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National Bank of Greece, the oldest and largest among Greek banks, heads the strongest financial group in the country. It boasts a dynamic profile internationally, particularly in Southeastern Europe and the Eastern Mediterranean.
National Bank of Greece (NBG) has been a focal point of Greek business and financial life almost from the time it opened in the spring of 1841. Beginning as a private discount and mortgage bank, it soon gained prominence and became the sole issuer of bank notes. It was forced to relinquish that role in 1928 with the establishment of the Bank of Greece, but it has remained Greece's largest financial institution. Currently NBG operates more than 600 branches in 16 countries on four continents; it also has some 35 subsidiaries. At the end of the 20th century, NBG began a push to dominate the banking market in the Balkans, including Yugoslavia, Albania, and Bulgaria. By the end of 2000, the bank estimated that it controlled roughly 40 percent of all deposits and an equal percentage of loans outstanding to Greek households.
19th Century Origins
When NBG was founded in March 1841, Greece had only been a free state for about a dozen years. For nearly four centuries, Greece had been part of the Ottoman Empire, but in 1821 the Greeks began a fight for independence that lasted until 1829. After Greece won its independence, it set about creating government and administrative institutions. Although NBG was not created as the nation's central bank, it grew steadily after its founding and played a prominent role in Greek finance throughout the 19th century.
Within a short time after its founding in 1841, NBG began to expand its services beyond basic commercial banking. Eventually, NBG became involved with agriculture, transportation, and real estate. It developed an agrarian credit program and was given the right to invest capital in Greek industries. Occasionally, the bank would issue public loans and even participate in various public works. Most important to NBG's influence, however, was that it was the only bank in Greece authorized to issue bank notes.
Greece during the 19th century was not a particularly calm and stable place. Greece borders the Aegean Sea, the outlet for the Black Sea that is Russia's only link to the Mediterranean. Although the country became a constitutional monarchy in 1845, the king, Otto I (son of Bavaria's Ludwig I) was hardly popular. His rule was despotic, and he involved Greece in the Crimean War during the 1850s. Eventually he was deposed and the crown was offered to the Danish Prince William, who would become George I. There were other clashes with the Ottoman Turks during these years, and the British Empire and France in particular still held considerable sway over the country's politics. Institutions like the National Bank of Greece were important to the country not only for the obvious services they performed but because they also had a stabilizing effect.
Through the 19th and early 20th centuries NBG continued to grow. In 1880, the Athens Stock Exchange was established, and NBG was one of the first companies listed. NBG also began to acquire other banks, such as the Privileged Bank of Epirothessaly in 1899 and the Bank of Crete in 1919.
The World Wars Shape Greece
Since gaining independence, Greece had gradually been gaining territory through a series of uprisings culminating with the Balkan wars that occurred just before the outbreak of World War I. Greece, one of the Allied nations, benefitted considerably when the war ended; when the boundaries of Europe were redrawn, Greece had nearly twice as much land as it did before the war. Some of those gains were reversed when Turkish nationalist forces under Mustafa Kemal recaptured parts of Asia Minor, including the port city of Izmir (Smyrna). The boundaries of modern Greece were established definitively by the Treaty of Lausanne, signed in 1923. By now, NBG was a powerful force in Greek life, both political and financial.
The League of Nations, which had been formed after World War I, believed that NBG's position as both a commercial and state bank was untenable. In fact, the League said, this arrangement left open too many possibilities for conflicts of interest. In accordance with the League's policies as outlined under the Geneva Protocol, Greece agreed to establish a new state bank. The Bank of Greece was thus established on May 15, 1928. Assets in the form of gold and government debt were transferred to the new bank, as were liabilities, primarily in the form of government deposits.
Events of the 1930s had a profound effect in every corner of the world, beginning with the Great Depression and continuing with the unrest that led to World War II. By 1939, war seemed inevitable, and even established institutions such as NBG were subject to the fears of Greek citizens. A run on commercial banks began in the summer of that year; between July and September notes in circulation increased from eight to ten million drachmas. The Bank of Greece acted by making more cash available to the commercial banks to meet their obligations. This calmed the public and the bank run subsided.
In October 1940, Italy attacked Greece after the Greeks refused to cede parts of the country over to Mussolini's Fascist dictatorship. Thanks in part to the British government, which honored an earlier commitment and made significant loans to Greece, the economy managed to remain relatively stable. Moreover, the Greeks were doing quite well in keeping Italian forces at bay. Overall, 1940 proved to be a year of relative financial calm for Greece.
All that changed in April 1941, when Germany decided to attack Greece. Within a month, the Germans had taken Athens. At that point NBG had just turned 100 years old. The Greek government, including the royal family and the Governor of the Bank of Greece, went into exile. The Bank's gold and foreign exchange reserves were taken to Egypt and transferred to the South African Reserve Bank in Pretoria for the duration of the war.
The war ravaged Greece as it did all of Europe, and by its end in 1945 the economic infrastructure had to be rebuilt. The government-in-exile returned to Greece in 1946, along with the country's gold and foreign reserve supplies. International agencies such as the United Nations Relief and Rehabilitation Administration (UNRRA) and private charities helped get Greece and other countries on its feet; moreover, the British Government dropped all claims to the loans it had made to Greece in 1940. However, industrial output was roughly at one-third what it had been before the war, and bank deposits in real terms were at one-thirtieth what they had been in 1939. The Greek government created the Currency Committee, whose members included the Minister of National Economy, other government ministers, and the Governor of the Bank of Greece. All monetary, credit, and foreign exchange policy was set by the Currency Committee.
Postwar Gains and Drawbacks
Despite the Bank of Greece's prominent role, NBG was still the largest commercial bank in the country, and its role remained significant. In 1953, NBG merged with the Bank of Athens and briefly changed its name to the National Bank of Greece and Athens (the NBG name was restored in 1958). By the mid-1960s, NBG accounted for roughly two-thirds of all commercial bank deposits, as well as industry and trade financing.
In the years following World War II, however, the Greek government had been unstable. Communist forces had tried to overthrow the monarchy in the late 1940s but were defeated. All through the 1950s and 1960s, the government was divided into factions supporting communism, royalism, and the growing right wing. This right wing, in the form of a military junta, overthrew the monarchy in April 1967 and established a dictatorship led by Colonel George Papadopoulos. Although some would later suggest that the dictatorship was actually beneficial to the economy, in fact it served to divide the various factions even more sharply. Although the junta established Greece as a republic in 1973, it continued to rule until July 1974 when it was forced out and democratic civilian government (though not the monarchy) was returned.
Reaching from Past to Future
In 1977, NBG formed a committee to work on a project not commonly embarked upon by banks: the creation of a comprehensive Historical Archives Unit. From its founding, NBG had kept historical archives. Realizing the historical and research value of these archives, NBG had begun to compile historic documents for a central archives department years before, in 1938. The outbreak of war in 1941 suspended activity on the archives project, and it was revived in 1962, only to be suspended once again when Papadopoulos seized power in 1967.
This time, NBG created a committee including senior bank officials and historians to create and maintain its archives, as well as to establish a Historical Research Program on Economic History. The goal of this committee was to acquire, compile, and preserve all historical documents from NBG's founding, the records of banks and other companies that were merged with or acquired by NBG, and the personal archives of NBG's top officials. The original documents continued to be both preserved and microfilmed.
Building the Modern Bank
In the 1970s and 1980s Greece went through a transition to mainstream democratic government. The conservative New Democracy party held control until 1981, when the Panhellenic Socialist Movement (Pasok) gained control and elected Andreas Papandreou prime minister. Papandreou, an economist, favored a strong socialist agenda including universal health care and a pension system. The government borrowed heavily to finance its goals and inflation rose dramatically. By the end of the decade the Pasok government had fallen out of favor and the New Democrats were voted back in.
One of the most important decisions Greece had to make during this period was whether it wanted to be part of the European Monetary Union (EMU). To do this would mean that the Greek government would have to put its economic house in order.
During this time NBG continued to pursue a strategy of growth and diversification. It purchased several companies, established others, and consolidated its holdings. The company also embarked on a restructuring and modernization program. This included merging the bank's two mortgage companies, absorbing the National Mortgage Bank of Greece, merging the bank's four insurance companies into one unit, and divesting itself of assets it deemed non-core. NBG also worked to reduce the number of nonperforming loans; the number of new nonperforming loans was down to 0.19 percent by the end of 2000.
In addition, NBG enhanced its technological infrastructure, thereby streamlining operations and making it easier for the bank to be a truly global presence. NBG was one of the first Greek banks to offer its customers Internet banking. In October 1999, NBG became the first Greek bank (and only the second Greek company) to list on the prestigious New York Stock Exchange.
NBG, viewing the Balkans as an important strategic market, began acquiring stakes in regional banks. In the words of the bank, it wanted to take "a decisive step toward transforming itself from the Bank of 11 million Greeks to the Bank of 60 million inhabitants of the Balkans." In 2000 it acquired a 65 percent stake in Stopanska Bank A.D., the largest commercial bank of the former Yugoslav republic of Macedonia; as well as an 89.89 percent stake in United Bulgarian Bank, one of that country's largest. By the beginning of the 21st century, NBG had established a presence in 16 countries on four continents, including offices in major internal banking centers such as New York, London, and Frankfurt. Domestically, the bank had more than 600 branches by the end of 2000, as well as more than 840 ATM machines.
Entry into the European Monetary Union meant a greater global presence for NBG, but it also meant more competition from other banks in Europe. NBG's push toward modernization, greater profitability, and improved customer service was designed both to bring in new customers and to maintain the seven million deposit accounts and one million lending accounts the bank had as of early 2001.
Principal Subsidiaries: Atlantic Bank of New York (U.S.; 99.92%), Banque Nationale de Grece (France), National Bank of Greece (Canada), NBG Balkan Fund, NBC Finance PLC (U.K.), Ethniki Mutual Fund Management, S.A., NBG Venture Capital, Ethniki Leasing, Stopanska Banka A.D.-Skopje (65%), United Bulgarian Bank (89.89%).
Principal Competitors: Alpha Bank, Commercial Bank of Greece, Credit Agricole.