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GREEK BANKS | DTC headwinds fade, dividends rise, and value beckons

Strong Q3 Results Reinforce Optimism on Lending Growth and NII Resilience - Greek banks delivered another strong quarter in Q3, surpassing our and consensus estimates, driven by higher-than-expected NII (+3% vs cons) and significantly lower impairments (-25% vs cons). Despite NII headwinds, the NIM held firm at 2.74%, driven by low deposit betas (17% of the overall deposit base), resilient lending spreads (-12 bps ytd), incremental yields from reinvested bond portfolios, and strong credit growth of €2.8bn qoq and €6bn ytd, keeping NII robust. Asset quality improvements and strong fee generation—driven by lending activity and a c18% ytd surge in AuM—further underpinned operational momentum. The sector’s standout efficiency, reflected in a 33% C/I ratio, propelled net profits to €1.3bn (+7.5% qoq) and RoTEs at an impressive c17%, prompting upgrades to 2024 guidance. Eurobank led the pack with annualized RoTEs of c20%, followed by NBG and Piraeus Bank at c18% and Alpha Bank at c13%— levels higher than their European peers (i.e c16%). Even as Greek banks remain more rate-cut sensitive than their European counterparts, the projected 4ppt decline in adjusted RoTE by 2026e still leaves them comfortably aligned with peripheral bank averages (c12%, down from 16% in 2023). Critically, these RoTEs closely align with a “normal” CoE, reinforcing their strong value proposition.

Faster DTC Elimination Boosts Visibility on Higher Payouts - Greek banks' sustained profitability has fueled robust capital growth, adding c40bps qoq, with Alpha Bank, Piraeus Bank, and Eurobank also benefiting from ratings-related RWA relief. FL CET1 ratios now average 16.4%, aligning with European peers (CET1: 15.8%, CAD: 19.9% as of Q2'24) and are poised to strengthen further by 2026, with excess capital post-dividend distributions estimated at c35% of MCap by then. Despite DTC/CET1 ratios hovering at c50%, the risk of dividend caps has significantly diminished, in our view, thanks to voluntary DTC derecognition ahead of schedule. Greek banks aim to lower DTC/CET1 ratios to 20%-30% by 2027 and achieve full derecognition by 2032-34 (vs 2041). Even accounting for Basel IV impacts (20-60bps) and accelerated DTC amortization (29% of payouts), CET1 ratios are projected to grow by c50bps annually. Payout ratios are primed to reach around 50% by 2025 for all systemic banks, with NBG and Eurobank already guiding for 50% from 2024 profits. Dividend yields on offer range from 7% to 10% for 2024, rising to 9%-11% by 2025-26, often surpassing those of peripheral European peers (c8%).

Valuation: Raising PTs, Piraeus staying top pick - Following quarterly beats on earnings and capital, we update our models raising our FY24 net profit estimates by an average of c5%, while making trivial changes over 2025–26. These recalibrations drive c2% increases to our price targets. Despite consistently exceeding profit estimates in recent quarters, Greek banks have underperformed peripheral banks and the SX7E index by c29% and c12% ytd, respectively. With the 3 banks in our coverage still at 4-5x 2024e PE and 0.5-0.8x P/TBV, currently incorporating a CoE in the high-teens, overlooking the resilience of revenues, capital optionality and improved asset quality, there is material upside in our view. Coupled, with conservative 2025e RoTE estimates of c11%-15%, attractive valuations, and catalysts such as increased dividends and potential earnings upgrades (given the conservative modelling), the investment case remains quite compelling in our view. As such, we reiterate our “Buy” for all banks, with Piraeus remaining our top pick given the solid execution and an attractive risk/return profile, arguing that the current valuation fails to capture its recovery story and double-digit sustainable RoTE (14.0%/12.8% for 2025/26e).