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GREEK BANKS | Investment Case Intact

Macro backdrop worse but still positive – The rising inflationary pressures in the aftermath of the recent geopolitical developments and the COVID spillover effect create a more challenging macro backdrop. While uncertainties remain elevated, initial estimates point to a manageable impact for the Greek economy (1-1.5pps of GDP), which is still seen exhibiting healthy growth rates exceeding 3% in 2022-23.

Banks’ investment case remains largely intact – Against this worse than previously envisaged but still positive backdrop, we believe Greek banks’ investment case remains broadly intact. While we expect the evolution of fundamentals to be somewhat weaker than we had anticipated pre-war, we believe banks are still in a position to return to sustainable profitability starting from this year, as reflected in our new baseline scenario.

Change in estimates – We reduce our aggregate PPI estimates by 5% on average for 2022-23, mainly reflecting lower core revenues, and our net income estimates by 12% on average, also penciling in higher provisions. We reiterate the view that sector earnings will start recovering from 2022 onwards, albeit at a slower clip than previously anticipated and at a different pace depending on the status of each bank. Our average RoTE for 2022-23 stands at 5.0% and 7.1% respectively.

Stressing estimates: downside risk limited – We examine an alternative, worse macroeconomic scenario (zero growth for 2022 and mild recovery for 2023) to assess downside risks. In this case, we estimate that PPI and net income would be 7% and 40% lower than under our baseline respectively, leading to valuations c20% lower than our PTs. We thus argue that downside risks are limited, obviously barring no significant escalation of the geopolitical crisis.

Tactically cautious; constructive medium-term – Banks’ performance during this crisis (positive ytd and in line with EU periphery peers) is indicative of the improved perception by the market, we believe. Valuations (c0.5x P/TBV) remain attractive given the medium term profitability prospects in view of a supportive macro backdrop. Hence, we retain a constructive stance for sector fundamentals and market performance over the medium term, although tactically we would be somewhat more cautious expecting elevated volatility given the highly uncertain environment and the swings related to the geopolitical developments.

Lower PTs on lower earnings, no change in ratings – We reduce our PTs following the changes to our 2022-23e, except for NBG (now placing a higher multiple on excess capital given the completion of the restructuring plan), but we leave our ratings unchanged. We reiterate our ‘Buy’ on NBG on a compelling combination of strong fundamentals and attractive valuation, despite its year-to-date outperformance. We also retain a ‘Buy’ on Piraeus, as we find its risk/return profile attractive at this stage, given it is well on track on completing its clean-up plan and returning to profitability. We keep our ‘Hold’ on Alpha Bank as we argue that the progress made on the implementation of its strategic plan is already reflected in its valuation which we deem as less attractive than that of peers.