Citi: The positive story of Greek banks remains intact – At 3-4% growth in Greece this year

Her Eleftherias Kourtali

The prospects of Greek banks and especially their bonds are analyzed by Citigroup, taking into account the effects on the economy and their size from the war in Ukraine and the intense inflationary pressures. As she emphasizes, her attitude remains very constructive for the industry and she sees significant investment opportunities in any new issues of senior securities, while she expects an upgrade from the houses for both Greece and the banks.

More analytically, as Citi’s credit analysis team points out in today’s commentary, the prospects for weaker growth in Greece due to the war and inflation shock are a challenge for the Greek banking industry, even if in the background, the leverage continues and the banks benefit from upgrades of its ratings by the houses.

Overall, Citi believes that geopolitical / macroeconomic uncertainty will continue to weigh on Greek banks in the short term due to inflationary pressures from the war and their impact on households and growth, in conjunction with the expected further issuance of senior securities.

However, despite the downward revisions in the macroeconomic outlook, growth in Greece is still expected to be within the 3-4% range in 2022, which will allow further derisking, but should also support organic capital production. through supplies.

In addition, as noted by Citi, while the increase in loans and the possibility of higher interest rates offset the overall decline in net interest income (NII) caused by the end of the bonus rate of the TLTRO program and especially the reduction of NPEs. “All this means that our very constructive view remains intact in the medium term.”

Regarding the AT1 securities of Greek banks, Citi points out that there were some expectations for the issuance of new securities in 2222 (mainly by Alpha Bank), but the geopolitical environment means that this now seems unlikely. Therefore, Piraeus AT1 remains the only Greek AT1 at the moment and its view on this has not changed as it believes that it does not provide enough spread premium over the Tier 2 title to offset the MDA risk. The current spread on Piraeus AT1 / Tier 2 is around 1.4x and as a result, Citi sees more medium to long term possibilities in Tier 2 titles.

For Tier 2, the US bank points out that for now it prefers to wait for the expected issue of Tier 2 securities from the most powerful domestic banks, namely Eurobank and National Bank, noting that in the absence of gradual macro / geopolitical news, it seems difficult for its title Piraeus (5.5%, 30NC25) to further compress to this level of Alpha Bank (4.25%, 30NC25) in the short term. Gradually, Citi believes that Piraeus Tier 2 will trade much closer to Alpha as the bank proceeds with derisking and is in a good position to leverage its franchise between corporate customers and also in terms of procurement (via Bancassurance, Asset Management). and Real Estate).

Regarding senior securities, Citi points out that mobility is expected from Greek banks in order to comply with the requirements for MREL. Therefore, he believes that the possibility for new editions limits the immediate upward trend of senior securities spreads. However, this will be partially offset by further upgrades in the ratings of Greek and Greek banks, which would thus make any new issues of securities interesting to trade. Specifically, he estimates that the senior bonds of Greek banks will be the first to benefit from the expected upgrade of Greek banks and Greece due to the expansion of the investment base.

Finally, Citi notes that, with regional spreads having increased recently, Greek banks are particularly sensitive to fluctuations in domestic government bonds, as recently seen with the expansion of the spread, mainly against Italian bonds. This was due to the wider macroeconomic implications of the war in Ukraine but also to a number of technical factors such as the end of the ECB’s net bond purchases under the PEPP or the end of the favorable TLTRO conditions. Therefore, timing and hedging in government bonds continue to be a key factor for investing in Greek banks.