Bank of New York Eurobank: Banker's Trust European Popular Bank: Marine Midland Bank General Hellenic Bank: Bank of New York Macedonia-Thrace Bank: Atlantic Bank of New York, American Express, Bank of New York, Chase Manhattan, Continental Bank, Citibank, Fidelity Bank Xiosbank: Citibank Most of the current infrastructure projects in Greece are financed by the EU (approximately $20 billion in the 1994-99 period). Occasionally, the European Investment Bank participates in the financing. EXIMBank's exposure is extremely limited. OPIC has not been active in Greece but recently initial discussions with its Greek counterpart have been held on the possibility for the creation of a joint fund for risk insurance in the Balkans and East and Central Europe.