Higher profits for Piraeus Bank shareholders in 2022

By Leonidas Stergiou

Earnings per share for 2022 are seven times higher due to higher and faster organic revenue growth and a simultaneous reduction in bad loans in the first half of the year. Thus, Piraeus Bank increases the profit target to 0.35 euros per share this year, compared to 0.05 euros per share that was foreseen in the original plan.

As the managing director of Piraeus Bank, Mr. Christos Megalou, explained, the upward revision of the targets increases the attractiveness of the share. Speaking to international analysts, during the presentation of the first half results, among other indicators he presented the revised price to earnings (P/E) ratio for Piraeus at 3.2 times against 5.6 which is the average of the remaining three systemic banks. As he noted in the presentation, this is a distance of 75% and is only one indicator of attractiveness.

The upward revision is due on the one hand to the more positive than expected results but also to the positive indications that exist for the next quarters, in terms of the demand for loans, the creation of internal funds, the limitation of bad loans and the prospects of of the Greek economy, despite the environment of uncertainty.

2 billion new loans in 2022

Net profit before taxes was formed in the first half of 2022 at 614 million euros, against losses of 2.4 billion euros in the corresponding period last year and against 521 million euros of profits in the first quarter of the year. This was a result of net credit expansion of €1.5bn which exceeded initial targets, now setting a high for the year (€2bn). Credit expansion contributed to front-loaded and higher net interest income growth. At the same time, commission income from banking operations and strengthening of the investment portfolio increased by 1.2 billion euros, while organic expenses were reduced by approximately 20 million euros, compared to the corresponding half of 2021.

Red loans at 8%

At the same time, the NPL ratio fell to 9% with the aim of closing the year at 8% from 25% in the first half of 2021 and 45% in 2020. This development frees up funds and limits risk costs, resulting in organic growth of funds and the absorption of any shocks in the coming quarters. The cost of risk fell in half (0.5% from 1%) and the overall capital adequacy ratio stood at 16.7% compared to 15.8% in the first half of 2021.

The new goals

Thus, the revised targets envisage a CET1 capital adequacy ratio of 11% (from 10% initially), net credit expansion of €2bn against €1.2bn in the original plan, a non-performing loan ratio of 8%, against 9%, and a return on tangible capital 8% from 1%. These revisions are due to the achievement of revenues of 900 million euros in the first half of the year which raise the annual target to 1.8 billion euros (from 1.5 billion). The organic reduction in bad loans reduces provisioning costs by 100 million euros, with the result that pre-tax profits are now forecast for 2022 at 0.6 billion euros and after-tax profits at 0.5 billion euros, against 0.3 billion and 0.3 billion euros, respectively. This profitability corresponds to earnings per share of 0.35 euros against the initial forecast of 0.05 euros.

Greek economy

The bank’s strong results and revised upward targets are also supported by the positive prospects of the Greek economy. According to Mr. Megalou, the Bank predicts for 2022 a growth rate of around 6%, i.e. twice higher than the average in the EU. This estimate is based on large-scale fiscal support, tourism revenues expected to reach 2019 levels, the Recovery Fund, growth in the real estate market and the fact that Greece meets the criteria for the new ECB support tool in order to intervenes in the bond market, in the event of disturbances from rising interest rates. To these should be added Greece’s low dependence on natural gas from Russia, the temporary increase in lignite production announced by the government and a steady increase in renewable energy sources in the overall energy mix.

Both the analysts and Mr. Megalou focused on the significant reduction of non-performing loans which was limited to a single-digit percentage (like the other three systemic banks) and moves to the level of 8% until the end of the year. According to the Bank’s estimates, this percentage will fall in 2023 to 5% and to 3% from 2024 onwards.

The Sunrise 3 and Solar securitizations reduced non-performing loans by €0.9 billion in the first half, while an organic reduction of €600 million was achieved. Thus, the stock of non-performing loans fell to €3.4 billion, against 35.8 billion in 2016 or 22.5 in 2020 (percentage of bad loans 45%).

Organic revenue

Interest income contributes 200 million euros and commissions from loans, transactions and rents contribute 100 million euros to the organic revenue target increase (from 1.5 billion to 1.8 billion euros). Interest income is contributed by approximately 30% (€60 million) from the rise in ECB interest rates and by 70% from the interest margin from loans.

Significant is the contribution of net credit expansion of 1.5 billion euros in the first half of the year, which came from new disbursements of 4.4 billion euros, yielding a profit of 3.6%. These disbursements mainly concern manufacturing (26%), tourism (7%) and energy (4%). At the same time, as Mr. Megalou said, there is a great demand for loans from large and smaller businesses, which is reinforced by the investment plans through the Recovery Fund that are waiting to be contracted.

Fee income increased by 22% year-on-year mainly from rental income, bancassurance and fund management.

Capital

The CET1 capital adequacy ratio foresees organic capital creation this year of 80 basis points, new synthetic securitization (an additional 200 basis points in the second half of the year) that will offset the burden of the group’s restructuring. Thus, the index will close at 11% from 10.2% (adjusted index). For the MREL funds the target is almost reached for this year, so the Bank will consider whether to proceed with any bond issue, which will be less than €500 million by the end of the year.

During the presentation, Mr. Megalou gave the timetable of the new internet bank, which is to start from 2023.

* See on the right in the “Related Files” Column the presentation of the data for the first semester.