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GREEK BANKS | Dividends Ahoy

Resilient NII despite funding challenges and likely interest rate cuts – Following a >50% surge in NII in 2023e (58% in the 9m period), investor focus has been clearly shifting to prospects for 2024-25e, especially in view of likely rate cuts. Despite the upcoming peak in NII (in Q4’23 or Q1’24), we project resilience in 2024, supported by credit growth (c4% p.a. in 2024-25e), the gradual benefit from deposit hedges (contributing c4% of NII by 2025e) as well as the lower-than-anticipated deposit betas and contraction of lending spreads, which are likely to push back a noteworthy contraction of NIMs into FY’25e. As interest rates decrease, we anticipate significant divergence among banks, with Alpha Bank poised to benefit the most due to its higher funding costs (yet still offering a lower sustainable RoTE of c10% in 2025e vs its Greek peers at c10%/12%). Inputting a DFR of 4% in 2023 falling to 2.5% by 2025e, a 14% deposit beta in 2023e (rising to 19% by 2024e) and 24% term deposits in the mix (rising to 40% by 2025), we estimate c5%-c10% annual NII declines in 2024-25e corresponding to a NIM of 2.6% and 2.3% respectively, still materially higher than that in 2022 (1.72%), with 2025e NII some 29% higher than 2022 levels.

Q3 results point to a RoTE of >15% in FY’23e – Greek banks reported another robust set of Q3 results, beating both our and consensus, mainly on higher NII, solid fee generation, contained costs and lower underlying CoR. At sector level, NII was up 56% y/y (NIM up by 109bps) and 7% q/q (NIM up by 16bps), with Piraeus leading the pack (NII up 9% q/q/ NIM up 15bps). This robust performance can be attributed to the sector's notably low deposit beta, hovering at c14% (vs 13% in Q2 and 10% in Q1), along with expanding bond portfolios (19% of assets/c+14% y/y), surplus liquidity held with central banks, and a gradual resurgence in credit expansion (c€2bn in 9M’23). Overall, in 9M the Greek banks enjoyed a RoTE of c16%, heading for a record year, with NBG and Eurobank presenting the highest annualized RoTE of c18% followed by Piraeus Bank (c16%) and Alpha Bank (c13%).

… driving further earning upgrades to our numbers; RoTEs 11-15% in 2024e – We have raised our 2023-25e adj. net income (16%/11%/4%) to reflect improved guidance on NII and Q3 trends. Additionally, we still expect solid fee generation (2023-25e CAGR of c5%), buoyed by strong macro and robust asset management activities, with OpEx remaining under control (efficiency ratios in the 35-38% range). Furthermore, CoR ought to gradually decline (to 0.61% by 2025e), reflecting improvements in asset quality. Overall, we argue Greek banks are set to navigate rate reductions effectively, being primed for sustainable RoTE >10-11% post-2025e (and 11-15% in 2024e). This, coupled with robust capital generation (>250bps by 2025e) will enable the resumption of dividends, with payouts at 17-27% over 2023-25e.

Valuation: raising PTs, Piraeus staying top pick – GR banks returned >60% in 2023, partly propelled by earnings upgrades (12m fwd EPS +58%) and partly by re-rating. With the sector still at c5x 2024e PE and c0.6x 2024e P/TBV, there is further upside in our view, especially as current prices still incorporate CoE in the mid-teens failing to reflect the resilience of revenues, significant capital optionality and improved asset quality. With these in mind, we feel the combination of still conservative estimates (2025e RoTE c11%), attractive valuations, and upcoming catalysts (i.e. reinstatement of dividends, HFSF’s full divestment, GGB spreads contraction) make up a compelling case. As such, we reiterate our “Buy” for all banks on higher PTs (estimate upgrades and lower CoE), with Piraeus remaining our top pick given the solid execution and an attractive risk/return profile.