The impact of adoption and circulation of Euro on the performance of Greek banking sector

In this study we examine the impact of adoption and circulation of euro on the performance of Greek banking sector over the period 1996-2004. We investigate whether commercial banks are following a different pattern of efficiency change after adoption and circulation of euro. The results indicate that profitability, productivity, liquidity and solvency ratios deteriorate following adoption and circulation of euro (during the years 2003-2004) and the decrease is statistically significant at 10% level. Only operating ratios improve and especially average ratio "total expenses from interest paid/total assets" (statistically significant at 10% level), which may state that circulation of euro increased confidence to the new European common currency causing decrease in interest rates when at the same time total deposits increased by 96.14% (end of 2004 in comparison with end of 1996), total loans (non-banks) increased by 257.71% (end of 2004 in comparison with end of 1996) and total loans to banks increased by 122.57% (end of 2004 in comparison with end of 1996). Results are important for economists and politicians who evaluate the impact of euro in the banking sector, especially at the current time that Greek economy and the Greek banking sector are in a very weak fiscal position, rating agencies have downgraded Greece to near-default status and two huge financial support packages of total amount €219 billon have been announced to support Greece overcome its sovereign debt crisis and strengthen economic governance and role of euro.