Competition watchdog approves Eurobank’s acquisition of Hellenic Bank stake

Cyprus’ competition watchdog has ruled that competition in the country’s banking market remains healthy, approving Eurobank’s acquisition of a 26.1 per cent stake in Hellenic Bank.

With the transaction, Eurobank now controls 55.9 per cent of Hellenic Bank shares.

The Commission for the Protection of Competition’s (CPC) decision, which was made public in the Official Gazette of the Republic, was approved by a narrow 3-2 vote.

The CPC’s approval followed an extensive market review, aimed at evaluating whether the merger would reduce competition in the Cypriot banking sector.

This included sending questionnaires to the Central Bank of Cyprus, Bank of Cyprus, Housing Finance Corporation, National Bank of Cyprus, Astrobank, CDB, Societe Generale Bank Cyprus, Ancoria Bank, and Alpha Bank.

The focus was to determine whether customers—both depositors and borrowers—had adequate alternatives, enabling them to exert pressure on pricing for loans and deposits.

According to the CPC’s findings, Eurobank Cyprus held a market share of between 10 and 20 per cent in loans in 2022, while Hellenic Bank controlled between 20 and 30 per cent. Their combined share of the loan market stood between 30 and 40 per cent.

In retail lending, Eurobank Cyprus accounted for 0 to 5 per cent, and Hellenic Bank held between 30 and 40 per cent, bringing their collective market share to 30 to 40 per cent in this segment as well.

Similarly, in business lending, the combined share ranged from 30 to 40 per cent, with Eurobank Cyprus contributing 10 to 20 per cent and Hellenic Bank adding 10 to 20 per cent.

For deposits, Eurobank Cyprus’ market share was between 10 and 20 per cent, while Hellenic Bank’s was between 30 and 40 per cent. Their combined share in the deposit market reached 40 to 50 per cent.

In retail deposits, Eurobank held 5 to 10 per cent, and Hellenic 30 to 40 per cent, summing up to 40 to 50 per cent. In business banking deposits, Eurobank accounted for 20 to 30 per cent, and Hellenic Bank for 10 to 20 per cent.

The European Commission’s guidelines suggest that when the market share difference between merging parties and their next largest competitor exceeds 20 per cent, there is a higher likelihood of competition concerns.

In this case, however, the CPC majority noted that the gap between Eurobank Cyprus, as well as that of Hellenic Bank, and the next largest competitor, the Bank of Cyprus, was only 5 to 10 per cent for deposits and 0 to 5 per cent for loans—well below the European Commission’s 20 per cent threshold, meaning there were no immediate concerns about reduced competition.

The CPC majority concluded that the banking sector remains competitive, with smaller banks able to exert significant pressure.

Moreover, customer movement between banks—often triggered by high fees or more competitive rates—indicated that smaller banks could take over a significant portion of new loan applications in case of price increases by larger institutions.

They also pointed out that smaller banks possess sufficient liquidity and capital reserves, enhancing their capacity to absorb new customers.

Responses from the banks surveyed showed that most believed their loan and deposit products were competitive with those of Eurobank Cyprus and Hellenic Bank.

Additionally, the majority noted that the merger would not prevent them from competing effectively with the newly combined entity.

Smaller banks also reported strong liquidity and capital positions, which would allow them to ramp up their offerings if needed.

The CPC majority also observed that Eurobank Cyprus’ growing market share from 2020 to 2022 could be attributed to the low switching costs for consumers looking for better terms.

This, they argued, is a sign that the market is competitive and that customers are actively seeking alternatives when they are dissatisfied with the larger banks.

They concluded that if Eurobank Cyprus or Hellenic Bank engaged in unfair practices post-merger, other banks would be well-positioned to offer competitive alternatives.

Even though the two largest banks—Eurobank Cyprus and Hellenic—would together control between 70 and 80 per cent of the loan market and 80 to 90 per cent of the deposit market, the CPC majority argued that the continued presence of a sufficient number of smaller banks would maintain competitive pressure.

However, the CPC minority raised significant concerns about the impact of the merger. They argued that the merger would fundamentally alter the structure of the banking market in Cyprus and could harm competition.

Specifically, they warned that the consolidation might lead to the creation or strengthening of a collective dominant position between Eurobank, Hellenic, and a third party, potentially leading to coordinated pricing behaviour.

The minority expressed doubts about the ability of smaller banks to meet increased demand in the event of market coordination by the larger banks.

With market shares consistently below 5 per cent, the CPC minority continued, smaller banks might not have sufficient capacity to counteract anti-competitive behaviour by the newly merged entity and the Bank of Cyprus.

Furthermore, the responses from smaller banks were not sufficiently clear about their ability to respond to a significant increase in demand, according to the CPC minority.

They also criticised the CPC’s economic analysis, arguing that it did not adequately address the link between profitability and productive capacity.

The minority felt that more clarity was needed from both the smaller banks and the Central Bank of Cyprus (CBC) regarding the strategic plans and production capabilities of the smaller institutions.