Piraeus Bank has gone from strength to strength with CEO George Appios at the helm. The proactive and strategic approach of the Greek subsidiary has proven a success throughout the financial crisis in both Cyprus and Greece, and looking to the future the bank is placing strong focus on developing the potential in international and private banking in segments such as custody operations.

How would you describe Piraeus Bank’s current situation?

You have to look at it from the perspective of who is asking the question. If a deposit client is asking, the answer is its ‘business as usual’. Stability is back in Greece and we have no client concerns. We have in fact seen an increase in our deposits over the last two months indicating that client confidence in our bank is still strong. From the perspective of a loan client, we are very selective and cautious in credit expansion. We are not aggressive, not even neutral at this point, but rather cherry pick clients who are willing to invest their own capital into projects first.

How did Piraeus protect itself from the Greek financial crisis?

We could see that there was a potential storm coming and took liability and deposit management measures to be prepared for any eventuality. We took all our cash balances, including those with our parent bank, and moved everything to banks in northern European countries. It was a necessary but very painful move, because of the daily interest we were, and still are, losing by putting it in low-risk liquid instruments. So as a precaution, we don't keep material balances with Greece. Since the beginning of the year, the only money we have in Greece is what comes on a daily basis from payments, which is around €2-3 million.  We are in a better position than some other Greek subsidiaries, as the amount of our deposits is bigger than our loans and we have cash. At the end of 2014, we had around €1.2 billion in deposits and €800 million in loans.

There was talk of a buyout of Piraeus Bank in Greece earlier this year, what led to this and are there still plans to sell Piraeus’ Cypriot operations?

The banks in Greece are currently going through a recapitalisation process. The July events and the crisis created with the Greek referendum are out of the way and Greek banks are not going to be forced to dispose their subsidiaries overnight. They now have more time and can be choosy. Piraeus Bank Cyprus has a clean balance sheet and the only thing to consider is the quality of our loan portfolio. We don't have complicated investment structures, investments in toxic assets or hedge funds. We have plenty of deposits and stability, proven by the ‘live stress test’ we underwent in July. It has been reported that there are interested parties offering to take over the investment of Piraeus in Cyprus. Hellenic Bank was one of them and they looked at this opportunistically based on the events in Greece earlier in July this year. However, it took longer than expected for Hellenic to come up with a proposal and meanwhile the situation in Greece stabilised. We were not under pressure anymore and the window ofopportunity closed for them. We have had further interest, but at the moment there's nothing to announce.

What impact is the increasing volume of international regulation and compliance obligations having on the banking sector?

The cost of compliance has gone up significantly. It's a transition period after the March 2013 Cyprus crisis and we're now being over regulated especially in the lending regulations. I expect that some form of normality will gradually come. However, I hope it will never go back to how things were, as it was completely unsustainable. Banking is not meant to be a roller-coaster, it's meant to be boring. It was an unhealthy environment in which banks in Cyprus were lending as if there was no tomorrow and the industry drifted far from the fundamentals of lending. Fierce competition was part of the problem. If you didn’t join the bandwagon you were out of the market. Now we’ve gone to the other extreme, where in order to give out a loan by law you need to tick boxes on a raft of documents and bank employees have been put in a position where they are personally criminally liable if they don’t comply. This is not right either. Over regulation affects credit expansion and hence economic development.  I need to stress however that over regulation is not the major stumbling block in credit expansion. At the moment there isn't enough liquidity in the Cyprus banking system. There are around €62 billion in average loans and €46 billion in average deposits. However, it can be perilous to only look at averages as they can lead you to draw the wrong conclusions. Some banks have excess liquidity and some have a deficit.  My math’s professor at university had a great analogy, when you're using averages be very careful, otherwise you will have your head in the oven and your feet in the freezer and on average you'll be feeling okay. I don't think anyone would say there’s going to be a massive credit expansion.

For someone who is interested in entering the market, over regulation will be an issue. It is a bigger issue for the smaller banks, because it makes the critical mass more important, and the break-even point of critical mass has gone up because of the cost burden of regulation. Correspondent banking is another area that is being affected by this increasing compliance cost. It's a global problem and all banks are adjusting to this new reality. Another facet that has changed is that banks are increasingly being forced to police their clients, and this is causing grievances as they are not being served the same way they used to – and we are feeling it. There must be more public education to ensure people understand where these measures are coming from and what the implications are. I think banks in Cyprus should come together and form a strategic plan with regards to financial education, and we need to start with the younger generation.

What new opportunities for growth and investment are you seeing in the Cypriot market?

It makes a lot of sense to go into transactional banking, because it provides a bigger return. To do that you need good networks and to upgrade your systems to be completely automated and offer the level of service that your clients demand.  So transactional banking, private banking, fee-based banking, are all attractive to Piraeus at this point in time, rather than pure lending. It seems Cyprus is always benefiting from the misfortune of its neighbours. At present we see a lot of Greek companies looking at Cyprus as a viable place to divert their business and cash management. Cyprus is very close to Greece on various levels and already hosts many Greek subsidiaries. The complication is with the complexity of the Greek legal system and the required documentation for the various types of limited companies they have. The Greek subsidiary banks in Cyprus have a competitive advantage, because their parent banks can advise and carry out this workfor them. So this is an opportunity that arises for the Cypriot banks, and mostly for the Greek banks in Cyprus, to work with businesses that need banking outside Greece and we have seen a significant increase in this type of business over the past three months. Companies always find another way of doing business, which is natural when there are restrictions in the market – just like water, the market will find another way.

Looking at the question from a global perspective, I would also add that a solution to the Cyprus political problem would also bring great opportunities and capital injections. If that happens there will be an influx of foreign investment into various projects and into rebuilding infrastructure, which would also benefit the banks and facilitate growth. The lifting of the Turkish ports embargo would also boost shipping activities. Also the energy sector will be opening up new avenues for business and development with neighbouring countries in the Eastern Mediterranean region.

Do you see more opportunities in e-money and e-wallet systems in Cyprus, and how do traditional banks fit in with the rise of various innovative financial institutions?

There are definitely opportunities, and most banks in Cyprus have developed electronic payment solutions. This is a growing area of interest, as people increasingly use their phones and laptops to carry out banking business and payments. New payment institutions are coming up with innovative products, but they still need to factor in cooperating with a bank in some areas of their business model. There may be some competition, but in my view it only helps develop the sector if everyone can focus on their core expertise. It also improves the services offered to clients and will develop the entire landscape with a more efficient way of operating.

With the changing landscape do you see banks moving more into niche sectors and focusing on one core competence rather than being big one-stop-shops?

Perhaps to some extent, however there are limitations for banks with existing balance sheets, where you need retail customers to diversify your credit risk and the corporate side to have the efficiency and the returns. Instead of giving a hundred loans of 20,000 you give one loan of 2 million – the procedure is the same, but the total acquisition cost isn't. The return from the corporate side is much bigger than from retail, but the risk is more concentrated. You also need the retail to bring the funding for the corporate side. Banks with international business operations (IBUs) also need to have a solid presence to build trust, so people can see your franchise and to build up image. There may be viable models, such as the private banks in Germany or Switzerland, but it requires a lot of capital. It is easier to build such models from the outset.  Changing the way you operate may be possible, but it is very difficult, and would really come down to business rationale. There will definitely be more players coming into the market, and that’s good as it also provides more options to outsource niche services and build cooperation and alliances.

How do you see the investment fund sector developing in Cyprus?

I see opportunities and Cyprus is trying to develop the market. Piraeus has no plans to go into fund management, it’s a different ball game and we will leave it to the more experienced niche players, but custodianship definitely presents opportunities. It's a bit of a catch 22 however, in that you need a serious custodian to come in, but it will be hard to attract one without the volumes. While on the other side of the coin, you don't have the volumes, because you don't have a serious custodian. When someone takes the first leap the business will grow exponentially.

What expectations do you have for Cyprus in 2016?

I think 2016 will be better than 2015, in terms of growth of the economy. In terms of banking, I think it will be very much the same. The non-performing loans issue will be contained and we will see them coming down substantially in 2016, but not enough as the problem is huge and banks will need more time. If you analyse the non-performing loans, it really boils down to a real estate problem. I have always expressed the opinion that it is crucial to move this problem away from the bank balance sheets by implementing a National Asset Management Agency (NAMA) solution in the way it was used in Ireland. We need more expertise and incentives to spur the purchase of property. In the end this will facilitate a more healthy growth of the banking system.