We have summarized Alpha Bank’s 40-page Project Tomorrow Capital Increase presentation into a single table (spreadsheet attached). Our goal is to showcase the underlying assumptions of the business plan. Alpha targets a 10% RoTE in 2024 o/w +4% via normalized CoR (NPE reduction), +4% via revenues (new loans & fees), +1% via cost cutting, +1% from international operations (Romania).

Good Morning RG readers! Following a pause for Q4 reporting season, we resume our RG Banking Blog.

ALPHA (mkt cap E1.91bn; P/TBV @ 0.32x); NBG (mkt cap E2.35bn; P/TBV @ 0.45x); EUROBANK (mkt cap E2.81bn; P/TBV @ 0.56x); PIRAEUS (mkt cap E2.49bn; P/TBV @ 0.48x)

We will start with, quite important, sovereign news. S&P upgraded Greece’s rating by one notch to BB and maintained positive outlook. The upgrade was rather unexpected. The new rating is two notches below investment grade, which Greece has not seen for a decade. The agency expects Greece to grow by 4.9% this year and by +5.8% in 2022.
Basic underlying assumption: the main message from banks’ business plans and RoTE guidance (9%-10% by 2022-2024) is aggressive loan targets of E25bn-E30bn cumulative by 2023 (net of repayments). This is +20% more than outstanding net loans as of Dec 2020. Driven by EU recovery fund money that will co-finance 170 projects, investments and reforms included in Greece 2.0. Without new loans, there will be no replacement of NII income lost from NPE reduction or any fee & commissions generation. Important to remember that NBG and Alpha speak of pre-tax RoTE whereas Eurobank and Piraeus about net income RoTE.
Two leagues: it is quite clear that NBG and Eurobank are in one league and Alpha, Piraeus in another. The former two stand out in terms of NPE reduction and FL CET1 but also carry what we call an MSCI inclusion premium. Their premium P/TBV and YTD performance reflect speculation of being included in MSCI Greece, with the Index review to be announced on May 11. What about the other two? We expect them to (keep) moving together.
A league of its own. Piraeus is a question mark as although the SCI price was at E1.15, the stock closed +13% higher at E1.99 with P/TBV at 0.48x. If it stays there, we expect Alpha to follow. It would be strange to see Piraeus (or Alpha) at par P/TBV with NBG, given its slower NPE reduction plan and lower FL CET1.
DTA paradox: conceptually, carrying large amounts of DTA on balance sheet is not a good thing. Especially in the case of GR banks where DTA equals 95% of TBV, o/w 66% in the form of DTC which counts as reg capital. Here is the paradox: Alpha has the lowest DTC, both in abs and % terms, at E3bn (= 39% of TBV pre-Galaxy). But its overall DTA is higher than Eurobank or NBG. According to regulation, the excess amount (DTA-DTC) is deducted from FL CET1 capital. Well not all of it, but any amount >10% of equity. So when the bank takes a hit on equity (eg. Galaxy), it suffers from a disproportionate hit on FL CET1, as the amount of non-guaranteed DTC to be deducted goes up. We believe this is the reason why Alpha is not more aggressive on NPE reduction. What can be done? The only way to improve this is to follow Eurobank’s example which wrote-down E160m of DTA in Q4 2020 (ideally without reducing DTC).
NBG to reverse Frontier loss in 2021? The thought popped up when we read IFRS notes describing the NBV of Frontier loans stood at E2.6bn, supposedly after the E0.4bn hit. The NBV compares with senior notes of c. E3.0bn estimated by the bank (it has applied for an amount of up to E3.3bn). This makes us wonder why take the hit to begin with? And whether it will be reversed once the senior note tranche value is finalized. If this is the case, NBG will be reporting at least E500m of one-off gains in 2021, o/w E200m in GGB gains booked in Q1. Not bad.
NBG consumer loans. We were quite surprised to see a Greek bank advertising consumer loans on TV recently. NBG offers between E300 to E2,000 in cash, without collateral, for a period of 12-48 months @ 3M Euribor + 14.20% (ouch!). The bank reported L/D of 55% in Q4 and aims to bring NPE ratio down to 6% by 2022. Consumer NPEs stood at just E318m in Q4 2020.
That’s all! Thank you for reading!
Market Caps based on last day closing; P/TBV based on our 2021 estimates pro forma for securitizations.

The updated NPE targets announced by Alpha Bank for 2021-2022 are not as bullish as Eurobank or Piraeus, but they are definitely (more) realistic. Alpha will lower its Greek NPEs ratio <18% in 2021 and <10% in 2022 following E2.8bn securitizations & sales this year and another E2.8bn reduction plan the year after. Adding foreign NPE sales of E400m in 2021 will push the group NPE ratio @ 13%-14% in 2022 on our estimates, from 28% in 2020 (pro forma for Galaxy). Most of the associated cost or E320m was booked upfront in Q4 2020 – taking advantage of the huge E690m trading gains from GGBs in the year. Conclusion...

Why swapping GGBs? It is the only way to M2M and book the upside (and keep on board) all or part of those GGBs classified as Held to Collect and which are amortized at cost. The alternative would be to sell them (at current – higher- prices) and re-buy them from the market. The swap demonstrates in the most powerful way, the impact of QE and lower interest rates…

If Greek Banks do not believe in Santa Claus after recent developments, then no one ever will: a) on December 10, the ECB prolonged its targeted lending support (TLTRO III @ -1%) by an additional 12 months while raising the maximum amount banks can borrow (55% from 50%); b) the expanded PEPP will include E31bn of GGBs (from E23bn); c) the GR government will reportedly extend the NPE guarantee scheme ‘Hercules’ into 2021-2022. For Greek Banks this translates to an excellent opportunity to support their earnings (funding cost, bond gains) while cleaning up their Greek NPEs (securitizations) by 2022. For investors it means they can now focus on RoTE 2022 and beyond. We upgrade our rating on…