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Banks: Towards the end of the long-term effort to consolidate their balance sheets

The end of the long-running bank consolidation effort is now in sight, according to the main international financial and investment houses.

Greek banks are turning the page, moving beyond the stage of clearing their balance sheets of their non-performing exposures (NPEs) and turning to supporting economic growth and credit expansion.

The main factors boosting the profitability of Greek banks are expected to be the reduced provisions after the cleaning of NPEs and the improvement in income from credit expansion.

The use of the Recovery Fund could lead to a strong increase in new lending, while the economic recovery will also allow consumption and tourism to recover significantly.

As the results of the first half of 2022 show, the four systemic banks show a single-digit ratio of non-performing exposures, a target that was set to be achieved by the end of 2022. Certainly the ratio is higher than the eurozone average, below 5%.

The NPE ratio for Eurobank stands at 5.9% (2.5 billion euros), National Bank at 6.3% (1.9 billion euros), Alpha Bank at 8.2% (3.2 billion . euros) and Piraeus at 9.1% (3.4 billion euros).

Banks are also expected to be favored by the ECB’s new policy. Moody’s notes that Southern European and Greek banks will benefit because they have a larger share of floating rate loans than their Northern European counterparts and are more dependent on deposit funding. The rise in interest rates will be favorable for Greek banks, with a 15% improvement in interest income for every 100 basis points of interest rate increase, notes Deutsche Bank.

Target prices from international houses

The investment houses give a “vote” of confidence regarding the prospects of the Greek banks after the results of the first six months and underline the significant improvement of their sizes, noting that the results of the first half of the year remain strong and durable, while they seem to have withstood the second quarter shock due to the surge in inflation and energy but also geopolitical concerns.

JP Morgan gives a price-target of 4.50 euros for the share of Ethniki, against 3.180 euros (closing Thursday). The valuation of the stock according to the American house is 5.9 times the earnings of 2023 in terms of P/E and 0.46 times the book value P/TBV, while they trade at a premium of 25% in relation to the Greek banks but also with 37% discount compared to the main European banks in terms of P/TBV. Deutsche Bank maintains a buy recommendation on the share of Ethniki with a target price of 4.4 euros and estimates that it remains on track for a significant recovery, despite macroeconomic uncertainty. Axia Research maintains the Buy recommendation and the target price of 5.5 euros.

Higher prices than the current levels are given for Piraeus shares by foreign investment houses. Citigroup gives a target price of 2 euros, against 0.9720 euros (Thursday close), JP Morgan gives 1.80 euros and Deutsche Bank gives a target price of 1.35 euros.

According to JP Morgan, the Piraeus share is trading at 0.22 times in terms of P/TBV and 6 times in terms of P/E.

The investment houses also give a vote of confidence for the title of Alpha Bank. JP Morgan gives a target price of 1.50 euros, compared to 0.9314 euros (Thursday close) and Deutsche Bank a target price of 1.45 euros.

Alpha shares trade at 5.5x 2023 forward earnings and 0.34x tangible book value P/TBV and trade at a 19% discount to Greek peers and a 53% discount to key European banks, according to JP Morgan.

For Eurobank shares, JP Morgan gives a target price of €1.60, compared to a close of €0.9550 (Thursday session) and notes that Eurobank shares are trading at 5.5 times 2023 earnings on a P/E basis and 0.51 times tangible book value P/TBV. The shares trade at a 27% premium compared to the Greek banks but also at a 30% discount compared to the main European banks in P/TBV. Deutsche Bank for the Eurobank share gives a target price of 1.20 euros, as does Citi, while Axia Research gives a target price of 1.45 euros.

Source: AMPE

Source: Capital

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