Euro and profitability of Greek banks

Abstract

The Greek Banking System, in its effort to prepare itself for the changeover to the EURO, will face some initial costs. Being the basic institution of money distribution, this changeover will impose a heavy burden on banks. In addition to the costs that banks will sustain, they will derive new benefits. The impact of the EURO on Greek Banks is explained through a cost-benefit analysis, by providing a perspective of the anticipated costs, benefits and outcome. The primary objective of this paper is to examine the costs that will arise from this changeover and the benefits that will be produced, as explained by the change in the bank profits. The study results consider the existence of two projects: one without the introduction to EURO and one with the introduction to EURO. We proceed through an incremental method to determine when profits will be produced. To further demonstrate this, we have calculated the NPV of the introduction to the EURO by considering the year 2002 as the basic year. The analysis shows that during the period 2002 - 2007 banks will face a loss in their bank profits. Further analysis indicates that profits will rapidly show increases in the long-term period. Therefore, the changeover to the EURO will probably be very lucrative for the banking system of Greece and the economy in general over the long-term.