Mortgage loan growth bodes well for NBG 2006 profit target

Greece’s largest lender National Bank (NBG) yesterday reported strong first-half profit growth, slightly below expectations, with robust retail credit expansion boding well for the rest of the year. The group’s first-half earnings grew 65 percent to 546.2 million euros ($701 million) versus a median forecast of 565 million in a Reuters poll of 10 analysts. «National is set to exceed the targets set for this year, including Finansbank which will boost the group’s bottom line,» said analyst Dimitris Haralabopoulos at Alpha Finance. NBG has set a 20 percent annual earnings growth target to 2007. National said earnings included an extraordinary gain of 113 million euros realized from the sale of US subsidiary Atlantic Bank of New York and the group’s operations in Canada, booked in the second quarter. The divestment raised proceeds to fund expansion closer to home. National was the first Greek bank to venture into Turkey, acquiring a midsized bank this year as part of its regional expansion strategy to secure new areas of growth. Analysts said first-half results came in slightly below consensus due to higher costs incurred in its subsidiaries. «Results came in below expectations as operating expenses were 30 million euros higher than our estimates,» said analyst George Grigoriou at Eurocorp Securities. The group’s return on equity (ROE) hit an historic high of 34.5 percent, a top-ranking performance among European banks, the bank said. «The high profitability achieved in the first half has resulted not only from growth in income from Greece and abroad, but also from our efforts to stringently control expenses,» said CEO Takis Arapoglou. Sustained growth Boosted by sustained growth in the retail loan portfolio, net interest income grew 17 percent to 887 million euros. The improved asset mix saw net interest margin widen to 3.47 from 2.47 percent in the same period last year. National said group loans rose 17 percent to top 32.8 billion euros with retail credit expanding by 26 percent year-on-year to make up 62 percent of its loan book. Mortgage lending remained the driving force, up 30 percent. Operations in Southeast Europe contributed 52 million euros or more than 10 percent of group pretax profit. National, present in Bulgaria, Romania, Serbia and Albania, recently expanded into Turkey by acquiring Finansbank. The group reinforced its physical presence in the region with 22 new branches, expanding its network to 279. It said organic growth in these underbanked markets will continue with another 65 branches planned by the end of the year. Lending in the region rose 43 percent year-on-year, mainly driven by retail banking. NBG said its market share in the region now stands at 8 percent. National’s shares trade at nearly 13 times forecast 2006 earnings, a premium to European peers Societe Generale and Credit Agricole – two French banks which have bought Greek lenders – with multiples between 10 and 11, according to Reuters Estimates. Analysts say National’s higher P/E ratio is due to its stronger growth prospects. (Reuters)