BMI's Executive Summary

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From Q108 we will be calculating the Commercial Banking Business Environment Rating (CBBER) for each of the countries surveyed by BMI. This will permit a more systematic and comprehensive comparison of the conditions within the banking industries of the various countries than was possible in the past. For each country, it will also facilitate a comparison of the conditions within the banking sector and conditions prevailing in other sectors.

Greece's overall CBBER is 69.1. The equivalent figures for the US and the eurozone are 84.8 and 81.4, respectively. Greece's CBBER is the highest of all the countries we monitor in Central and Eastern Europe.

Within the CBBER, the most important aspect is the (banking) market element of the limits of potential returns. This element accounts for 42% of the overall CBBER. Greece's rating for this element (69.4) is slightly higher than the overall CBBER and the country element of the limits of potential returns (64.0). Greece's banking sector is well developed, with large total assets and expectations of strong growth in total assets and client loans during the 2007-2012 forecast period.

Nevertheless, the CBBER shows that Greece's banking sector is being held back by country risk factors. While GDP per capita is the highest in the region, the country is subject to GDP volatility and suffers from high corporate taxation.

Despite slowing over our five-year forecast period, economic activity will remain buoyant over the medium term. However, structural reforms are crucial if Greece is to sustain economic growth above the EU average over the longer-term.

Greece's attempts to revise up its GDP figures for the 2002-2006 period have largely been rejected by Eurostat, the EU's statistics agency. However, this does little to alter the medium-term outlook for the economy, as crucial structural issues still need to be addressed. Indeed, if the proposed revision had been approved, it would have burdened Athens with a greater financial obligation to the EU as Greece would have become a richer EU member, meaning that the new figures may have in fact been a net negative for the economy.

Greece had sought to restate its GDP to include parts of the black economy, estimated to be around 30% of the country's EUR210bn output, in order to improve some of its key economic ratios. However, Eurostat approved only one-third of the proposed measures, meaning that ratios currently under EU scrutiny, such as the budget deficit and debt-to-GDP ratio, are unlikely to improve dramatically. The proposed 25.7% revision would have shaved half a percentage point from Greece's budget deficit in 2007, and brought debt down to 80% (from around 100%) of GDP.