Greek banks are returning to normalcy

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Greek banks are now returning to normal, with the NPE index expected to fall to 5% next year for the industry as a whole. Non-performing exhibitions fell to a new low in the nine months (13.6%), bringing the industry closer to the normality of its activities.

The rapid implementation of strategic plans is transforming the balance sheets and operations of banks, on the one hand, and on the other hand, it sends a strong message to the market about their determination to return to normalcy as soon as possible.

In Eurobank the NPE index stands at 7.3%, which is the lowest among Greek banks.

Piraeus has completed 90% of the planning in just 8 months, regarding non-performing loans and in a few months a reduction of NPEs was achieved with securitizations and sales that reached a record amount of 16.4 billion euros. In the 9 months it showed a decrease of the NPE index to 16% compared to 46% six months ago.

For Ethniki, the index in Greece stood at 11.9%, with the remaining Non-performing Exposures amounting to 3.7 billion and 1.1 billion after forecasts

For Alpha Bank, at the end of December 2021 the index of non-performing exposures is expected to be reduced to 13% from 16.6% at the end of the nine months.

Better-than-expected trends in organic asset quality trends alleviate concerns about a new wave of pandemic-related NPEs. In addition, the expected increase in loans will be much stronger than next year, which will support the trends of their first line.

Fitch

According to Fitch, the index of non-performing exposures will fall below 10% by the end of 2022, as banks continue to proceed with securitization of NPEs using the “Hercules II” program. Inflows of new NPEs from the pandemic will be manageable in 2022, although there are still risks associated with more vulnerable borrowers, who continue to benefit from government support measures.

At the same time, the moves made by Greek banks to improve the quality of assets, will further reduce the burden on capital from troubled assets, which continue to be a “burden” on their valuation.

The house expects operating profitability to recover in 2022. The healthy growth of commission income and cost reduction, among other things, will also make a positive contribution to profit generation. Pressure on the margins and the reduction of red loans, which no longer yield interest, will reduce net interest income, but Fitch expects an increase in new lending, thanks to the Recovery Fund, but also to the stronger financial situation of households.

The Euroxx Stock Exchange notes that commissions, deposits and new loans have supported banks’ profitability over the nine months, and stresses that improving asset quality, ample liquidity and a stable capital position can boost credit expansion.

Eurobank Equities sees large margins for growth in the banks, emphasizing that the Greek banks are negotiating with a 25% discount in relation to the bonds of the EU region.

The stock exchange sets targets for Alpha Bank at 1.37 euros, for Ethniki 3.48 euros and for Piraeus at 1.84 euros.

Eurobank Equities analysts stress that banks will also be able to meet their targets for lowering their NPEs and coming closer to the European average, with the most significant “clearing wave” in quarter of the current year.

For 2022, Eurobank Equities estimates that investors will now turn their attention to the course of banks’ profitability.

HSBC expects core operating profit to reach 28% between 2020 and 2024.

Forecasts for higher profitability and capital, due to capital enhancement actions and better NPE pricing, lead to higher target prices for bank shares.

In this context, it raises the target price for Alpha Bank to 1.40 euros from 1.20 euros before, it also raises the target price for Piraeus to 1.95 euros from 1.64 before, raises the price- target for Eurobank at 1.30 euros from 1 euro before as well as for NBG at 3.55 euros from 3.40 euros before.

Wood now focuses on increasing loans, margins, commissions and forecasts, ie the key elements that will determine the profitability of the “clean” Greek banks.

Loan growth in 2021 remains low (currently below 1%), despite strong macroeconomic recovery, Wood notes. However, there are many reasons to expect a reversal of trends from 2022 onwards, which are: 1) long leverage period, with loans to GDP now below EU averages, 2) support for corporate lending by the Fund for Recovery and Durability, 3) improving property prices and higher incomes, and 4) a banking system with increasing liquidity (loan-to-deposit ratios well below 100%), with sufficient capital.

The valuations of Greek banks, as Wood points out, remain attractive, with Greek banks trading with the P / E index moving at 6 in 2022 and 5 in 2023. The house thus reiterates their bullish view of the outlook. banking stocks and sees a margin of 50%.

Recommends buy for all four most systemic banks. In terms of target prices, it upgrades to 1.30 euros from 1.10 euros before the target price for Eurobank, to 4.10 euros from 3.50 euros before the target price for NBG at 1.70 euros from 1.50 euros for Alpha Bank, while for Piraeus it now places the target price at 2 euros from 1.90 euros before.

Dividend distribution

After the completion of the capital increases by Piraeus and Alpha Bank, Wood does not expect new increases in the short to medium term and expects that Eurobank and NBG will pay a small dividend in 2023, from the profits of 2022, with Alpha Bank follows the same year.

After years without dividend distributions, Greek banks have announced that they will consider this possibility in the coming years. Alpha Bank and Piraeus have indicated 2023 as a possible first year of dividend distribution, while the management of Eurobank stated that it will start a dialogue with the supervisory authorities in early 2022 on dividend distribution. In NBG Securities ‘view, this is a reasonable scenario as the banks’ capital base is now in a much better position than it was in the past. Dividend distribution will attract investors who have been discouraged by their absence in previous years.

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