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GREEK BANKS | On a recovery mode

Q1 earnings suggest a good start to the year – Greek banks reported sizeable net profit (€1.2bn) for Q1 2022 on the back of one-off revenues, lower operating expenses and a significant decline in provisions. Core revenues were lower both on a yearly and quarterly basis as the NII drop (-14% y/y) overshadowed the impressive fee generation (+28% y/y). Organic asset quality trends were neutral (avg NPE ratio at 9.6%, -30bps q/q), while regulatory capital on a fully loaded (FL) basis improved q/q on the back of positive P&L (avg CET 1 at 12.7%, +60bps q/q).

Management guidance optimistic despite headwinds – Interestingly, management teams were quite upbeat at the earnings calls: i) they reiterated profitability targets for the year, with some of them even suggesting that risks lie mainly on the upside, ii) they stated that there is a strong pipeline for financing projects, reiterating their yearly credit expansion targets (ranging from €1.2bn to over €2.0bn), and iii) they stated that there are no signs of stress on asset quality while expressing their optimism for the coming quarters given the state support initiatives and the level of deposits in the system.

Higher estimates but remain more conservative vs management guidance – We have raised our 2022 estimates mainly filtering through the sizable trading gains of Q1 along with some fine tuning. Our new aggregate PPI estimates are revised upwards by 8% on avg for the 2023-24 period, mainly reflecting higher core revenues, partly due to the incorporation of a 50bps hike in Euribor and higher fees. Incorporating a further 60bps rate increase (assuming Euribor at ca 60bps by 2023) would translate in a ca 12% increase in system PPI on our numbers. We reiterate the view that sector earnings are on a recovery mode with risks however remaining elevated due to the prevailing external uncertainties.

Tactically cautious; positive in the medium-term – We retain a constructive stance when it comes to the evolution of sector fundamentals, on the back of a fairly positive macro backdrop, much cleaner balance sheets allowing focus on earnings generation, the prospect of higher rates and banks’ strategic shift to fee generation activities. When it comes to market performance, we believe the biggest risk at the moment is the volatile and precarious external environment, and as a result we retain a cautious stance from a tactical perspective although we do see decent upside over the medium term. Given profitability prospects, we find Greek banks’ valuation 0.5x 2022e P/TBV) quite attractive.

Higher PTs on earnings upgrades, Upgrade Alpha Bank to ‘Buy’ – We increase our PTs as a result of the changes in our 2022-24 estimates, now incorporating somewhat better operating trends, mainly at the top line. We upgrade Alpha Bank to ‘Buy’ from ‘Hold’ as its risk/return profile has improved following recent underperformance. We reiterate our ‘Buy’ on both National Bank and Piraeus Bank given the positive risk-reward skew, with National Bank enjoying higher quality fundamentals though.