As expected, the ECB changed the TLTRO III terms to eliminate the carry trade and wipe out the excess liquidity from the market, in its fight against inflation. It also lowered the interest rate paid on minimum reserves.
With Greek Banks holding E51bn of ECB funding, we estimate the impact to be a negative -15%/-21%/-214bps on their 2023 NII/PPP/RoTE – but is 100% muted by the equivalent positive impact from the interest to be earned on their E59bn deposits with the ECB. The only possible exception is Alpha Bank, which could be net negative.
The above is isolated to 2023 as most of their TLTRO matures in December. Still, it would not be a surprise to see early repayments, especially since the ECB added three additional such dates to the calendar. 10 TLTRO III auctions took place between Sep 2019 to Dec 2021, each with a maturity of three years. Greek Banks raised most of their TLTRO on ECB’s Dec 2020 auction.
What did the ECB decide? Recalibration of TLTRO terms and lower remuneration on minimum reserves…

In this note we outline the investment summaries of all Greek names we cover. We start off with a few points on macro and politics and our OI rated names, highlighting any changes compared to our previous assessment in June 2022.

Inflation, inflation, inflation
Real GDP grew by +7.8% yoy in H1 reflecting strong domestic demand (+9.5% yoy) and rebounding tourism (beating record 2019), while the inflation rate ran +12% yoy in the 12 months to September, pushing nominal GDP even higher at +16.9% yoy. This is important because it dilutes the public debt/GDP ratio (from 199% in 2021 to 170% in 2023, IMF), without increasing the financing needs of the sovereign (1.5% GDP annual), as most of the sovereign debt is fixed at low rates (76% owed to official creditors), and it allows the government to spend both during the pandemic (20% of GDP) and the energy crisis (2% of GDP).

The catalysts for 2023 include GDP growth staying in positive territory, winning back investment grade and to avoid a political turmoil from scheduled elections. This is our base case scenario for Greece. However, we cannot escape our conservative disposition. Therefore, we keep a single OI rating among GR banks (NBG) while upgrading Bank of Cyprus to OI. We stick to our OIs on OPAP (dividend yield), PPC (renewables), Motor Oil (renewables) and Jumbo (valuation).
OTE looks more attractive below E16/share and the same goes for Hellenic Exchanges below E3/share, which we consider to be a proxy for the banks, assuming you can afford to invest in a such low market cap name. We urge readers to ignore any sirens singing ‘everything is a buy’ in Greece. We believe the day of reckoning is here and fundamentals play the key role. Our GR universe (x-banks) trades 6x EBITDA and 10x earnings 2023 while on a dividend yield of 5%. These multiples are cheaper than four months ago (6.7x EBITDA and 10.9x earnings) thanks -mainly- to the market de-rating.

What’s new? Greek Banks have reported Q2 results and have -finally- published their IFRS reports. In this note we summarize the most notable points. Banks trade at 0.46x TBV 2022 on our estimates. Next year is less predictable and banks are not providing any guidance whatsoever. What should investors do? If you are relaxed about 2023 go with NBG and Piraeus Bank. If, like us, you prefer to be on the safe side, stick with NBG.
Conclusion. Just when banks have brought down NPE ratios to single-digit levels (securitizations), can afford to lend (RWA/capital wise) and are looking more and more like banks again…stagflation/macro/energy crises overhang is weighing down on their valuation, preventing their P/TBV from re-rating.
We are keeping only NBG with an OI rating thanks to its high coverage/high FL CET1. If stagflation concerns abate, NPEs prove manageable and NII goes up on higher interest rates, you should also consider Piraeus and Bank of Cyprus, which offer the biggest risk-reward upside under such a scenario. Eurobank and Alpha have further upside from current levels, but not big enough to compensate investors for the risk involved, in our view.

What’s new? Alpha Q2 2022 results were mixed, as NII and core PPP went up by 2%-7% qoq on our calculations, whereas normalized earnings dropped by -25% qoq or by -45% qoq according to the bank, on higher CoR. We find Alpha’s ‘normalized’ calculations confusing and believe ‘adjusted’ would be a more appropriate term. We do not like NPE coverage dropping to 40% (from 48%).
Management said FY 2022 NII will be at c.E1.2bn from >E1.15bn previously, while net new loans will increase by +E2.7bn (from +E2.2bn). Target for resuming dividend payments out of 2023 earnings, on a 20%-30% ratio, was reiterated along with Project Tomorrow 10% RoTE target. Management did not provide guidance for 2023.
Guidance: 2022 net new loans at +E2.7bn (from +E2.2bn); NII at cE1.2bn (from >E1.15bn); CoR at 70bps (unchanged); RoTE at 6%; Tomorrow targets (2024): 10% RoTE; TBV of E6.7bn (i.e., net income of E670m); CET1 >15%.

What’s new? Inspired by IMF’s recent blog, that places Greece among the 5 least affected EU countries from a full Russian gas cutoff, we outline our thoughts and arguments below as to why Greece is probably a better investment case than what is implied by the energy crisis, inflation- recession fears, and the ongoing impact from the pandemic.

Conclusion. Our base case scenario is that a) Greece can avoid a recession in 2023-2024 even if the war in Ukraine continues beyond 2022 and Russia cuts off the gas supply to Europe entirely; b) Greek banks should be net gainers from higher interest rates; c) ECB will continue to support the sovereign, lifting its chances to earn investment grade rating and d) New Democracy will win the elections whenever these take place (early or on time).

OI picks plus DOI picks at lower prices. In this context, we recommend investors own NBG, Alpha, OPAP, PPC, Jumbo and Motor Oil (our OI rated names) and consider OTE and Hellenic Exchanges below E16.0/share and E3.0/share respectively. We also reiterate our suggestions, flagged in our mid-year strategy update on June 2022 (‘War on Equities’), to switch from TEN (post M&A) and MYT to MOH and PPC; from ELPE to MOH; and from SAR and Fourlis to Jumbo.