In a striking turnaround, Greece has sold off the majority of its holdings in the banking sector over the past year. This aggressive program, which has brought in €3.5 billion ($3.8 billion), is part of a broader movement across Europe, where governments are shedding the stakes they acquired during the financial crisis over a decade ago. Greece, like other European countries, is capitalizing on the improved valuations of banks to fill budget gaps, preparing for potential economic headwinds, and reshaping the banking landscape in the process.
The sale of a stake in the National Bank of Greece (NBG) in particular has marked a significant shift, effectively transferring ownership of a sector that had been under government control back into private hands. Greece’s pace has been extraordinary, but the country is not alone in this transition. Across Europe, from Ireland and Italy to the UK and Germany, governments are cashing in on their bank stakes. With rising interest rates boosting bank profits, the opportunity has emerged for these governments to unwind their positions before declining rates might start to squeeze bank profitability again.
This process not only brings financial relief to governments but also has the potential to catalyze a new wave of consolidation in European banking. Banks that were previously steered towards cautious domestic strategies under state ownership are now poised to pursue more aggressive growth. In other cases, lenders like Germany’s Commerzbank AG, which are no longer shielded by the state, are becoming prime targets for takeover bids.
A European Trend
According to financial filings reviewed by Bloomberg, European governments have sold around €13 billion of bank shares this year, the highest since the aftermath of the financial crisis. Despite the steady stream of dividends collected from these banks, most governments will not fully recover the capital they injected during the bailouts. Nevertheless, the current climate offers a unique opportunity for governments to exit their investments as bank valuations have soared, largely due to an unprecedented spike in interest rates.
Interest rates, which had hovered at zero or even negative levels for much of the past decade, began rising sharply over the last two years. This has allowed banks to generate record profits as borrowing costs increased. In countries like Greece, Italy, and Spain—nations particularly hit hard by bad loans and economic stagnation—banks have undergone dramatic clean-ups of their balance sheets. This has enabled these banks to emerge stronger and more competitive, with their stocks becoming some of the most sought-after in Europe.
Ilias Xirouhakis, head of the Greek government’s Hellenic Financial Stability Fund (HFSF), which oversaw the sale of bank stakes, praised the transformation: “Greece’s troubled banks of the past have been transformed into some of the most desirable assets in Europe. We’re now looking at very competitive banks at a pan-European level.”
The UK and Germany: Leading the Shift
Among the notable examples of this transition is the UK’s NatWest Group Plc. Formerly known as Royal Bank of Scotland (RBS), NatWest was rescued during the 2008 financial crisis with a staggering £45.5 billion ($59.4 billion) bailout. This made it Europe’s largest bank bailout at the time. Since then, NatWest has retrenched, drastically reducing its international presence and refocusing on its core domestic market.
The UK government’s gradual divestment from NatWest represents the largest chunk of state bank disposals in Europe this year. As the bank has returned to private ownership, it has pursued bolder moves, including the acquisition of the banking operations of supermarket chain J Sainsbury Plc. With this retreat from government control, NatWest, like other European banks, is eyeing new opportunities for expansion.
Germany, too, has seen a pivotal shift. In September, the government began selling part of its stake in Commerzbank, marking a significant moment in the country’s banking history. Initially bailed out in 2009, Commerzbank remained partially state-owned for over a decade. However, this sale was quickly complicated by an unexpected move from Italy’s UniCredit SpA, which took advantage of the offering to build a large stake in Commerzbank, raising concerns in Berlin about an “unfriendly” takeover bid.
Germany’s hesitation to release Commerzbank fully into private hands contrasts with the broader trend, but experts argue that the country’s banking sector needs consolidation. Monika Schnitzer, a professor of economics at LMU Munich and chair of the German Council of Economic Experts, emphasized that “Germany needs a degree of consolidation in the banking sector.”
Southern Europe’s Recovery
Southern European countries, particularly Greece and Italy, have undergone the most dramatic transformations. These nations had some of the highest levels of non-performing loans (NPLs) in Europe following the financial crisis, but after years of restructuring and deleveraging, their banks are now re-emerging with much cleaner balance sheets.
In Greece, non-performing loans peaked in 2016, with more than 90% of borrowers late on their payments. Today, this figure has fallen to less than 10%, marking a significant recovery. Greek banks, which had been unable to pay dividends since 2008, were able to do so again this year as their profitability improved. This recovery, combined with Greece’s economic stabilization and the country’s return to investment-grade status, has attracted foreign investors. As Xirouhakis noted, “The safety net of the state has been pulled back, but it happened at a time when the banks were already showing very strong signs of recovery. It was the right time for us to leave.”
Italy is experiencing a similar revival. Banca Monte dei Paschi di Siena SpA, one of the oldest banks in the world and a key player in Italy’s financial system, has made significant strides in cleaning up its balance sheet. Monte Paschi is now on the verge of returning to full private ownership, and the government has indicated that the bank could play an essential role in domestic consolidation once that process is complete. Italy has already seen a wave of mergers in recent years, with Intesa Sanpaolo SpA acquiring Unione di Banche Italiane SpA in 2020 to create a national banking champion.
Spain’s Ongoing Consolidation
Spain has also been moving forward with its own program of state divestment and banking consolidation. During the country’s real estate crash in the early 2010s, many banks were bailed out by the government and subsequently merged or sold off. This process has continued, with Spain’s largest lenders solidifying their market positions and expanding internationally.
One key player is CaixaBank SA, which acquired Bankia SA in 2020 after the latter was bailed out by the state in 2012. The Spanish government still owns an 18% stake in CaixaBank but has expressed a desire to sell its holding once the bank’s share price rises to a more favorable level.
These changes are not going unnoticed by international investors. According to Simon Outin, head of financials research at Allianz Global Investors, “We see countries which had a bankrupt banking system ten years ago now being very close to or even in investment grade territory again and placing debt very well in the market. Banks in Greece, Cyprus, Spain, or Ireland are now among the risks we prefer as creditors. French and German banks are now looking in envy at those banks with a positive momentum.”
A New Chapter for European Banks
As governments across Europe unwind their stakes in banks, the continent’s financial landscape is undergoing a significant transformation. Once seen as risk-heavy institutions plagued by bad loans and economic crises, many of these banks are now returning to private ownership as profitable, competitive entities.
This shift could signal the start of a new era of consolidation within Europe’s fragmented banking industry, with stronger, more aggressive lenders emerging from the shadows of state control. At the same time, the withdrawal of governments as shareholders may leave some banks vulnerable to takeover bids, as evidenced by the situation with Commerzbank in Germany.
For countries like Greece, where the banking system was once on the brink of collapse, the shift back to private ownership represents a significant achievement. As Xirouhakis aptly summarized, “It was the right time for us to leave.” Whether this trend will lead to greater consolidation and stronger banks across Europe remains to be seen, but for now, the stage is set for a new chapter in European banking.
