Much has already been written about banks’ high profits, low deposit rates and wide interest margins. The question here is a different one: what do all these factors together reveal about the business model of Greek banks, the sources and sustainability of their profitability and, ultimately, how the benefits of the banking recovery are distributed?
Did profits come mainly from banking innovation, the development of financing tools for SMEs, new services and diversified revenue streams, or from traditional banking intermediation in an exceptionally favourable interest-rate environment?
The rescue and recapitalisation of Greek banks were necessary to avert systemic collapse and restore financial stability. Subsequent profitability strengthened capital, helped to clean up balance sheets and enabled banks to return to more normal operations.
This success, however, does not automatically translate into an equivalent contribution to society and the economy. The period of high profitability coincided with the sharp rise in ECB interest rates, which was not passed through symmetrically to both sides of banks’ balance sheets.
Returns on a significant share of assets adjusted upwards quickly, while the remuneration on a significant portion of the deposit base rose much less. At the same time, the increase in net interest income far outstripped the rise in fee income, making the composition of banks’ core revenues more dependent on interest-rate intermediation.
Revenue sources and interest rates
Between the first nine months of 2022 and the first nine months of 2023, about 96% of the increase in the two main revenue sources — net interest income and net fee and commission income — came from net interest income, which rose by 58.9%, compared with 7.1% for fees.
The reversal of the interest-rate cycle reinforces this picture: in 2025, after ECB rates began to fall, net interest income declined by 3.8%. Even so, in the first half of 2025, the net interest margin remained at 2.5%, compared with 1.5% at significant banks in the Banking Union.
Management’s highly positive presentations therefore need to be assessed more carefully against the actual sources of profitability. The entire performance cannot be attributed to “managerial outperformance” (managerial alpha) when its most significant component was so closely tied to the interest-rate cycle, rather than to diversification, innovation and the development of new revenue streams on a comparable scale.
The very high concentration of the Greek banking system takes on added significance when combined with the limited diversity of its business models. According to the Bank of Greece, the four significant banks held about 93% of the banking system’s total assets in June 2025, while all remain heavily reliant on net interest income.
The issue, then, is not only that a handful of banks control almost the entire market, but also that they follow broadly similar business models. This also matters for financial stability.
As the ECB points out, diversification of activities and revenue sources can act as a shock absorber, while banks’ concentration around similar business models can lead to a concentration of systemic risk.
This homogeneity takes on added significance when viewed from the perspective of banks’ own behaviour. In a study of 152 European banks across 27 EU countries and Norway over the period 2011–2021, we find that banks do not always shape their business models independently. Under certain conditions, they tend to adapt their behaviour to that of banks they consider comparable.
Herding behaviour becomes more pronounced during periods of heightened uncertainty and can lead banks to converge on the sector’s dominant model. This convergence is not necessarily beneficial: it is associated with weaker performance and can encourage risk-taking and make banks’ behaviour more correlated, facilitating the transmission of common shocks across the system.
Competition and herding
Another finding of the study has particular significance for competition. Banks in the bottom 15% by size, credit quality and weight in economic activity displayed more pronounced and less stable herding behaviour than those in the top 15%.
This is consistent with the hypothesis that an information disadvantage increases smaller banks’ tendency to follow others’ choices.
The implications for the Greek market are significant: the entry of more smaller banks could reduce concentration in numerical terms, but does not guarantee greater diversification, however, if new players follow the strategies of the dominant banks.
The goal, then, is not simply to have more banks, but to have more banks that are genuinely different.
The asymmetry in interest-rate intermediation remains evident even after rates have fallen. In July 2026, overnight household deposits were still paying just 0.03%, while the average rate on new fixed-term loans to SMEs was 4.45%, rising to 5.07% for loans of up to €250,000.
The overall margin between new deposits and loans remained at 4.28%. Depositors therefore benefited very little from the previous rise in interest rates, while financing costs for smaller businesses remained significant.
There has been progress in business lending, but the picture needs closer examination. Bank lending is growing at a fast pace, which is clearly positive. However, according to the Bank of Greece, in early 2026 about one-third of new business loans and one-quarter of financing to SMEs were supported by financing tools provided by development banks and/or the Recovery Fund (RRF).
Meanwhile, in the first quarter of 2026, among SMEs that applied for a bank loan, the share receiving full approval fell to 49% from 53%, while the rejection rate rose to 14% from 3%, with businesses reporting stricter collateral requirements and higher charges.
Credit growth is real, but it cannot be attributed solely to banks’ independent willingness to take on credit risk, nor does it mean that smaller businesses have found it correspondingly easier to access finance.
Social returns and the road ahead
This points to a critical asymmetry: society helped restore the banking system, external conditions made a major contribution to its return to profitability, while a significant share of new business financing continues to be supported by public and European instruments.
Greek banks are now safer, better capitalised and highly profitable — a genuine success. The question remains, however, whether the social and economic returns from this recovery are commensurate with the support that came before it.
The recent early repayment of €2.5bn to the European Financial Stability Facility (EFSF), using part of the proceeds from the reprivatisation of banks that had received support through the Financial Stability Fund (“K”, 2 October 2026), is a telling example of why different forms of economic return need to be distinguished.
The funds came from the sale of stakes acquired by the state during the recapitalisations, not from a transfer of current bank profits to the state.
The repayment certainly reduces public debt, but it does not necessarily represent an equivalent economic gain or measure the overall return on the recapitalisations. Such an assessment requires comparing the total cost to the public with the value ultimately recovered.
With reprivatisation, the state is effectively withdrawing its shareholding from a banking system that remains highly concentrated and whose oligopolistic structure, high barriers to entry and conditions that do not encourage vigorous competition for deposits have been highlighted by the Competition Commission.
Future profits will now accrue primarily to shareholders as private returns. The question is how the success of an almost entirely privatised banking system will benefit society more widely: through better returns for depositors, more competitive financing costs, easier access to credit for SMEs and greater financing for productive investment.
This also requires greater transparency about the true sources of bank profitability. Management teams should highlight not only the level of profits and returns to shareholders, but also the extent to which those results stem from innovation, diversified activities and sustainable competitive advantages.
This distinction matters directly to shareholders too: a bank’s value is determined not only by its current profitability, but above all by its ability to generate sustainable future cash flows beyond the prevailing interest-rate environment.
Greek banks have come through an exceptionally difficult period and are now clearly stronger. Their next success, however, will not be judged solely by the level of their profits, but by their transition to more diversified and innovative business models capable of creating lasting value.
The real test of what comes next is not only how profitable Greek banks will be, but how different they become and how widely the benefits of their success are shared.
* Kostas Syriopoulos is a professor of finance at Zayed University (UAE).
** Dionysis Filippas is a professor of finance at ESSCA School of Management (Paris, France).