Report
Panagiotis Kladis, CFA
EUR 300.00 For Business Accounts Only

GREEK BANKS | Ready to turn the corner

Completion of clean-up visible – The end of banks’ longstanding clean-up effort is now visible, as all banks have accelerated their initiatives and are now expected to complete their planned transactions by mid-2022. Progress on capital enhancing actions is also quite encouraging and much needed given the clean-up costs. On our estimates the NPE ratio (avg for the three banks under coverage) at YE 2021 will shape at 11.2% (from ca 40% a year ago), while their CET 1 ratio will stand at 14.2%, comfortably above regulatory requirements.

Focus to gradually shift to profitability prospects for 2022 and beyond –Nevertheless, we believe investors’ focus should gradually shift to profitability prospects for 2022 and beyond. While F&C income trends appear promising, the key challenge will be on the NII generation, in our view, given the anticipated loss from NPE disposals, estimated at ca € 1bn at sector level. Hence, credit growth and interest rates evolution will become increasingly important in the coming quarters. While the backdrop is likely to become supportive, it remains to be seen whether it will be strong enough for banks to reach their revenue targets.

Limited changes to our estimates – Our new aggregate PPI estimates are revised down by 3% on average for the 2022-23 period, mainly reflecting weaker NII trends, overshadowing higher F&C projections. Our net income estimates are lifted by 2% on average given the lower CoR assumptions by 9%. On that basis, we now expect sector earnings to start recovering from 2022 onwards, albeit with different pace depending on the status of each bank.

Re-rating to continue in a more gradual manner – Greek banks trade at 0.4x P/TBV on 2022 estimates, remaining at ca 35% discount to EU periphery peers vs a much larger discount in the previous years. The completion of the balance sheet clean-up coupled with Greek banks’ profitability prospects justify higher valuation multiples and a smaller discount to EU periphery peers, in our view. Nonetheless, the re-rating may take place at a more gradual manner, as the market may be looking to assess profitability prospects towards year-end and confirmation that Greek banks can deliver on their strategic targets.

NBG remains our top pick, upgrade Piraeus to ‘Buy’, downgrade Alpha to ‘Hold’; - We raise our recommendation for Piraeus Bank (PT €1.84) to ‘Buy’ from Hold as we find its risk/return profile attractive at this stage, given that it is well on track to complete its clean-up plan. We downgrade Alpha Bank’s (PT € 1.37) rating to ‘Hold’ from ‘Buy’ as, despite the progress made on the implementation of its strategic plan, it trades at a rather unattractive valuation vs peers, in our view. Finally, we reiterate a ‘Buy’ rating on National Bank (PT €3.48) as we believe it offers a very compelling combination of strong fundamentals and attractive valuation.
Underlyings
Alpha Bank AE

Alpha Bank is a banking and financial services group which is based in Greece. Co. is engaged in offering a range of services including retail, SME and corporate banking, credit cards, asset management, investment banking, private banking, brokerage, leasing and factoring. Co. is also active in international financial market, with a presence in Cyprus, Romania, London, Serbia, Albania, Jersey (Channel Islands), Bulgaria, former Yugoslav Republic of Macedonia and New York. Co. maintains a focus on retail banking in Greece and particularly loans to individuals and small business loans, and overall expansion in Southeastern Europe. Co.'s activities are divided into retail and wholesale banking.

National Bank of Greece S.A.

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 Financial Holdings S.A.

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.

Provider
Eurobank Equities
Eurobank Equities

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.

Analysts
Panagiotis Kladis, CFA

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