The sustainable growth model in banking: an application to the National Bank of Greece

Explains how growth in banks is constrained by equity growth and regulations on leverage; and expresses the sustainable growth rate (SCR: i.e. maximum increase in total assets which can be supported by internally generated equity capital) mathematically. Applies the model to the National Bank of Greece 1993‐1998 and shows that its growth exceeded the SGR except for 1994 and 1995. Discusses four possible financial strategies for dealing with this: increasing return on assets, increasing profit retention, selling new shares or increasing leverage. Demonstrates numerically how the SGR model can calculate any of the four variables, given the other three, and thus help with decision making.