Banks on investors’ radars
Greek banks have long been on the market’s radar following their turnaround with a return to profitability, an impressive boost to earnings from the ECB’s rate hikes, a significant decline in NPE ratios and management estimates for dividend distribution after many years. However, the sector is also facing significant challenges and risks, as analysts point out in their new reports: Maintaining profitability, the effects of tightening financial conditions and digitization are now the big challenges.
Bank of America characterizes the current narrative surrounding Greek banks as “tomorrow’s promised land.” It argues that they are all aiming to restore dividends in 2024, most of the reduction in NPEs is now behind them, while the state is set to regain investment grade within the next year and this will widen the investor audience for Greek assets.
With rising interest rates, local banks are significantly upgrading their valuations and achieving more convincing returns. However, convincing the market that their profitability is on a sustainable and solid footing is more important now that banks are likely to try to deplete their capital reserves (relative to capital requirements) to reward their shareholders, BofA warns.
However, investment bank and financial services company Jefferies remains more optimistic as it maintains that trends on the economic front remain very positive for Greek banks, with deposit pricing remaining favorable, loan growth expected to recover in the second half as the electoral uncertainty is gone, and tourism will support economic activity and employment.
Rating agency DBRS Morningstar points out that Greek banks are among the most vulnerable in the eurozone due to the large exposure to the transport, food and accommodation sectors. In the second quarter the bankruptcies of companies in the eurozone reached the highest level since 2015, registering an increase of 8.4% on a quarterly basis, with a knock-on effect on European banks.
Fellow rating agency Moody’s focuses on the opportunities but also the risks that digitization brings for Greek banks. As it points out, the reduction of staff and branches in which banks have progressed (by 29% and 32% respectively) has improved their efficiency.
