GREEK BANKS | Cost of balance sheet repair overly discounted
In our sector update note we focus once again on asset quality dynamics, which remain the key challenge for Greek banks.Specifically, we discuss the recent organic progress, which remains limited due to a number of reasons outlined in this note, and which could be reversed sooner or later. Moreover we argue that despite the slow organic progress there are reasons for optimism as the secondary NPE market appears to be gaining traction while the first pricing indications are also encouraging due to strong investors’ appetite. In addition, we show that Greek bank PPI, even if weaker than previously, still offers significant loss absorbing capacity suggesting that, at the sector level, banks could proceed with the necessary balance sheet repair without tainting their capital base.
Based on the above we are of the view that valuations at these levels overly discount the balance sheet repair cost and do not reflect the progress made, as it pertains to the NPE resolution framework, thus believe the current valuation gap (0.25x P/TBV vs. EU 0.8x) has peaked and expect it to shrink, leading to Greek bank shares outperformance from these levels.
National Bank of Greece is a financial institution based in Greece. Co. maintains operations in the retail banking sector, with 509 branches and one premium banking branch, and 1,448 ATMs. Co. offers its customers a range of integrated financial services, including: corporate and investment banking; retail banking (including mortgage lending); leasing and factoring; stock brokerage and asset management; insurance; and real estate and consulting services. Co. is also involved in other businesses, including hotel and property management. Co. operates in Greece, U.K., South Eastern Europe which includes Bulgaria, Romania, Albania, Serbia, as well as, in Cyprus, Malta, Egypt and South Africa.
Piraeus Bank is a banking institute. Co. and its subsidiaries provide services in the Southeastern Europe, Egypt, as well as Western European markets. Co. and its subsidiaries operate in four main business segments: Retail Banking, which includes the retail banking facilities; Corporate Banking, which includes facilities related to corporate banking; Investment Banking, which includes activities related to investment banking facilities of Co. and its subsidiaries, including investment and advisory services, underwriting services and public listings, and stock exchange services; and Asset Management and Treasury, which includes asset management facilities for clients.
Eurobank Equities is a Greek-based firm offering research, sales and trading services to institutional, corporate and private clients. The company is wholly owned by Eurobank, one of the 4 systemic banks in Greece.
Research is the backbone of Eurobank Equities' platform, with a team of 4 professionals committed to generating actionable investment ideas by providing timely research products. We are committed to offering value-added services to clients by filtering market noise and providing insights on the multiple sectors that we cover. Our universe includes 26 - large, medium and small cap - companies whose market capitalization amounts to 80-85% of the total market capitalization of the Athens Stock Exchange. Our research team also maintains the capacity to generate ad-hoc research for micro-cap listed companies.
Our team has consistently gained recognition among institutional investors for its quality research, having ranked No. 1 team in Greece at the Extel Surveys of 2013-2016 and 2018. We have also been named Leading Brokerage Firm in Greece over 2014-2016 and in 2018.
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