Interview given by Mr. Panos Tsoupidis, President of the Greek Postal Savings Bank to Mr. Papadogiannis from the «Kathimerini tis Kyriakis» newspaper

Panos Tsoupidis, President

How do you evaluate the success of the public offering for the listing of GPSB shares on the Stock Exchange? Is it due to the very good progress of the markets or to certain particular features of the bank?

It appears that the course taken by GPSB shares cannot be correlated to the course of the sector. In order, of course, to see this statistically, we will have to monitor events for a much longer period of time.

In general I would say that compared to other banks, because we came from a very low base where loans are concerned, we have a very large expansion curve, which gives us a step up. We are seeing an increase in loans granted greater than 50% annually. This has been evaluated positively by the market.

Additionally we do not have a backlog of bad debt. The fact that a low percentage of our assets are in loans compared to our deposits leads to large margins for growth over the next few years. The ratio of loans to deposits constituted only 16% two years ago and I believe that shortly, maybe in the next two years the ratio of loans to deposits will amount to 80%. This will increase our profit making significantly and particularly our repetitive profit making. To date our profits were derived from older bond issues by the State with high interest rates, which no longer exist.

Therefore if we remained with the previous regime the savings bank would rapidly decline. The policy we are following, rapidly replacing a portfolio of bonds with loans, will increase our profit margins by more than double and, in particular, will improve the longevity profile of our investments, increasing it from an average of 5.5 years, as was the case for the bond portfolio, to 25 years.

How easy is it for a state banking organisation to compete with private banks, particularly in today's extremely competitive environment?

Initially I would say to you that public servants do not differ substantially from private employees. What differs is the regime in which they work. People however are the same; we have the same distribution of people who over-perform in their work and other who perform less well.

The major difference is that the long-term equalising policy followed by the state immobilises everybody. So what is one to do?

The possibilities to intervene in the civil service are limited, as, for example, you cannot limit costs through firing employees. Civil servants have tenure for life. Therefore the target is to increase productivity, to make the public sector more productive. On the productivity side there are ways and means, I would say, to “motivate” the system on a human scale, as well as to provide financial incentives: to break through the flat rate of payment and differentiate promotions. Of course within the framework of the civil service, this always means that there will be union and political aspects.

However, if the effort is made on merit, the system will react positively, if not in its entirety, at least the majority will. This, at least, is my conclusion from our efforts at GPSB. GPSB was once a very major force in Greece, and the very same people who, a few years ago, watched apathetically as their environment at the savings bank fell to pieces, are now reacting. I should remind you that about 20 years ago the Savings Bank was entrusted with 21% of all savings in Greece and today it holds only 6.5%. Each year brought a fall and a weakening of its position in the market. The first years in which we managed to turn around this long-term downward spiral were 2004, 2005 and, naturally, this year. And with whom did we turn this course around in a such dynamic fashion? Those very same people.

Consequently the issue is how to «motivate» them emotionally on the one hand, while also offering certain financial incentives, in order to make them perform better and be more productive.

However, can this «emotional» mobilisation have long-term duration, and mainly can it handle the manoeuvrability and speed of private banks?

The answer to this is more complex. A state body essentially does not have transparency. What goes on in this or that service is known only to those who work there. The external environment is only aware af a small portion of events. The legislation may exist so that the civil service contains very many extremely strict regulations and a specific framework with inspection mechanisms. However, in practice, the walls of silence and lack of transparency are impossible to breach. Particularly where state monopolies are concerned, there is nothing you can do. Even if you do not like the service or the prices at which said service is provided, you can do nothing but endure, as there is no alternative available. When, however, a state body changes its legal regime, is converted into an S.A., as was the case with GPSB, then it is subject to all the regulations to which private companies are also subject, where transparency, regulations, limitations and much more are concerned.

At the same time, however the limiting laws and regulations of the civil service remain in place: concerning hiring, the manner in which procurement takes place, the manner in which you «react» to the market. You have different flexibility as a private bank than you do as a public bank. This is a major limitation and I think that in the long term it can constitute an insurmountable obstacle for a company. Particularly when said company is active in a rapidly changing market, as is the case with the banking sector.

Are there certain special features of GPSB that balance out its competitiveness disadvantage compared to private banks?

In theory I would say that there are no balances, except for subsidies, which we do not receive. However, our major advantage is the history of GPSB: the many years we are present in the market. We are active in the sector since 1902 and have at our disposal a very large number and range of clients. For a «younger» bank to build up such a range and number of customers and to attract their savings, it would have to put in a very serious effort and would have to lay out large-scale financial resources in order to gain their trust. This, we have inherited this. This is a particularly strong point to our advantage. I should also point out the very low operating cost of GPSB, its strong capital base, an almost complete lack of bad debts, the high levels of deposits, the large number of our clients and our special relationships with Hellenic Post, which can constitute a very significant alternative network for us.

Negative points that trouble you?

We are missing a very large number of personnel, as well as know-how. We have an immediate need to strengthen our human resources. One of the difficulties of the public sector is that procedures are time-consuming. A private bank could deal immediately with the lack of staff. We, however, are forced, to a certain extent, to under-perform or perhaps it is better to say that we cannot make full use of the opportunities that arise in the market due to a lack of personnel. We will proceed to hire staff through ASEP (Supreme Council for Personnel Selection) and hope that by the end of 2007 we will have increased our staff by 600 to 700 people.

At what stage is the effort to modernise and restructure GPSB?

To begin with, we are re-training our staff in sales techniques, marketing, computer skills, even management. We are installing new computing systems and hope that by the end of they year the new systems will be fully operational, which will greatly increase our capabilities and our effectiveness. A typical example I would like to mention that until very recently queues were typical of the savings bank. Nowadays there is no GPSB branch without an ATM.

How do foreign investors deal with all these peculiarities, the rigidities of the public sector? What image did you form from GPSB presentations abroad?

I believe this: there are two ways in which to deal with the rigidity of the public sector. One way is to describe it and criticise it. The second way is to attempt to break into it. Naturally you cannot eradicate it entirely, because there is a very powerful institutional and legal framework supporting it.

We have followed the second path. What investors see, and to this I attribute how successful our shares were on being listed on the Athens Stock Exchange, was that over the past two years, there has been progress at the bank. I believe that it is one of the relatively few times where management and employees have agreed to jointly attempt to restructure the savings bank. However, this effort must be further strengthened with additional staff, with know-how and with systems, as the competition is particularly fierce. The savings bank must move rapidly to meet the challenges it faces and to make use of the opportunities offered in the banking market. For example, if GPSB needs 5 approvals and three months to prepare for a single advertising campaign and it is constantly being criticised for secondary procedural issues, while competitors can get the same result with a simple phone call, it is obvious that in the end you cannot compete. You put in double the effort and you are constantly vulnerable to attack. And at the end of the day, you are involved with matters of minor importance and spend far less times on issues of corporate strategy.

Do you believe that there is room for a public bank like the savings bank in the rapidly mutating and intensely competitive banking environment? Can it survive and grow in the long-term?

The central point is the public sector. I believe that it isn’t so important whether the savings bank majority shareholder is a private individual or the State. Or rather, I do not believe that a private shareholder would do any better than the state. On one important condition: the behaviour of the state, as a shareholder, towards the savings bank should be free of any form of political intervention. GPSB should work on purely private economy criteria in order to deal with the competition. This means that the current legal framework has to change, something that could be achieved by reducing the state’s stake to less than 51%.

I should however acknowledge that over the past two years, as President of the GPSB I have not been subject to political pressure on issues concerning how the bank operates. Quite the opposite I would say. The policy of the Ministry of the Economy and the Minister, Mr. G. Alogoskoufis, was absolutely clear-cut from the beginning and this was a factor that contributed greatly to the results we have today.

Consequently, my response to your question is: Yes, there can be long-term growth, on the condition that GPSB can be rid of the rigid institutional framework set on a public agency and that the state does not intervene for political reasons in bank operations. If things do not change, it is like coming to fight the competition with one arm tied behind your back. You won’t succeed. Look at what happened with other corporations where the State had a stake. I think it is absolutely clear that the most effective public enterprises are those where management has been placed on purely technocratic criteria. Where professional management has been put in place. The least effective are those where «political» management has been put in place.

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