EUR 300.00 For Business Accounts Only

GREEK BANKS | Q1 2020 Earnings Review

In this note we present an overview of Q1 2020 earnings which were mixed overall. At a sector level, key operating trends were resilient, however some first signs of deterioration in asset quality were evident, urging most banks to record higher loan impairments. An interesting statistic is the size of debt moratoria thus far (€ 16bn or 16% of PE), which earmarks the pool out of which new NPLs may arise; the extent of the state support and next year’s recovery dynamics will determine its magnitude.

Liquidity improved further during the quarter, while regulatory capital was weaker q/q (avg CET 1 at 15.1%, -130bps q/q), but it stands to benefit from upcoming regulatory amendments (by 60-90bps). Capital buffers vs regulatory minimum requirements remain hefty at ca € 9bn. Management teams were optimistic overall, some of them stating that they expect to execute large scale NPE securitizations by year end with the estimated impact not materially different vs initial guidance.

We leave our estimates unchanged following the release of Q1 2020 earnings. However, we believe the risk to our estimates is mainly on the upside given the recent EC proposal for a €750bn recovery fund (a potential game changer for Greece), as well as some encouraging signs regarding tourism trends (vs previous expectations), which should alleviate macroeconomic pressures.

Greek banks’ risk/return profile remains attractive, in our view, taking into account their current low valuation (0.2 P/TBV) and our base scenario (no meaningful profitability for 2-3 yrs, but comfortable regulatory capital). We upgrade Alpha to ‘Buy’ on valuation grounds, given its recent underperformance, while reiterating our rating on NBG (Buy, TP €1.85) and Piraeus (Hold, TP €1.52)