FREE

Greek Banks: 2021 Driven by De-Risking; Growth Opportunity Ahead, but Geopolitical Tensions Add Uncertainty

The commentary analyses the FY 2021 results for the four major Greek banks: Alpha Bank, Eurobank, National Bank of Greece, and Piraeus. In DBRS Morningstar’s view, the reported losses were primarily driven by accelerated de-risking which paves the way for the banks to take advantage of growth opportunities ahead. However, geopolitical tensions arising from Russia’s invasion of Ukraine add uncertainty to future prospects.

Summary highlights from the commentary include:

• Greek banks reported aggregate net losses of EUR 4.7 billion in 2021, compared to EUR 1.7 billion losses in 2020, and a net profit of around EUR 0.2 billion in 2019. The recent performance has been primarily affected by lower revenues and sizeable loan loss provisions (LLPs), as well as restructuring costs and goodwill impairments.

• Revenues were affected by a variety of factors including growing, albeit still subdued, new lending volumes, as well as de-risking and low diversification. Considering the pressure expected on net interest income, banks will need to focus more on channelling excess deposits towards fee income-driven businesses to improve revenue diversification.

• LLPs and cost of risk increased significantly in 2021 due to accelerated de-risking. Greek banks have carried out a massive de-risking in recent years amidst a substantially lower than initially anticipated deterioration in asset quality due to COVID-19.

• Any increase in new non-performing exposure (NPE) inflows should remain manageable in our view, as de-risking is likely to continue, and capitalisation should be supported by improved internal capital generation and less risky balance sheets.

“Cost of risk should fall going forward considering Greek banks' improved risk profiles and provided that new NPE inflows from the pandemic remain under control. Whilst we note that Greek banks' direct exposure to Russia and Ukraine is limited, geopolitical tensions add potential risk for deterioration in asset quality and the need for higher loan loss provisions in the medium-long term, if rising energy price and inflation affect economic growth” said Andrea Costanzo, Vice President from the DBRS Morningstar Global Financial Institutions team.