BofA: Greek banks in the ‘bets’ of 2022

Her Eleftherias Kourtali

Alpha Bank, Eurobank and National Bank are placed by Bank of America in the preferred shares for 2022 by the European banking sector in the emerging markets of Europe, the Middle East and Africa, due to the fact that their valuations are very pressured, something that is not is justified, as she emphasizes, by the risk-reward profile they offer, pointing out that she sees significant value.

As BofA explains, from Greece it prefers banks with improved asset quality and satisfactory capital levels. He expects that the ROAE return ratio of Greek banks will increase in 2022 thanks to the normalization of credit losses after the de-risking program implemented with significant progress and the increase of new loans. However, improved equity ratios will remain below equity costs as BofA “sees” a longer-term normalization horizon in 2025.

As he emphasizes to investors, “prefer banks such as Alpha, NBG and Eurobank, where the improvement of asset quality is combined with a satisfactory position of equity, as, among other things, this leads to faster distribution of dividends”. It is worth noting that it gives a buy dimension for all three, with a target price of 1.45 euros for Alpha, 1.15 euros for Eurobank and 3.30 euros for the National Bank.

The house published today the reports that it has prepared recently for the prospects of 2022. In this context, it takes a look back at its reports on the Greek banking sector from the beginning of 2021. As it points out, in February it had warned that Greek banks are likely to be called upon to take immediate action to free themselves from non-performing assets which they have “inherited” from past crises.

Since then, all Greek banks have come up with aggressive plans to reduce NPEs to single digits from 2021 (from about 30% at system level) to 5% in 2022. Regarding the two banks that BofA had pointed out that they had capital gaps, Piraeus and Alpha proceeded to share capital increases. After AMK, the American bank upgraded Alpha from neutral to buy, while it also declares itself a buyer of Eurobank and Ethniki and maintains the underperform rating in Piraeus.

At the same time, he states that the NPEs had accumulated at unrealistic levels and ended up being too high to be managed properly. According to BofA, the quality of assets of Greek banks operates with a “revolving door” system, where the same stock of restructured loans revolves around the PE / NPE position. The sale of NPE stock (a process that has already begun and has now accelerated significantly) means that default rates will also gradually improve.

In this context, BofA points out that the “Hercules” plan proved to be transformative. Its adoption at the end of 2019, allowed the further acceleration of the NPEs distribution plan as it was able to adapt to the sale of large NPEs portfolios and will thus be the main feature of the upcoming sales. Its structure, however, is not suitable for any use. Normally the “Hercules” plan should be used for those NPEs that have already started legal proceedings and for portfolios that are primarily secured.

BofA also reiterates that the profitability of Greek banks needs growth and not just de-risking. The change of page in the problem assets left by the crisis means that the banks will not be called to suffer extraordinary losses in the future, they will increase their capital bases and at some point they will be able to pay the shareholders through dividends.

However, continuous improvement of profitability needs growth. BofA believes that the provision of new loans will recover significantly thanks to the large assistance from the Recovery Fund program, loan loss forecasts will be reduced and costs will be improved as well.

On the other hand, banks will lose revenue from NPEs and the pressure on net interest margins is likely to remain. However, on a net basis, it expects an overall recovery in profitability.