Banking Development and Economy in Greece: Evidence from Regional Data

Christos Floros

doi:10.3390/jrfm13100243

Abstract

This article examines the development of Greek systemic banks for the period 2003–2018, using data such as the ATM network and branches at a regional level. We test the impact of the ATM network and branches on the deposits of Greek commercial banks as well as the impact of local GDP on the regional banking efficiency. The analysis is carried out in two steps, (1) we use the Data Envelopment Analysis (DEA) for efficiency analysis, and (2) we use panel regression models for regression analysis. The results show that branches that operate at small regions are less efficient than those of the larger regions. Furthermore, both the ATMs and the number of branches have a positive relationship with deposits. This means that banks must continue to operate branches and ATMs in Greece. Finally, we show that local GDP helps significantly in increasing regional banking efficiency. The above findings are important given the need to support the local economy with modern banking services in Greece.

Highlights

The Greek economy has faced several problems after the 2008 financial crisis. Stournaras (2019) explains that the Greek crisis1 has taken a heavy toll on output, incomes and wealth; he reports a high public debt ratio, a high non-performing loans (NPLs) ratio, and high long-term unemployment
The results show that local GDP helps significantly in increasing regional banking efficiency in Greece
The Greek economy as well as the Greek banks have been operating in recent years in a highly competitive environment despite the financial problems caused by the 2008 financial crisis

Summary

Introduction

The Greek economy has faced several problems after the 2008 financial crisis. Stournaras (2019) explains that the Greek crisis has taken a heavy toll on output, incomes and wealth; he reports a high public debt ratio, a high NPL ratio, and high long-term unemployment. We examine the effect of number of ATMs and branches on deposits at the regional level, and the impact of regional GDP on banking efficiency. The research is based on regional bank and economic data for the period 2003–2018 This is an important period for the Greek economy as it includes: (1) the period before and after the 2008 financial crisis, and (2) the imposition of capital controls in Greece in 2015. The development of any financial system, including banks, shows a positive effect on economic growth, see Williams and Gardener (2003) They argue that European financial deregulation aims to increase GDP4 and raise bank productive efficiency through scale economies resulting from financial sector restructuring We test whether bank efficiency, estimated at regional level, significantly spurs growth using regional GDP (see Hasan et al 2009) Both papers consider GDP as a key regional economic variable.

Literature Review

Banking Efficiency

Measuring Efficiency with DEA

Panel Regressions

Panel Data Results

Summary and Conclusion