New company must halt deposit flight

WHILE European leaders spent a day fulminating about IMF chief Christine Lagarde’s call for the region’s banks to raise more capital, the banks themselves were simply getting on with the job.

Keen to avoid tapping the state for cash, EFG Eurobank and Alpha Bank have agreed a tie-up that will create a lender with 1,300 branches in eight countries.

Investors went wild, pushing the sectors’ shares up by around a fifth – and it’s not hard to see why. After months of prevarications from Eurozone leaders, it’s refreshing to see the private sector in the region’s most dilapidated economy take responsibility for its own capital holes.

But the celebrations look premature. Under the headline announcements of the merger in both banks’ results yesterday were some gloomier figures: they are both haemorrhaging deposits.

Eurobank reported that its deposit base has shrunk by 13.3 per cent, or €5.4bn, in the last year, while Alpha Bank has seen €6.2bn, or 15.6 per cent of its despoits, flee out the door.

The banks say that the merger will deliver “an improved ability to gather and retain customer deposits” that will help to deliver €210m in reduced annual funding costs.

Even if the merged banks deliver on this promise, the experience of its stronger rival, National Bank of Greece, suggests that the best they can hope for is to slow the capital flight: it saw deposits shrink four per cent in the year to March.

And ultimately, the banks’ success will depend on what it is that depositors are fleeing: the prospect of a bank nationalisation or the stricken Greek economy.