Morgan Stanley: Greek banks benefit from ECB rate hike

By Leonidas Stergiou

Inflation opens a window of opportunity for increased revenues and overall profitability of Greek banks, which is forcing the monetary authorities of the Eurozone to consider raising interest rates.

This is the conclusion reached by Morgan Stanley, which examines the positive effects on Eurobank, Piraeus and Alpha Bank. According to Morgan Stanley analysts, there is a possibility of raising interest rates by 10 percentage points in December 2022, something that will continue, with the result that the current negative interest rate (-0.5%) will reach 0% in March 2023 .

According to Morgan Stanley calculations, any increase in interest rates by 50 basis points means an increase in interest income for 2023 by:

-2% at Alpha Bank and Piraeus Bank.

-4% in Eurobank.

The positive effects on the interest margin translate into a net increase in profits by:

-6% for Alpha Bank

-8% for Piraeus and

-10% for Eurobank.

For the above calculations, the mixture of deposits (savings, term, etc.) as well as loans (fixed, floating interest rate) of each bank have been taken into account. 70-80% of deposits are current accounts, which is not a significant cost pressure for banks. On the loans side, 85-90% is a floating interest rate.

Regarding the impact of the increase in interest rates on the bond prices maintained by Greek banks, they are estimated to be small, especially when comparing the capital impact with their high capital adequacy ratios. For example, the capital impact is between 7 and 12 basis points, when CET1s are between 9.9% and 13.9% and are well above the thresholds.

Finally, banks have started selling bonds, streamlining costs and risk, making profits.

Of the three banks above, Morgan Stanley singles out Eurobank, as it now has the least negative impact on organic revenue from further reductions in red loans. Also, with a total capital ratio of 15.4%, Eurobank is the first bank to start the discussion on dividends for the year 2023, which can be a positive catalyst for the share.