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GREEK BANKS | Geopolitical noise masks resilient earnings and re-rating potential

Earnings have bottomed; delivery now structurally de-risked… – Q4’25 marked a clear inflection point, with system NII stabilising q/q (+1.7% q/q) and confirming Q3’25 as the trough, as strong volume growth (>10% y/y, mainly corporate, with gradual retail recovery) and deposit repricing (c.30–40bps) offset rate normalisation. Fee generation (+12% y/y), alongside loan growth, remains the key positive driver, with strong momentum across lending commissions, asset management and bancassurance, supporting a structural shift in the revenue mix (fees at c.24% of revenues in Q4’25, from c.20% in Q4’24). Cost discipline remains intact despite tech and integration investments, with C/I at c.36% (best-in-class in Europe) and positive operating leverage. Asset quality continues to improve (NPE c.2.5%), while CoR remains well-contained at c.58bps in FY25 (incl. prudent PMA overlays for Swiss loans), supported by strong collateralisation and limited new inflows. Profitability remains robust, with systemic banks delivering sustainable mid-teens RoTE (c.15%), while Optima Bank and Bank of Cyprus operate at higher return levels (c.25% and c.18%). Capital remains adequate (c.12–21% CET1), even after loan growth, M&A and higher distributions.

Business plans confirm visibility on sustainable mid-teens returns… – The newly communicated three-year plans from Piraeus Bank, NBG, Eurobank and BoC point to volume-led NII growth, higher fees and strong operating leverage, while Optima Bank and Alpha Bank have only provided 2026 guidance. Loan growth ranges from c.4% (BoC) to high single digits across systemic banks, with Optima implying a structurally higher, double-digit trajectory for 2026. This supports a 3-year NII CAGR ranging from c.3% (BoC) to c.6–7% (NBG/Piraeus/Eurobank), while Optima’s guidance implies >20% y/y growth for 2026 and Alpha points to mid-single-digit growth (c.€2.15bn NII in 2026e). Given Greece’s less elastic, corporate- and investment-driven lending model (underpinned by RRF funding, corporate capex and re-leveraging), credit expansion exceeded 10% in 2025, underscoring resilience; we expect this to remain broadly intact, moderating just slightly due to moderately higher rates and potential GDP deceleration linked to geopolitical risks. Against this backdrop, our assumptions (c.6% NII CAGR, c.7% loan growth, flat DFR c.2.25%) imply margins bottoming in 2026 before gradual recovery. Fees are expected to grow mid- to high-single digit, while CoR is broadly aligned at c.45bps (with downside potential, albeit conservatively framed). Overall, plans provide solid visibility, broadly in line with our estimates, implying EPS growth of c.7% and RoTE converging towards mid-teens by FY28, with dispersion reflecting different growth profiles.

From “worse-than-stress” to early normalization… – The recent rebound suggests the market is beginning to unwind the “worse-than-stress” scenario priced at the post-Iran war trough, where implied RoTE (c11.3%) was below our stress-case estimate (c12.8% for systemic banks in 2026e). Even under our stress scenario (zero credit growth, +10bps CoR, +50bps rates), profitability remains resilient, with RoTE compressing by just c130bps. Sensitivity remains differentiated, with BoC the least impacted (+0.3%) and Optima the most exposed (-18%), while systemic banks show contained downside (Piraeus -6.9%, NBG -5.1%, Alpha -11%). The shares have bounced 22% since the trough, but valuations remain low, implying c13.5% RoTE (for the 3 systemic banks) vs our c15.2% medium-term target, highlighting a remaining valuation gap to fundamentals.

Re-rating potential intact… – Following the recent rebound, with the sector now trading c3% above pre-war levels, valuations remain undemanding at c.1.4x 2026e P/TBV and c.9x P/E, despite mid-teens RoTE, best-in-class efficiency and visible capital returns (c7–10% yield), suggesting the market continues to price in a structurally weaker profitability profile amid elevated geopolitical risks. In our view, this discount is excessive, with strong earnings visibility, clean balance sheets and solid capital generation underpinning a compelling re-rating case even under a more cautious macro backdrop. Piraeus remains our top pick, offering the most attractive risk/reward via valuation catch-up and strong EPS growth (c7% CAGR), while BoC stands out for its superior capital return profile (payout potential up to 90–100%). We upgrade Alpha and Optima to Buy (from Hold), reflecting the improved risk/reward following the upward revisions to our earnings estimates.