ING says Greek banks deserve price premium

Greek banks stand out among their European peers and deserve to be traded at a premium, Dutch financial group ING says in a recent report. ING notes that Greek banks operate in a comparatively faster growth environment (including the neighboring Balkan markets) and that the gap is projected to grow as mature markets, such as those of France or the UK, appear to be experiencing a slowdown in revenues and turnover. Other European banking markets which have been growing relatively fast, including those of Italy, Spain and Belgium, also appear to be slowing down significantly. Growth rates of about 3 percent are now considered normal for mature European markets, according to ING, due to the current global financial crisis. «We believe that Greek banks are in a position to achieve double-digit growth rates in revenues, a performance significantly higher than other banks in countries of Western Europe,» says ING, even after taking into account the possibility of a slowdown in the growth rate of the Greek economy. «We recommend Piraeus Bank (‘buy,’ price target -36 euros), and Eurobank (‘buy,’ price target -30),» says the report, titled «Rare growth deserves a premium.» ING also gives a «buy» recommendation for National Bank (price target -54) and for Postal Savings Bank (price target -18.5). It notes that the Greek banking sector trades at a price/earnings ratio (P/E) of 8.3 on the basis of 2008 projected profits – the lowest ratio in the last 15 years. ‘Cheap’ valuations According to ING, the sector’s current valuations are «cheap,» even after taking into account the lower profitability projections. Its basic scenario includes an average fall in profitability of 20 percent, which it considers to be already discounted at the present price levels. Bad-debt provisions are seen approaching the average of the last 15 years, which would compress profits by 11 percent. Rising interest rates could further dent profits by 2 percent. Citigroup also recently highlighted Greek and Cypriot banks from among their European peers, in a report titled, «Don’t throw out the baby with the bath water.» «In our view, Greek (bank) shares remain somewhat different and very attractive investments.» Bank of Cyprus and National Bank were among Citigroup’s top choices for 2007 and remain so, along with Marfin Popular Bank.