Optima Bank: Greek banks are attractive, the discount is unjustified – end to the ‘issues’ of their balance sheets
Her Eleftherias Kourtali
The barrage of positive reports for Greek banks continues with Optima Bank emphasizing that they have now solved all the “issues” of their balance sheets, have significantly improved their size and after the crisis of the last decade, look to the future with confidence. Thus, he adheres to the Buy recommendation for all four systemic banks, sees a significant further rally on the board and characterizes the discount with the European banks as unjustified.
Greek banks have now faced all the issues of their balance sheet, as Optima Bank notes. Since their peak in 2015, NPEs have fallen by 95 billion euros by the nine months of 2021, with the four systemic banks expected to record a single-digit NPE index by the middle of this year. At group level, net NPEs stand at € 2 billion in 2022, up from over € 58 billion in early 2016.
At the same time, capital ratios have improved from 2021 capital increases and other measures, including swaps, asset sales and AT1 / T2 bond issues.
From this year, tangible book values and capital ratios will start to increase, as most of the losses related to NPEs will be recorded in the 2021 accounts.
Finally, liquidity remains abundant, with the average (net) loan-to-deposit ratio standing at just 67% in the first nine months of 2021, while liquidity will be further enhanced by forthcoming bond issues within the MREL targets.
Attractive valuations, buy in all banks
As he emphasizes, the valuations of Greek banks are attractive as they trade only 0.39 times to 0.67 times the TBV of 2023. In terms of profits, the relevant P / E ratios for 2023 range from 5.7x to 7.1x .
Their shares are traded at discounts ranging from 30% to 50% compared to their respective banks in the EU, despite a faster increase in earnings per share (EPS) and an increase in RoTEs of around 10% by in 2024.
This is unjustified in Optima’s view and it expects further re-rating of their shares as soon as the market realizes that business plans are feasible and the goals are achieved. In addition, he expects dividends to return as early as this year (payable in 2023). Specifically, he expects that Eurobank and NBG will distribute approximately 100 million euros each in dividends, from the profits of 2022.
Thus, Optima recommends buy for all Greek systemic banks and prefers NBG from Eurobank and Alpha from Piraeus. The target price for the EIB is 5.42 euros with an increase margin of 46%, for Alpha Bank it is 1.77 euros with an increase margin of 24%, for Eurobank it is 1.38 euros with an increase margin of 22% and for Piraeus is 2.01 euros with a margin of 19%.
Positive macroeconomic environment
The pandemic halted the recovery, at a time when growth was accelerating, according to Optima. After a “horrible” 2020, the economy recovered strongly in 2021, with GDP growth exceeding all estimates and expected to have moved above 8%.
The economy is capitalizing on the reforms and fiscal adjustment of the past decade, also benefiting from the cyclical recovery of the ten-year crisis and the recovery from the pandemic. It is important, the bank points out, that massive EU budget support will begin to “capitalize” this year, offsetting the tighter fiscal policy since the phasing out of support measures. As he notes, more than 80 billion euros or 50% of GDP by 2020 will flow into the country by 2027, allowing the economy to record a repeatable overperformance in terms of GDP growth.
“After the crisis of the last decade, the banking industry is looking to the future with confidence,” Optima said. The Greek banking market is highly concentrated, dominated by four systemic banks that control over 90% of loans and deposits. The “repair” of the balance sheets is almost complete, while the banks have become significantly more efficient all these years, adapting their models to the new standards. Being much stronger than all aspects, they are ready to reap the benefits of recovery.
According to Optima estimates, starting this year all banks will be profitable, with the return on RoTE equity ranging from 5% to 10%, including one-off profits, with the main levers being higher commissions, lower operating costs and lower forecasts.
From 2023 onwards, the increase in interest income will return with the help of increasing loans, as the leverage has already ended and the liquidation of the balance sheets will be completed this year. This will lead RoTE to close to more than 10% for all banks, with net profits of over € 500 million by 2024. In addition, banks will benefit from a further increase in net interest income if the ECB raises interest rates. following years, strengthening Optima’s bullish view of the industry.