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GREEK BANKS | Solid Q1 leaves upside skew to FY24e; Buy

Q1 Results Beat Estimates – Greek banks kicked off the year with strong Q1 results, with adj. net profit remaining flat qoq at €1.26bn and soaring 45% yoy exceeding both our and consensus estimates by >10%, as a result of resilient NII and lower-than-expected underlying CoR (at 64bps vs EEe of 77bps). In more detail, sector-wide NII surged 15.5% yoy in Q1 (NIM +42bps), slipping just 2.6% qoq (NIM down by 8bps) after a record-breaking Q4’23, in line with our estimates, with Eurobank showing the most resilience maintaining flat NII and NIM. The sector NII performance was driven by a confluence of factors including seasonality, higher hedging costs, frontloading of senior preferred issuance, and seasonally weak credit expansion (c€0.1bn), which more than offset the resilient customer margins (-5bps q/q vs EEe -20bps in 2024e) and a low deposit beta (16% vs EEe 20% in 2024e). At core PPI level, Q1 results were nearly flat q/q (and up by 23% yoy), broadly in line with our and cons estimates, with NBG and Eurobank standing out as most resilient beating EEe and cons estimates by c2%. Results were also bolstered by lower-than-expected OpEx (down 7% q/q; -1.4% vs EEe) which offset the small qoq reduction in core income (-2.7% q/q; in line with our estimates) given sequentially lower NII and fees. In terms of returns, Eurobank and NBG recorded the highest annualized RoTE at c20%, followed by Piraeus at 16.4%, and Alpha at 12.9%. Regulatory capital also ticked higher, with the average FL CET1 ratio reaching 16.1%, marking a 40bps improvement q/q after accounting for dividend accruals, bolstered by organic capital generation and flattish RWA. That said, Greek banks did not update their guidance opting to wait until Q2 trends are assessed.

Cleaner balance sheets, resilient loan spreads and low deposit beta underpin bottom-line stability – Q1 showed improved asset quality with minimal NPE formation before write-offs and inorganic actions, lowering the NPE ratio to 4.0% from 4.2% in Q4’23. The sector’s underlying CoR (including servicing costs) shaped at 64bps, below the average 2024e guidance and our 75bps Q1 estimate. Despite the lower-than-expected CoR, which was the main driver of profit beat vs our estimates, and the achieved balance-sheet derisking indicating that Greek lenders are well-prepared for a tougher credit environment, we conservatively maintain our estimates at the current juncture. As far as pricing dynamics are concerned, loan spreads and deposit betas were also better than expected, with a 5bps reduction in loan spreads qoq (vs our 20bps reduction assumed for 2024e) and deposit betas of 16% vs our 20% FY24e, thus leaving an upside skew to FY24 NII estimates.

Valuation – Following a bout of underperformance in March (>15%), which had resulted in the widening of the 2024e P/TBV discount vs periphery peers to >20% on concerns over their sensitivity to the rate cutting cycle and uncertainty over the size of dividends (SSM pending approvals), Greek bank shares have recently caught up with the upward movement of their EU peers, but still remain at >20% discount. With the 3 banks in our coverage still at c6.2x 2024e PE and c0.77x P/TBV, there is further upside in our view, especially as current prices still incorporate CoE in the mid-teens, a level which fails to reflect the resilience of income, significant capital optionality (with >€4bn excess capital) and improved asset quality. With these in mind, we feel the combination of still conservative estimates (2025e RoTE c12%), attractive valuations, and upcoming catalysts (reinstatement of dividends, further earning upgrades) make up a compelling case. As such, we reiterate our “Buy” for all banks on unchanged PTs, with Piraeus remaining our top pick given the solid execution and an attractive risk/return profile.