EUR 300.00 For Business Accounts Only

GREEK BANKS | Encouraging signs

Profitable Q2 on resilient revenues and lower provisions – Greek banks registered further improvement in core PPI generation during Q2 2020, (at € 792mn, +3% y/y, +2% q/q) on the back of resilient core revenues and lower OpEx. Loan provisions were markedly lower after last quarter’s frontloading of C-19 provisions (by NBG and PB). As a result, banks reported higher profitability in Q2, with all of them being profitable as opposed to Q1’s wide divergence in reported bottom lines.

Three encouraging signs out of Q2 earnings: i) resilient core revenues: core revenues at sector level were flat q/q in Q2 despite the adverse market conditions (GDP -15.2%) mainly driven by NII, while F&C was better than expected albeit weaker q/q, unsurprisingly. That said, management guidance was somewhat more optimistic regarding cPPI generation. ii) risks related to debt moratoria manageable: debt moratoria stood at ca 11% of total loans as of Q2, with banks estimating no significant further increase. While this figure clearly adds to the overall uncertainty, we believe it appears manageable overall; based on our sensitivity analysis even if 60% of this is converted to NPEs it would require ca 2yrs cPPI to absorb the associated credit loss, suggesting a fairy limited risk to capital. iii) NPE reduction plans on track: As per the banks’ communication, the planned large scale NPE securitisations, a key pillar of NPE reduction strategies, seem to be well on track to be completed by early 2021, with the estimated impact being within guidance. The planned securitizations should reduce the stock of NPEs by ca 40%.

Key changes to our estimates: i) higher core revenues given their resiliency during Q2 and ii) lower NPEs inflows related to the pandemic (ca 60% of the debt moratoria vs ca 75% previously), although our CoR assumptions remain unchanged. Our new aggregate PPI estimates are revised up by 8% for the 2020-22 period, while our net income estimates are higher than previously but still point to a subdued bottom line performance up to 2022, with NBG being the only exception (ca 5% RoE in 2022).

Valuation – Greek banks trade at ca 0.2x P/TBV on 2021 est., which we believe constitutes a compelling entry point and risk-return balance. Looking ahead we expect the valuation to recover and ultimately to narrow the gap with EU peers, although the timing of this remains uncertain. Notwithstanding the encouraging signs outlined above, we feel the market needs more visibility on 2021 and beyond, which is more likely towards the year end. The implementation of the EU recovery fund should also underpin prospects, thus eventually attracting investors’ interest.

Buy on Alpha Bank, NBG, Hold on Piraeus – Our new TPs are slightly different than previously for all banks, as a result of our earnings updates. We maintain a ‘Buy’ recommendation for National Bank (Buy, TP €1.92), as we think it offers an attractive combination of fundamentals and valuation, and for Alpha Bank (Buy, TP €0.88), mainly on valuation grounds, while we retain our ‘Hold’ recommendation on Piraeus Bank (Hold, TP €1.47) as we believe its fundamental position remains weaker, thus justifying a valuation discount vs peers.