JP Morgan: What to expect from the results of Greek banks – Single-digit NPE ratios for all four systemic

Her Eleftherias Kourtalis

JP Morgan expects strong results in the second quarter in all sectors for the Greek systemic banks. At the same time, it predicts cautious but confident messages from the administrations, while the target for a single-digit NPE ratio is expected to have been achieved by all four banks.

Eurobank and National Bank will start the dance of announcements tomorrow, followed by Alpha Bank (August 2) and Piraeus (August 3) next week. JP Morgan anticipates strong operating results due to high new lending activity and a still favorable risk environment, broadly reflecting trends from the first quarter.

With low new NPE formation and the launch of sales of remaining NPE portfolios by Alpha and Piraeus, this quarter will see all four Greek banks report single-digit NPE ratios for the first time since 2009, as estimated, however, strengthening funds is expected to be limited due to movements in other comprehensive income (OCI), with some of the negative impact offset by existing strategies.

While, given recession risks in Europe, the medium-term outlook is less certain, the US bank expects administrations to give a cautious but confident signal, reflecting the headwinds the Greek economy continues to enjoy, including higher employment growth in EU in the first quarter, the high consumer activity, the so far very strong tourist season, and, above all, the accelerated absorption of the Recovery Fund funds.

In more detail, JP Morgan expects that the Alpha Bank will report a net profit of €94m this quarter, with flat core revenue quarter-on-quarter, slightly higher costs and low underlying risk costs. With the remaining two NPE portfolios classified for sale (GBV ~€1.4bn), Alpha will post a single-digit NPE ratio this quarter, reaching a major milestone in its transformation process. Reflecting this, JP Morgan expects transaction-related loan loss provisions to be calculated in the trailing quarter, which will be largely offset by gains from the Nexi deal.

For Eurobank expects a very strong and clean quarter thanks to strong revenue momentum, high trading profits and favorable cost of risk, resulting in a ROTE return on equity for the quarter of 22% (or nearly 10% excluding trading profits). It predicts that the CET1 (fully loaded) ratio will increase by 70 bp. on a quarterly basis, mainly due to the completion of the sale of business activities (Project Thalis), while OCI movements will be largely offset. He sees a chance of raising full-year revenue guidance, while expecting a slightly more cautious message on operating costs and possible loan loss provisions.

From National Bank JP Morgan expects no major surprises this quarter, with key trends broadly reflecting industry developments (strong net credit growth, good momentum on the provisioning front, slightly higher underlying operating costs and low loan loss provisions) , with the bottom line also supported by continued strong trading gains. It sees no significant differences in capital levels, with strong profitability absorbing negative OCI movements and quarterly expansion in risk-weighted assets (RWA).

Finally, it expects strong quarterly results from the Piraeus Bank with strong loan disbursements (with net credit expansion in the first half of the year exceeding the EUR 1 billion mark), high commission income and no substantial increase in segment operating expenses (also taking into account the EUR 15 million expenses related to the voluntary exit program). Like Alpha, Piraeus will report a single-digit NPE ratio this quarter as the bank classifies its remaining NPE portfolios as held for sale. Reflecting this, provisions for transaction-related loan losses will move close to €100m in the quarter, while the underlying cost of risk remains low. On the capital front, it sees CET1 (fully loaded) down 14 basis points due to the negative impact of OCI which is partially offset by the quarter’s profitability.