What’s new? Q3 was the first quarter out of many with strong underlying growth in NII (+9% qoq); combined with solid lending growth (Stage 1 up +E3bn following +E5bn in Q2) and contained costs (-2% qoq), it explains why all 4 systemic banks raised their FY 2022 guidance. The weird part is that none of them feels comfortable enough to share any sort of guidance for 2023. Which is even weirder considering they have not witnessed any deterioration in asset quality so far, thus maintaining their previous 2022 CoR estimates and hinting towards flat CoR in 2023.
Conclusion. Excluding Alpha, banking stocks have re-rated after Q2 results and are now trading 0.45x TBV 2023 on our estimates, with our TBV input essentially unchanged. Incorporating Q3 trends, we revised our models: we reiterate our OI in NBG, raising our PT to E5.5 (from E4.8) and upgrade Eurobank to OI with our PT at E1.5 (from E1.2). We see >40% valuation upside in both names which makes it worthy enough to own them, especially once adjusted for risk, thanks to their superior fully loaded CET1 and S3 coverage.

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? Eurobank Q2 2022 results came in stronger sequentially driven by NII and fees; more importantly, management raised RoTE 2022 guidance to 11% from 10% while downplaying asset quality concerns, at least for 2022. Resuming dividend payments out of this year’s earnings remains high on the agenda.
Guidance: Core PPP > E1.0bn (from E865m) and RoTE at 11% (from 10%). Performing loans will increase by E2.9bn (from E2.3bn previously). Asset quality guidance remains the same (CoE, NPE ratio and coverage).
Conclusion. We reiterate our DOI rating. We believe shares are worth E1.22 (from E1.05), or +36% above current trading. But the risk/reward profile is not favorable. Amid stagflation concerns we prefer NBG which has a higher NPE coverage and higher FL CET1. Our exercise shows it would take an NPE ratio of c.23% (from 6% currently) for CET1 to drop below 9% (from 14% currently) and recap needs to arise.