Axia: Maintains Positive Position for Greek Banks – Impact of Russian Invasion on Ukraine Limited

Her Eleftherias Kourtali

Examining the possible effects of higher energy prices due to geopolitical developments in the Greek economy, Axia concluded that the country’s existing security reserves and support from the European Union are likely to protect Greece’s underlying growth potential, while maintaining fiscal discipline.

As far as Greek banks are concerned, Axia presents the direct and indirect “exposures” of the Greek (and Cypriot) banking system in Russia and Ukraine as well as the strengths and weaknesses for future investment cases.

In terms of loans and deposits, direct exposures are somewhat limited (although higher in Cyprus) and manageable. On the other hand, the indirect impact is likely to be more substantial given the potential headwinds in GDP (eg higher energy prices, tourist losses, supply chain disruptions, etc.) and the potential negative impact on customers of banks (again, higher for Cypriot banks). However, it is too early to assess the situation as events continue to unfold on a daily basis.

For Greek banks, Axia estimates that any short-term turmoil will have limited consequences on the “disposition” of companies for new lending, which represent the vast majority of Greece’s new disbursements from the EU. In addition, he believes that the wave of investments led by the Greek government and the funds of the Recovery Fund, acts as a cushion for the net interest income of the banks, while setting a threshold for the increase of loans.

Thus, for the time being, Axia does not adjust its estimates and reiterates its positive attitude towards Greek banks. It therefore maintains the buy recommendation for all four systemic banks with a target price of 1.80 euros for Alpha Bank, 1.50 euros for Eurobank, 6.00 euros for NBG and 2.15 euros for Piraeus. . However, he points out that there is a higher risk of falling GDP that could force banks to adjust their business plan targets and schedules.

The biggest uncertainty is here, but the Greek economy remains on a growth trajectory due to its strong foundations.

More specifically, Axia estimates that increased uncertainty and market volatility result in a “risk off” approach and a tendency to re-examine the underlying sizes of assets, including bank stocks. In contrast to previous years, the Greek government has created a carefully planned investment plan in conjunction with the RRF that will serve as a solid basis for stable underlying economic growth.

RRF funds alone represent net loan disbursements of € 33 billion by 2026 (bank lending is around 50% of this amount). This compares with a net loan portfolio of the Greek system of 135 billion euros (in 2021).

In the short term, the lion’s share (approximately 75%) of loans will be channeled to companies with more stable investment plans. For non-corporate loans, he points out that the disposable income of Greeks has improved, although the effects of inflation will be felt in the coming months.

Axia believes this trend is likely to continue as the government has already approved a 2% increase in the minimum wage from 1 January 2022 and an additional 6% increase will begin within the next two months. This increase of> 8% in wages offsets the current annual inflation rate of 6% and should act as a supporting factor for the increase in disbursements of consumer loans, credit cards and mortgages.

On average, he points out, Greek systemic banks are targeting gross disbursements of more than 5 billion euros per year for the coming years, with an estimated increase in the loan portfolio of 1.5 -2.0 billion euros. Given the latest news of the Russian invasion of Ukraine, interest rate prospects have slipped into second place, but further details are expected from the European Central Bank and the Fed later this month.

In addition, Axia states that the direct reports of Greek banks are largely negligible. According to the latest financial reports of Greek and Cypriot banks and the data of the second quarter of 2021 from the European Banking Authority, direct loans to Russian / Ukrainian entities and individuals are almost zero. Piraeus’s Ukrainian activities represent only 0.2% of its assets, including loans of EUR 80 million (0.1% of the group loans), EUR 130 million deposits (0.25% of the group deposits) and real estate assets of around EUR 10 million. Equity is estimated at around € 20 million, 0.3% of the group’s € 5.9 billion in equity in the third quarter of 2021. However, indirect exposures (ie not directly to bank books) remain large. unknown.

In the indirect effects, Axia points out the decline in tourism which has a greater weight in Cyprus than in Greece. The burden of Russian and Ukrainian tourism in Greece is significantly lower. In 2019, Russian tourists in Greece amounted to about 600 thousand (or less than 2% of 34 million), generating revenues of 433 million euros to a total of 18.2 billion euros, while Ukrainian tourists amounted to 150 thousand euros .