National Bank of Greece (NYSE: NBG) looks like a flickering flame exposed to the gusty wind of the eurozone's financial turmoil -- a wind that has already extinguished many banks in the region. Despite the struggling Greek economy, National Bank of Greece has somewhat miraculously managed to pull off a profit of $208 million in its 2010 fourth quarter.

The question is: Should investors consider this an aberrant stroke of good luck or the first turn in a prolonged recovery?

The numbers
Not surprisingly, the annual profits for the bank came in low -- a sharp $574 million decline of 56% from 2009. But given the debt crisis and the economic quagmire that Greece finds itself in, a profit is still praiseworthy nonetheless.

Cost-cutting initiatives have contributed a lot to this profit, and CEO Apostolos Tamvakakis intends to continue with these measures. National Bank of Greece's Turkish subsidiary Finansbank, with its impressive performance, has also added to the profit. But let's look beyond the net income to get a holistic view of the bank's recent performance.

National Bank of Greece's net interest income grew 5% on a year-on-year basis. The bank's liquidity and capital positions appear strong based on a loan-to-deposit ratio of 103% and Tier 1 capital adequacy ratio of 13.1%. In fact, National Bank of Greece has performed much better in its Turkish and Southeast European subsidiaries than in Greece. Finansbank's net income grew by 1%, while its lending and deposits jumped by 26%.

The bank's home turf seems to be the weak link. Where there was a profit of $562 million in 2009 in the Greek segment, there was a net loss of $192 million in 2010.

Greece's banks are neck-deep in bad debt. They're relying too much on the European Central Bank's support and are being pressured to go for mergers to cope with the crisis. But the bank's all-share bid last month was rejected by Alpha Bank -- yet another setback.

Bottom line
As I mentioned in "Europe's Lingering Debt Crisis: Should Investors Worry?," the Greek banking system is as bad its Irish counterpart. After the downgrading of Irish banks such as Bank of Ireland (NYSE: IRE) and Allied Irish Bank (NYSE: AIB) by Standard & Poor's, Moody's downgraded six Greek banks -- and National Bank of Greece was one of them. And the weakening of the Greek banking system is still a huge concern, which makes me reluctant to change my stance on this bank. Though the recent numbers are certainly a step in the right direction, it's going to take more to convince me that National Bank of Greece is fully on the right track.

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