UBS very upbeat on Greek banks’ profit prospects
Swiss bank UBS issued this week a very positive report on the Greek banking sector, stating its preference for the stocks of the Bank of Cyprus, the National Bank of Greece and EFG Eurobank. «The environment where Greek banks operate will develop in 2006 in a similar way as in 2005,» comments UBS analyst Dimitris Spanodimos, adding that «the general momentum consists of the strong increase in loans issued, the relatively strong spreads, the positive trends in the cost and quality of assets, as well as the improving contribution of activities in Southeastern Europe.» The UBS report forecasts a rise in Greek banks’ profits in excess of 25 percent in 2006 and more than 20 percent per year for the next couple of years. «The rise in profits will be maintained thanks to the strong increase in revenues and the containment of operating expenses,» Spanodimos notes. He also stresses that mergers and acquisitions will become a central issue in 2006, as they will in the following two years with Emporiki Bank being one of the targets.» UBS expects the rise in loans granted by Greek banks to remain at over 14 percent in the 2006-2008 period thanks to mortgage loans, corporate loans to small and medium-sized enterprises and the activity in Southeastern Europe. It specifically expects that mortgage loans will continue to increase by about 20 percent annually over the next three years, while other analysts predict a decline. The arguments UBS uses are the low rate of mortgage loans, the «very positive demographic developments» and the gradual harmonization of officially determined property prices (so-called «objective values») with market prices. As far as spread is concerned, which is the difference between the bank’s interest rates for loans issued and those at which it borrows funds, UBS notes it has proven more resilient than the market expected. The report attributes this to the high concentration in the banking sector (which other reports brand «oligopolistic»), to the relatively small size of the Greek market, which discourages foreign banks from entering it, and the prospects of a great increase in loans issued. UBS has a «buy» recommendation for all seven Greek banks the report covers with the following target prices (Friday’s closing in brackets): National Bank of Greece 50 euros (39.30 euros), Alpha Bank 39 euros (30.22 euros), EFG Eurobank 43 euros (33.80 euros), Piraeus Bank 27 euros (21.24 euros), Emporiki Bank 37 euros (28.60 euros), ATEBank 7.40 euros (5.70 euros) and Bank of Cyprus 4.62 Cyprus pounds (3.36 Cyprus pounds).
