Start covering Greek banks – price targets, opportunities and risks for the sector

Ha Eleftherias Cortalis

Jefferies began covering Greek banks, emphasizing that the rise in their share valuations has already occurred and that discounting against regional banks has now closed, and very quickly, while in the medium term, the challenges facing the sector are significant. However, as he notes, while Greece may not offer a ‘special’ recovery story, it is tempting to assume that the cyclical headwinds to net interest income remain significant and present a strong near-term upside.

House coverage starts with the highest of his inventory selection National BankAs he points out, it has plenty of room to grow based on net interest income projections, while also enjoying a strong financial position with a loan-to-deposit ratio of 62%, according to the company’s analysts.

The target rate offered by the National Bank is 6.60 euros with recommendation He buys Considering that it is possible to start distributing dividends from the profits of the fiscal year 2022 soon, with the recommendation Catch Committed Eurobank And Piraeus Bank with the target price 1.65 euros And 2.50 euros Straight, recommend Poor performance gives her Alpha Bank with the target price 1.10 euros Whereas, he explains, the risks to their profitability are not adequately assessed by the market.

Strong momentum in interest income

With around 90% floating rate of Greek banks’ loan book, market estimates seem very conservative, he notes, assuming only around 15% growth in NII net interest income in 2023 (compared to around 25% for Italy/Spain). Jefferies estimates are 10% higher than those in the market, he notes.

However, headwinds will be created in the medium term, with the reduction of NPEs and securities issuance to MREL requirements being significant ‘weights’ for the sector, against most Southern European banks. Greek “normalization” also implies structural downward pressure on loan spreads over time.

outlook image

Jefferies notes that there are still significant differences in NPE and (most importantly) coverage ratios between Greek banks. These differences do not appear to be sufficiently reflected in market expectations, in her view. While it remains relatively bullish on the broader outlook for asset quality, it sees a stark divergence in outlook trends. ETE appears to be well positioned with low NPE (6.1%) and high coverage (82%) creating room for gradual normalization of provisioning levels. Despite the more favorable mix of NPEs, Alpha Bank’s low coverage ratio (39%) is unjustified and with the NPE ratio still rising (8.0%), there is a risk that improved earnings ahead of expectations from stubbornly high expectations ahead. years.

The picture of the Greek banking sector is more cyclical than personal

Jefferies points out that after the deep recession and bank restructuring program of the past decade, there is a temptation to see the Greek banking system as a boom game especially in Europe. However, a rise in valuations has already occurred with Greek banks (0.7x P/TNAV for 2023) trading at a premium to Italian medium-sized banks (0.6x), for example. Meanwhile, the high weight of tourism in GDP means that the Greek economy remains largely tied to macroeconomic developments elsewhere in Europe. In addition, Jefferies says, while reconciliation of the banks’ balance sheets is largely complete, their analysis indicates that a structural acceleration in lending volumes and/or fee-based products is not necessarily expected.

Top and … bottom selection

Given the above, National Bank is Jefferies’ favorite, as it offers the largest upside in NII compared to market estimates (+12% in 2023), while its high coverage supports faster forecast normalization in the future (it forecasts about 30% lower forecasts in 2024 market estimates). With a fully loaded CET1 ratio of 15.2%, the house believes NBG can begin to pay a modest dividend from its 2022 earnings, while for 2023 P/TNAV trades at 0.8x for a 9.6% ROTE in 2024.

As for Alfa Bank, which also gave him an underperforming recommendation, he says that while the capital buffer is sufficient and that the bank will also benefit from the headwinds of the National Insurance Institute, he sees that it will not benefit from its profitability as much as it expects the bank to continue to build Coverage levels over time through consistently higher. Jefferies believes risks to its profitability are not adequately reflected in its valuations with the 0.6x P/TNAV moving to 0.6x.