Euroxx: Greek banks ready to lead the recovery, their strong investment story intact

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Her Eleftherias Kourtali

Greek banks are ready to lead the recovery, according to Euroxx Securities, thanks to the funds of the Recovery Fund, and thus maintains the overweight position for the whole sector, raises target prices for most, sees 28% -54% the margin of rise on the ATHEX board, emphasizes that their investment story remains strong while explaining the reasons for the discount against EU banks. In addition, it sees a “net credit expansion of € 26 billion, which will allow the industry to make up for much of its lost interest income.

They withstood the Covid-19

More analytically, as the stock exchange notes, the Greek banks withstood the Covid-19. Their capital position at the end of the nine months of 2021 remained broadly adequate (12.6% CET1 index in the third quarter of 2021 compared to the EU average of 15.5%), despite the losses recorded due to the pandemic, the liquidation of IFRS 9. The recent successful capital increases by the two systemic banks Piraeus and Alpha Bank in the first half of 2021, in combination with other capital enhancement measures, allowed the Greek systemic banks to proceed with the NPEs reduction strategies targeting a single-digit index (ie at 7%) by the end of 2022.

According to Euroxx, the significant drop in NPEs of 32 billion euros in the first 9 months of 2021 was achieved mainly through securitizations, largely under the Hercules I and II program. backed by their abundant liquidity position and the NGEU, they are ready to lead the economic recovery through credit expansion and the development of the financial system, which will allow them to thrive in the long run.

Risk cost normalization – strengthening of RoTE

Euroxx expects Greece’s growth to pick up as it recovers from the pandemic and benefits from NGEU funding, providing plenty of opportunities for banks to expand their loan portfolios. It “sees” a net credit expansion of 26 billion euros, which will allow Greek banks to partially make up for much of the lost interest income as a result of the “unloading” of NPEs. In addition, in terms of the stock market, the attractive investment story of the industry, which is based on the sharp drop in risk costs (CoR) and the repayment of loan growth, remains intact despite the negative effects of the extension of Covid-19 .

Overall, Euroxx has improved its previous estimates for the period 2021-2023, in order to take into account the recent capital increase actions, the further acceleration of “Hercules” as well as the trends of the third quarter of 2021. It now expects that the adjusted net profits (excluding securitization costs / lump sums, etc.) will reach 1.485 billion euros in 2021 (from 1.285 billion euros expected before). This is mainly due to the lower CoR and the creation of higher commissions. Profits will increase to € 1.799 billion in 2022 (from € 1.155 billion before) and to € 2.101 billion in 2023 (from € 1.727 billion before) due to lower risk costs and higher commissions that will offset net losses interest income (NII).

Thus, it estimates that profitability will be enhanced by an average annual GAGR growth of 48% in the period 2020-2023 compared to 39% previously forecast. Looking beyond 2023, he expects adjusted net income in 2024 to increase by 15% year-on-year, benefiting from higher NIIs (backed by new loan creation), higher commissions and lower forecasts due to derisking. Finally, he points out that there is room for even better results due to inflation expectations, which could signal a possible change in the ECB’s monetary policy regime that has weighed on the industry’s profitability.

Overweight for all systemic – Target values

Based on the above, Euroxx confirms the overweight rating for Greek banks.

In terms of target prices, for Alpha Bank it gives 1.60 euros from 1.25 before with an increase margin of 28%, for Eurobank it gives 1.30 euros from 0.88 before and an increase margin of 29% , for the National Bank the 4.20 euros from 3.40 euros and a growth margin of 30%, while for Piraeus it maintains the 2.20 euros and sees a growth margin of 54%.

As he points out, their valuations were hit hard in the initial phase of the pandemic, partly due to the significant drop in profitability, while the market climate has improved since the end of 2020. In addition, Greek banks have started very strongly in 2022, with industry to record profits of 13% on the ATHEX board, significantly outperforming the market.

So now they are trading with a TBV index for 2022 at 0.35x-0.61x (average is 0.51x) versus 0.75x for EU banks (0.60x for Italy, Spain and Portugal) . In terms of the stock market, this discount reflects the lower return on RoE equity of Greek banks (-26.2% in the third quarter of 2021 compared to the EU average of 7.2%) and concerns about the high stock of NPEs, combined with the new generation of NPEs due to the pandemic and their impact from the demanding targets of reducing the period 2020-2022 to capital costs and net interest margins. He also believes that the current price levels overlook the recovery of earnings per share (EPS) of the industry after 2022 and the prospects for dividend distribution.

The stock exchange notes that each systemic bank is attractive for different reasons:

The National Bank, thanks to its better liquidity and capital position in the sector, the 2nd best quality of assets, the increased possibility of raising capital and the sustainable RoTE at 9% after 2021.

Eurobank, due to the significant reduction of NPEs (the first to achieve a single-digit index of NPEs at 7.3% in 2021), the reduced pressure on capital and the push of ROTE to 10.2% in 2022, as well as its strong activities in abroad which offer greater differentiation. Also, both NBG and Eurobank are considering the distribution of a dividend from the profits of 2022.

Alpha, in turn, published the strongest ECB stress test results in the industry without taking into account the recent AMK and remains the least exposed to DTCs (RoTE at 7.6% in 2022) with the second lowest share of the HFSF (ie 9%).

Finally, Piraeus offers the highest growth potential on the ATHEX board, as it is, in the view of Euroxx, the highest beta proxy for an economic recovery stronger than the market expects.

Source From: Capital

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