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GREEK BANKS | 2018 stress test reveals no capital shortfalls

Based on the ECB’s announcement for the 2018 stress test, no capital shortfalls were identified for any of the Greek four systemic banks. As per the results, on a sector level (4 systemic banks) under the baseline scenario the four systemic banks’ average CET 1 (phased in) would stand at 16.9% at the end of 2020 vs. 16.9 % at YE 2017 (adjusted for IFRS 9), while under the adverse scenario their CET 1 would stand at 7.3%, lower by ca 9pps or EUR 15bn.

We think the announcement should be a significant relief for the market as it should remove any concerns about the possibility of another recapitalization in the foreseeable future. Overall, the announced figures were in line with our expectations and confirm our views for Greek banks as Alpha Bank and NBG (both rated ‘BUY’) registered the highest ratios in the adverse scenario.

Alpha Bank’s performance, in terms of CET 1 (phased in), in the 2018 stress test appeared to be the best in both baseline and adverse scenario as a result of a better starting point but also due to a much stronger PPI vs peers. Interestingly, it is the only one for which the baseline scenario proved to be capital accretive. We think this was another indication of the group's strong balance sheet and prudent business model.

We add Alpha Bank to our list of top picks as we think it offers a strong set of fundamentals, especially when it comes to its best-in-class regulatory capital (CET 1 at 18.3% with no state aid and the lowest DTC), total coverage on NPLs/NPEs and strong PPI at an attractive valuation at 0.38x P/TBV on 2019 estimates. Our 12 m TP implies a 28% from current levels.