CourseWork in Commercial and Investment Banking

Commercial and Investment Banking
The role of a Public Investment
Bank in Greece
Student Id:
1103110012
1103110013
Supervisor:
Prof. Christos Alexakis
November 19, 2012

Contents
1 Introduction 2
2 Rationale for a Greek Investment Bank 2
3 Examples of Investment Banks 4
3.1 The case of the Hellenic Industrial Development Bank (ETBA) . . . 4
3.2 The case of National Bank for Investment and Industrial Develop-
ment S.A. (ETEBA) . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 The case of Nordic Investment Bank (NIB) . . . . . . . . . . . . . . 10
3.4 The case of European Investment Bank (EIB) . . . . . . . . . . . . 12
3.5 The case of KfW Bank . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.6 The case of T¨urk Eximbank . . . . . . . . . . . . . . . . . . . . . . 17
4 The character of a public Greek Investment bank 20
5 Conclusion 22
6 References 24
1

1 Introduction
Greek economy growth in terms of real GDP has declined by an average 4.5 %
over the last five years.The public sector is depressed by the ongoing austerity
measures, while private sector demand is constrained by the economic and polit-
ical uncertainty. To recover, Greece needs to reconstruct its economy away from
consuming and towards investment, industrial development and exports but this
is a real challenge given the state of its banking sector. Private Banks are in the
process of recapitalization, mergers & acquisitions are taking place and liquidity
for loan issues is almost terminated. In this paper we argue the establishment
of a Greek Public Investment Bank could present a potential solution to these
problems. First, we present examples of public investment banks that existed in
Greece in the past, we discuss their roles and activities, and examine the reasons
of their failure. We examine, public investment banks that are currently active in
Europe and identify characteristics that make them succesful. We argue that, by
adopting the right characteristics, a public investment Bank could be succesful in
Greece and could play a key role in its economic recovery.
2 Rationale for a Greek Investment Bank
Several reasons motivate the establishment of a public investment Bank in Greece.
First, the sovereign debt crisis in the euro area remains the main concern for the
financial markets. High uncertainty negatively affects investment activities and
extenuates their perspectives both in the euro area and in the Bank’s member
area. With the external credit conditions taking a long time to change and with
the prospect that credit will only return to pre-2008 levels in the long-term future,
2

consumer and investment demand in Greece and the euro area will sink over the
medium term. Unemployment is predicted to face a very high rise (predicted for
2013 to be 19.6 % [Eurostat]) as firms miscarry from the reduction of domestic
and external demand. In addition, the new predictions that Greek debt will hit
189 % of the GDP and climb to 192 % in 2014 [Spiegel, P., Hope, K., 2012]
have to be considered very carefully and important plans and decisions has to
be made. The export sector becomes an increasingly important driver of growth
with the potential to significantly improve Greeces trade and current accounts.
However, for a number of reasons, including the lack of economies of scale in
the administration of loans to SMEs and start-ups, banks are reluctant to lend
to small entities and access to funding by small and medium-sized enterprises
(SMEs) is difficult. Combined with the financial uncertainty, this has caused total
bank lending to decline. Households and companies are trapped as their demand
for investments, even at very low cost of capital, is limited. Considering this
context, one can argue for government intervention. Universities, infrastructure,
energy and tourism need help from the Greek government to create the scope for
new project funding. Also by giving tax incentives and loan guarantees to SMEs
the government can avert the failures of the credit markets. In both cases this
increase in economic activity will increase demand and will eventually promote
private-sector confidence. In sum, the idea of establishing a Greek Investment
Bank offers an innovative solution to long-term failures in the supply of credit and
in short-term lack of aggregate demand. If this institution has the appropriate
structure and mandate it could contribute to infrastructure, energy and tourism
investments as well as in SME growth by providing attractive funds. Also this
institution could be a instrumental for project financing by stimulating demand
3

among various potential private entities [Skidelsky, R., Martin, F. and Wigstrom,
W. C., 2011].
3 Examples of Investment Banks
In Greece existed two Investment Banks, the Hellenic Industrial Development Bank
(ETBA) and National Bank for Investment and Industrial Development (ETEBA).
In Europe the European Investment Bank, the Nordic Investment Bank, and the
European Bank for Reconstruction and Development are some examples of state-
owned investment and development Banks established after the Second World War
to serve multiple countries. Germany’s KfW, the Japanese Development Bank,
the Korean Development Bank, the BNDES of Brazil and the Türk Eximbank
are some country-specific examples. The KfW, the Türk Eximbank, the Nordic
Investment Bank (NIB) and the European Investment Bank (EIB) are the most
relevant benchmarks for how a Greek Investment Bank could operate nowadays.
In what follows, we will investigate the Greek Investment Banks and also discuss
the cases of the four selected Investment Banks that currently operate in Europe.
3.1 The case of the Hellenic Industrial Development Bank
(ETBA)
The Hellenic Industrial Development Bank S.A was established by the state (sole
owner) in 1964 through a merger between the Industrial Development Organiza-
tion, the Economic Development Financing Organisation and the Tourist Credit
Organisation. Its aim was to provide long term credit and other related services
to companies in order to boost growth in less developed countries, such as Greece.
4

ETBAs statutory aims included also the development of tourism and industrial
activities [Frangakis, M., 1998].
Finance resources
For financing its activities the ETBA introduced the ETBA bond which was
its main source of finance. By the late 80s and early 90s borrowing from
abroad was also an important source of finance. Inside the Greek borders
the ETBA bond faced a competitive pressure from government bonds. After
the liberalization of the Greek banking system the interest rate on the bond
had to be raised in order to outmatch the taxation effect [Frangakis, M.,
1998].
Activities
ETBA lending policy was linked with the government’s development policy
and relative laws. The ETBA was lending to both the public and the private
sector. A significant share of its lending was to the Armed forces which
absorbed about 37 % of its total loans in 1993 and 1994. Regarding the
private sector the ETBA supplied long-term credit to industry, tourism and
shipping both through loans and by acquiring equity capital. In 1974 for
example, the ETBA was a shareholder in 48 companies which shows its
involvement in acquiring equity capital [Frangakis, M., 1998].
Restructuring plan
During 80s, ETBA’s lending and equity operations deteriorated its financial
position. Particurarly, the increase in loans and equity wasn’t equivalent with
its rises in own capital resources. Also in the 90s ETBA recorded heavy losses
which worsen its financial position and a recapitalization had to take place.
5

Despite its recapitalization in 1992 and 1993 the ETBA’s financial position
continued to worsen. For that reason the bank was divided into two separate
domains. The first had to manage the outstanding debt and the second had
to restructure its portfolio and activities. More specifically the first domain
had to deal with the reduction of Banks total assets through the liquidation
of problematic loans. The second domain was responsible for providing loans
to the private sector and the army, developing new activities, and looking
after the Bank’s interests in its various financial subsidiaries. Regarding the
organizational structure, a 25 % reduction in personnel was planned over a
five year period [Frangakis, M., 1998].
Failing reasons
The ETBA could be characterized as a ”lender of last resort”. It provided
financing for long term rather operating capital needs where other banks
were reluctant to do so. In effect, it engaged in unprofitable lending. When
the government enterprise restructuring policy took place the ETBA was
called upon to finance the process, further increasing its precarious lending.
The estimated losses caused by distress financing were about 1 % of GDP
in 1994 [Frangakis, M., 1998]. The ETBA bank was initially expected to
become an international commercial bank and present its stocks to Athens
Stock Exchange. Despite this ambitious aim, when the restructuring plan
took place, a defend strategy was applied which limited the volume of its
lending. The role and strategy of the ETBA was not explicitly defined,
while certain operations had to be improved, for restructuring to have any
viable effects. The plan of removing the bad debts finally did not succeed.
6

3.2 The case of National Bank for Investment and Indus-
trial Development S.A. (ETEBA)
The National Investment Bank for Industrial Development was established in 1963
by the National Bank of Greece and a number of foreign banks. Its aim was to
provide financing for industrial and related enterprises in the private sector. In
addition the ETEBA was financing projects in shipping and tourism sector. The
establishment of the ETEBA expressed the intention of the National Bank to
play an active role in the development of the Greek economy, particularly during
the 1960s. It can be characterized as a specialized banking organization formed to
serve specific needs created by the economical situation at that time [International
Bank for Reconstruction and Development, 1970].
Structure & Management
The ETEBA consisted of an 18-member Board of Directors. The National
Bank of Greece as a primary shareholder assigned the nine directors, while
the other nine were assigned by the foreign banks. The chairman of the
ETEBA’s Board was the governor of the National Bank of Greece. Board
meetings were taking place once or twice a year dealing with general mat-
ters. Project approvals were delegated to the Executive Committee which
consisted of seven members and one observer. Among the activities assigned
to Executive Committee were also the supervision of the two basic functions
of the Bank, financing and lending for capital funding. During the fisrt years
of its operation, major decisions required consensus from all the Committee
members, but after the course of the third year a majority of five members
was be sufficient. Projects requiring an investment or loan exceeding a par-
ticular amount needed to be approved in written form [Vousvounis, A. A.
7

2010].
Finance resources
Because of its activities, which required commitment of long-term capital in
loans and stock investments, the ETEBA had to maintain lending capital of
similar duration. During the decade 1964-1973, the ETEBA obtained long-
term borrowing of a total amount of 6.5 million drachmas from the National
Bank, the Bank of Greece and the International Bank. The largest share of
the National Bank financing was provided by bond lending. The financing
from the International Bank had the pattern of ’global loans’. In other
words the product had to be used to finance a number of specific investment
programs. After 1975 the issue of bonds began to substitute the loans from
the National Bank and the Bank of Greece. By the mid-1980s, bonds were
the main source of financing. Another source of financing after 1975 was
the foreign exchange lending from foreign banks. The ETEBA developed a
large activity with this type of lending, trying to internationalize its name
and operations [Vousvounis, A. A. 2010].
Activities
ETEBA’s lending and investments was very well diversified since there was
no industry dominance in its portfolio. The largest amount of financing was
given to the textiles industry; the building materials plants were the second
largest borrower-industry; food product factories and chemical industry (in-
cluding pharmaceutical producers) were third in its finance portfolio. During
1964-1973 the ETEBA was a major long-term financing provider to the in-
dustry sector. In 1973 thirty five from the biggest one hundred companies in
Greece were included in its customer portfolio. In this period, the ETEBA
8

was cautiously financing the tourism sector, providing only the 3.3 % of its
total financing, most often by acquiring shares in the hotel industry. The
ETEBA invested in share capital of companies which were in various phases
of development, such as new startups, rising companies and companies that
were in maturity stage. Given its activities, the ETEBA can be considered
as a pioneer of its time for the Greek economic scene. Its financing and in-
vestment strategy remained roughly unchanged up to 1980. In the beginning
of the 1980s, when the Greek economy began to face liquidity problems, the
ETEBA’s financing decreased. A characteristic example is year 1982, when
financing approvals dropped to the half of the previous year. The situation
was similar for capital sharing investments which also dropped significantly
during the 1980s [Vousvounis, A. A. 2010].
The merge
Despite ETEBA’s endeavor to become a universal bank with its own network
of branch offices and an attempt to develop modern banking investment ac-
tivities during the period 1990-1995,the future positioning in a liberal bank-
ing system was a main source of concern. With the anticipation of cancelling
the bounty of bonds, the bank would not have the ability to continue its fi-
nancing activity in loan and share capital investments. From these activities
the bank was receiving its ordinary income covering the main expenses and
maintaining profitability. Therefore, the ETEBA set as a major objective to
obtain its own network of branches and get access to low cost capital through
deposits. But this activity was creating a competitive environment with its
parent company: the National Bank. Although the ETEBA tried three times
to obtain the control of the commercial banks, it didn’t succeed mainly be-
9

cause of the increased market-share of the National Bank in the banking
sector. In the beginning of 1996, the National Bank changed its manage-
ment and all the processes concerning the development of network branches
for the ETEBA were abandoned. Thus, the autonomy that the ETEBA had
maintained in its strategic decision making declined. In 2002 the ETEBA
announced its the merger with the National Bank of Greece [Vousvounis, A.
A. 2010].
3.3 The case of Nordic Investment Bank (NIB)
The Nordic Investment Bank (NIB) was established in 1975. Sweden, Norway,
Denmark, Iceland and Finland were the five countries that participated in the set
up and in 2005 three more Baltic States (Estonia, Latvia and Lithuania) joined
the group. The idea was to integrate these Nordic economies and facilitate cross
border transactions. In 1975, while the oil crisis was negatively influencing the
Nordic economies, the set up of this institution would improve credit worthiness
and make the access to the international capital markets cheaper. The mission
of the institution was to promote sustainable growth of its member countries and
promote the enhancement of the environment [Nordic Investment Bank, 2009-
2011].
The NIB is governed by the Board of Governors which is consisted from
Governors assigned by each member country. There is also the Control Com-
mittee which supervises the Bank processes and main objectives. The Board
of Directors makes policy decisions concerning the operations and approves
the financial transactions proposed by the NIB’s President. The President
10

of the NIB is responsible for the conduct of the current operations of the
Bank and is assisted by the Management Committee, the Credit Commit-
tee, the Finance Committee and the ICT Council [Nordic Investment Bank,
2009-2011].
Finance resources
The NIB is rated AAA which shows its strong capital base and quality of
assets. Its average returns have outmatched the returns on government pa-
per the last 35 years. Member states contribute their capital to sustain the
growth of the bank and offset losses. In addition to ordinary lending, the
bank uses two other lending sources-facilities. The first one is the Project
Investment Loan facility (PIL). Member states guarantee the PIL loans up
to a total amount of EUR 1,800 million. The second one is the Environ-
mental Investment Loan facility (MIL). Member states guarantee up to 100
% of loans outstanding under this facility. NIB’s member countries guar-
antee these loans in proportion to their gross national income. The NIB
also acquires funds for its project lending activities by borrowing from the
international capital markets [Nordic Investment Bank, 2009-2011].
Projects involvement
The NIB’s activities and projects are concentrated in the following sectors:
energy, environment, transport, logistics, communication and innovation.
For each project, the NIB examines not only its competitiveness and the en-
vironmental impact but also indirect effects on the economy and the society.
The NIB is also involved in financing SME through intermediaries. This is
achieved through loan programmes which assign specific credit rules to lo-
cal banks. For instance, the loans are often provided with longer maturity
11

than an SME could have access to. Inside the bank there is a team that
sources potential projects and audits the loans according to its mandate.
When projects take a high rate they are accepted. The NIB is a politically
independent organization with significant institutional integrity without any
political steering. When projects violate the NIB’s mandate then it is very
common that funding applications, even from the member-states, are re-
jected. Under some specific circumstances, member states own the right to
veto loans targeted to their state. Also, it is very important to mention that
when evaluating projects the Bank takes into consideration the state of the
economy. Therefore the Bank has the ability to lend during recessions when
other creditors redeem their financial statements [Nordic Investment Bank,
2009-2011].
3.4 The case of European Investment Bank (EIB)
The EIB is the only bank owned by and representing the interests of the States
that are members in European Union. It works closely with other EU institutions
to implement EU policy. The European Investment Bank (EIB) is the long-term
credit institution of the European Union. It was founded in 1958, at the beginning
of the European Economic Community. The shareholders are all the states of the
European Union. The aim of the EIB is to promote the EU priority objectives
through investments. There are three ways to achieve that: first, by providing
longer-term capital than that available from commercial lenders; second, by pro-
viding other sources of finance; and third, by making financial plans more viable
and lowering costs to co-sponsoring borrowers. Although private investors may
be hesitant to financially support sustainable high-risk projects , the EIB is in a
12

position to assess the projects against their financial returns [European Investment
Bank, 2009-2011].
The European Investment Bank has three objectives.
• To promote growth and employment potential
• To promote economic and social development
• To promote environmental viability
The EIB is governed by the Board of Governors made up of the Finance
Ministers of the member countries who typically meet once a year to discuss
high-level policy aspects and approve the annual report. The EIB Board of
Governors consists of the EU Finance Ministers who set the policy guide-
lines. The EIB has a Board of Directors. An interesting feature of the EIB
is the Management Committee - this is a permanent executive body, respon-
sible for the day-to-day running of the Bank. The Committee is made up
of the President and eight Vice Presidents who are nominated by the mem-
ber countries. Finally, an Audit Committee, an independent control body,
reports directly to the Board of Governors on the financial and operational
status of the Bank [European Investment Bank, 2009-2011].
Finance resources
The strong capital base and the quality of loan portfolio have given the EIB
AAA-rating. The rigorous appraisals of the projects ensure high quality;
technicall, economic, financial, environmental and social viability; as well as
abidance to procurement regulation. As a politically independent institution,
the European Investment Bank issues bonds to finance its operations and in
13

no way does it use funds from the Membership of the European Union.
Despite the lack of sovereign guarantee the EIB is one of the largest non
sovereign bond issuers globally. Its bonds can be issued at low cost and with
very long maturities. As a non-profit body, the EIB charges the borrowers
with the interest that is set to cover cost of funds, operating costs, and to
ensure a contribution towards the Bank’s financial reserves. In this way, the
EIB passes on its low-cost financing to its borrowers [European Investment
Bank, 2009-2011].
The European Investment Bank contributes to economic and social consis-
tency by providing loans to all basic sectors in less advanced regions or coun-
tries to help them catch up with the EU average. The EIB helps small and
medium enterprises through credit lines to commercial banks. Moreover,
as the majority shareholder in the European Investment Fund (EIF), the
EIB offers venture-capital guarantees. It provides funding to environmen-
tal projects about greenhouse gas emissions, and projects about the climate
change impacts. Further, the EIB gives loans for research, development,
education and training to promote a more innovative and knowledge-based
European economy. For example, it funds the ’TENs’ (Trans European Net-
works), supporting the integration of transport and energy infrastructure
across the EU. Finally, the EIB invests in the diversification and security
of internal energy supply. While not formally a priority-objective, the EIB’s
lending tends to follow the particular pattern of providing finance when com-
mercial lending is weak. After the 2008 crisis, the EIB lending amplified
significantly. In 2008, the EIB gave out 58 billion in new loans; in 2009, the
14

equivalent figure was 79 billion. Even though these are large numbers for
an independent body, they are not large enough to plug the funding gap on
a European level. In all these areas, the EIB offers technical assistance in
addition to financial assistance [European Investment Bank, 2009-2011].
3.5 The case of KfW Bank
The KfW supports the German and European economy by providing effective fi-
nancing under global competition. It promotes cooperation between the financial
sector and the export economy which is very important for the development of
Germany. Due to its presence in major foreign markets , and as a member of the
international network of KfW Bankengruppe, it can help companies worldwide to
satisfy their financing needs and enhance their borrowing capacity. The KfW’s
objectives include the financing of environmental and climate protection projects,
infrastructure projects, transporting projects and other movements that help Ger-
many and Europe grow. Finally, the major aim of the KFW is to strengthen its
market position as an effective and a reliable partner in project and export finance
and development [Kreditanstalt für Wiederaufbau, 2009-2011].
The state and particularly the Ministry of Finance owns 100 % of the share
capital of KfW IPEX-Bank GmbH. The general shareholders meeting is re-
sponsible for all matters for which another governing body does not hold sole
responsibility, either by law or by the articles of incorporation. Its main re-
sponsibilities include the approval of the annual financial statements and the
appropriation of the annual profit or retained earnings; the determination of
the amount available for payment of performance based compensation within
15

the bank; the appointment and removal of members of the Board of Supervi-
sory Directors or the Management Board; their discharge at the end of each
financial year; and the appointment of the auditor. The KfW is a public law
institution in which the Federal Republic of Germany holds an 80 % and
the federal states a 20 % stake. The KfW is the bank that supports the
Federal Republic of Germany and helps the improvement of economic, social
and ecological conditions, particularly in the areas of SMEs, startups, envi-
ronmental protection, the housing sector, infrastructure, education, project
and export finance and development cooperation. The bank has a major
role in the implementation of federal government economic policies. The
KfW’s guarantee from the Federal Republic of Germany gives an opportu-
nity to the bank to refinance itself in the capital market at a lower cost than
commercial banks. The KfW uses this advantage to expand its operations
and exploit the opportunities provided by the government [Kreditanstalt für
Wiederaufbau, 2009-2011].
Finance resources
In terms of funding, KfW issues bonds in the international markets in differ-
ent currencies seeking new investors all over the world. The bonds that KfW
is issuing are separated in three categories, benchmark bonds, other pub-
lic bonds offered in a number of different currencies and private placements
(bonds designed to specific investor’s demands). The KfW is rated Aa3 by
Moody’s in 2011 and Standard & Poor’s rate remained at the same level of
AA. The Bank had a net income in 2010 about EUR 30 million and recorded
total assets in December 31st of 2011 about EUR 46.4 billion revealing an
increase of EUR 0.9 billion compared with the previous year. Concerning to-
16

tal loans, advances to banks and customers and operating income before risk
provisions and valuations, they remained unchanged. Liquidity enhanced by
the recduction of short-term financial investments. Net interest income and
commision income together increased by 4 % or EUR 17 million. In terms of
administrative expenses the total amount was EUR 137 million, from which
EUR 68 million was personnel expense and EUR 69 million depreciation
on property, plant and equipment expenses [Kreditanstalt für Wiederaufbau,
2009-2011].
As one of Germany’s leading development banks, the KfW provides various
services, such as investment finance, international project and export finance,
promotion of developing countries, advisory and other services, and funding.
The KfW is the main financier of renewable sources of energy in develop-
ing countries. The renewable technologies supported by KfW include wind
parks, solar energy, biomass, hydropower plants and geothermal energy. The
German Federal Ministry for the Environment, Nature Conservation and Nu-
clear Safety (BMU) provided additional funds for the first time since 2008.
In all these attempts the KFW acts as a partner. These funds are delivered
in the form of low-interest loans and grants for investment in climate pro-
tection, especially in the fields of energy efficiency, renewable energies and
adaptation measures [Kreditanstalt für Wiederaufbau, 2009-2011].
3.6 The case of Türk Eximbank
The Export Credit Bank of Turkey (Türk Eximbank), which was established in
1987, is the sole official export credit agency in Turkey. The Bank is a fully state-
17

owned bank acting as the Turkish governments major export incentive vehicle in
Turkeys sustainable export strategy. As Turkey’s official export credit agency,
Türk Eximbank has been mandated to support foreign trade and Turkish con-
tractors/investors operating overseas. Türk Eximbank is making rapid progress
towards fulfilling its mission and taking its place amongst export credit agencies
in the world [Türk Eximbank, 2009-2011].
The Bank’s main objectives are:
• to increase the volume of Turkish exports,
• to diversify the export goods and services,
• to develop new export markets,
• to increase the share of Turkish exporters in international trade, and
• to provide support and risk free environment for Turkish exporters, investors
and overseas contractors.
Türk Eximbank’s shares are divided in groups (A) and (B). Group (A) shares
are held by the Undersecretariat of Treasury and represent not less than 51
% of the capital. Group (B) shares correspond to 49 % of the capital and
may be transferred by the Undersecretariat of Treasury to public and private
banks, similar financial institutions and insurance companies and other real
and legal entities. Currently the Undersecretariat of Treasury holds 100 % of
the Banks shares. The Chairman and members of the Board of Directors, the
Chief Executive Officer and Assistant General Managers do not hold shares
of the Bank. [Türk Eximbank, 2009-2011].
18

Finance resources
The Türk Eximbank is rated BBB which shows a stable capital base. The
Turk Eximbanks total assets consist of 83 % loans, 11 % liquid assets and
6 % securities held-to-maturity and other assets. The loan portfolio of the
Bank was TL 8.1 billion. Loans increased by 94 % the last years. 81 % (TL
6.5 billion) of this amount was short-term, and 19 % (TL 1.6 billion) was
medium and long-term loans. By the use of appropriate risk management
techniques, the duly collection of loans is emphasized. Thus, although the
Bank extends most of its resources as loans to the export sector, the share
of non-performing loans in total loans is small with 1.4 %, when compared
to the banking sectors average. The Bank provides a 100 % allowance for
non-performing loans. [Türk Eximbank, 2009-2011].
The need for the establishment of the Türk Eximbank arose in the early
1980s, when Turkish exports shifted from predominantly agricultural goods
to industrial goods. This created increased financing needs for exporters,
which in turn resulted in increased pressure on commercial banks in Turkey.
To deal with this, in accordance with general practices in most of the de-
veloped world,the Turk Eximbank was established in 1987 as the sole of-
ficial export credit agency in Turkey. The Bank currently supports Turk-
ish exporters, contractors and investors through various credit, guarantee
and insurance programs similar to export credit agencies of other developed
countries. Nevertheless, it is different in that, it is one of the few export
credit agencies in the world which engages in direct lending activities as well
as implementing insurance and guarantee schemes within the same institu-
19

tion. Nowadays, the Türk Eximbank offers a total of 28 main programs,
22 of which are loan and 6 are insurance/guarantee programs. The Türk
Eximbank introduced export credit insurance to Turkish exporters in 1989.
Currently, the Türk Eximbank provides cover for Turkish exporters, against
commercial and political risks by offering a variety of insurance programs for
their exports to 204 countries. [Türk Eximbank, 2009-2011].
4 The character of a public Greek Investment
bank
The Banks that we examined in the previous chapter could provide the guidelines
for the creation of a Public Greek Investment Bank. Indeed this would be a
difficult undertaking considering the economic situation that Greece is now facing.
Nevertheless, with the appropriate management and focusing on the necessary
functions this institution could be a growth turning-point. In the following lines
we discuss the necessary characteristics that a Greek Investment Bank should
possess.
Character
Like the experiences of the KfW, the EIB, the NIB and the Türk Exim-
bank’s, a Public Greek Investment Bank should be a politically independent
organization sustained with sovereign capital. Full operational independence
and strategic involvement of the government could provide control over pub-
lic capital and market credibility. The policy objectives of a Public Greek
Investment Bank should be the promotion of growth and employment by
focusing on sectors where Greece maintains stout capabilities. Promotion of
20

growth and employment is essential for the short and long-term operations
of the Bank. The Bank should also provide funding and technical expertise
to projects that enhance its policy objectives.
Operations
A Public Greek investment Bank’s role suggests a focus on long-term efficient
assets and employment potential in the field of tourism, energy, transporta-
tion and SMEs. In both of these areas the Bank’s operations can be divided
into financing operations and advisory. The bank could provide confidence
for project undertaking and ensure that potential investments would im-
prove the growth of Greek economy by raising cheap capital, build assets
and then refinance them to the private sector. Facilities in major sectors,
where Greece possess potentialities and corrective actions can be made, like
tourism, energy and transportation facilities, can embrace investments that
the private sector is keen to finance. Financing programs that enhance ex-
porting activities, like Türk Eximbank’s, would be also a focal point of the
public Greek Investment Bank’s operations. Similarly to the models of the
NIB and EIB the Greek Investment Bank will not dispose a network of local
loan offices but will endorse financially the local commercial banks to lend
SMEs [Skidelsky, R., Martin, F. and Wigstrom, W. C., 2011]. Concerning
the advisory functions of the institution, it would perform a major role for
project identification, audit, control and preparation. The bank with this
advisory function will promote private investments and motivate a growth
in demand. In the area of SMEs the bank will only lend to commercial banks
which directly will finance SMEs.
21

Capital & Funding
We could suggest two ways that the Government could use to finance the
subscription capital of a Public Greek Investment Bank. One way it could
be to issue bonds in public to be bought by the Bank of Greece and private
entities. The second way is to sell its equity to commercial banks and use
the profits for the completion of the subscription capital. If the Govern-
ment chooses the first way of financing the public debt would increase by
an amount relative to the subscription capital needed. If the second way
is selected, the sale of equity will constitute an asset swap and it would be
neutral for the deficit. Concerning lending to other parties, this will be han-
dled by issuing long-term bonds to private investors. These bonds would be
less risky than corporate bonds and they will offer higher yields than that
of Government bonds. Undoubtedly, if these ways of financing perceived to
worsen public finances then the establishment of a public Greek Investment
Bank should be dropped [Skidelsky, R., Martin, F. and Wigstrom, W. C.,
2011].
5 Conclusion
The role of public investment banks is very important and gives a different char-
acter to economic and social policy of a state. Create perspective, enhance living
standards and in cooperation with the European institutions and the European
Investment Bank creates foundations for further growth in the future. As EIB has
the main role to support the discussions between the European Commission, the
European Banking Authority and the ECB and provide technical expertise regard-
ing the development of funding solutions in the banking sector, we can mention
22

relative projects leading to that direction. As examples, the NIB is financing the
expansion of Pulkovo airport, a large construction project that occupies 3.000
workers. KfW is granding a loan of about EUR 32 million for the expansion of
the metro line Üsküdar - Ümraniye - Cekmekoy in Istanbul. The Türk Eximbank
contributed primarily in funding the construction of the international airport of
Baku in Azerbaijan. Noticing the examples above, we could conclude that public
investments bank are not localize their funding only inside their land borders but
they have an international investment character. Furthermore, the idea of estab-
lishing a state investment bank is discussed in other countries as well as in Greece.
UK is one of these countries moving to the direction of introducing such an insti-
tution. In sum, for Greece, the set up of a Public Investment Bank could create a
pattern not only to improve and develop its core sectors, discussed previously, but
also to become an extravert country. This could establish the basis to anticipate
the economic crisis.
23

6 References
[Skidelsky, R., Martin, F. and Wigstrom, W. C., 2011] Skidelsky, R., Martin, F.
and Wigstrom, W. C., (2011). Blueprint for a British Investment Bank.
Westminster, The Centre for Global Studies.
[Vousvounis, A. A. 2010] Vousvounis, A. A., (2010). National Investment Bank for
Industrial Development S.A., 1963-2002. Athens: National Bank of Greece.
[Artikis, G. P., Merikas, A. and Vozikis, G. S., 1996] Artikis, G. P., Merikas, A.
and Vozikis, G. S., (1996). Revisiting the Use of Financial Incentives As an
Instrument of Regional Economic Development Policy: The case of Greece.
Journal of Applied Business Research, 12(4), pp. 89-99.
[International Bank for Reconstruction and Development, 1970] Appraisal of Na-
tional Investment Bank for Industrial Development S.A. The World Bank.
[Business Monitor International Ltd, n.d.] The Greek Economy to 2019. Business
Monitor International.
[Spiegel, P., Hope, K., 2012] Forecasts dash hopes for Greek debt target. Finan-
cial Times. 1 November, p.1.
[Frangakis, M., 1998] Frangakis, M.(1998). Bank Reform in Greece with reference
to Eastern Europe, The Case of The Hellenic Industrial Development Bank
S.A. Athens: National Bank of Greece
[Market Information and Research Section DFAT, n.d] Greece Fact Sheet. Aus-
tralian Goverment Department of Foreign Aﬀairs and Trade. [Online] Avail-
able at: http://www.dfat.gov.au/geo/fs/gree.pdf
24

[Nordic Investment Bank, 2009-2011] Annual Reports, Nordic Investment Bank.
[Online] Available at: http://www.nib.int/
[European Investment Bank, 2009-2011] Annual Reports, European Investment
Bank. [Online] Available at: http://www.eib.org/
[Kreditanstalt für Wiederaufbau, 2009-2011] Annual Reports, Kreditanstalt für
Wiederaufbau. [Online] Available at: http://www.kfw.de/
[Türk Eximbank, 2009-2011] Annual Reports, Türk Eximbank. [Online] Available
at: http://www.eximbank.gov.tr
[Eurostat] Greece An economy longing for the turnaround, [Online] Available at:
http://ec.europa.eu/
25

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