What’s new? We summarize the main points from Q1 2022 results released last week. Clean PPP for the 4 banks stood at E765m, unchanged from E762m in Q4 2021. Clean pre-tax income came in at 533m from E469m in Q4 (+13% qoq) thanks to an equivalent reduction in impairments.

Three things stood out: a) big one-offs for yet another quarter with their equity impact partially offset by OCI movements, b) normalizing or already normalized CoR and c) anemic (excluding Alpha) net lending growth. Needless to say, all banks reiterated pre-war/crisis RoTE targets towards 10% in 2022-2024 and painted a bullish picture for NII in case of rising rates (not included in RoTE guidance).

Our base case scenario is Greek banks will weather the geopolitical crisis even if they must deal with a short-term spike in their bad loan ratios. They have limited to zero exposure to RUS and UKR. This saves them any direct impact, but their business will be indirectly affected as consumers see their disposable income weakened by inflation. This is where the government steps in, absorbing some of the pain via its subsidy scheme for electricity and fuel costs.
All in, we reiterate our cautious stance on the sector as illustrated in our consistently lower than guided RoTE targets (7-7.5%% vs. 9-10%). We expect GR banks will keep trading at a 20%-25% discount to their EUR peers. Trading wise, this answers the question about when their share prices will go up. We recommend investors follow and buy Alpha (OI) and NBG (OI) on weakness, on the conditionality that the crisis does not escalate beyond the two countries.

What’s new? Q4 2021 clean PPP and net income of E165m/E111m came in above our estimates by 15%-20% driven mainly by lower operating costs and lower impairments; Actual pre-tax RoTE was higher by 150bps. It seems we had underestimated the cost cutting performance of the bank. We had long favored NBG as a runner-up to Alpha Bank. We are now making it official by changing our rating to OI with a PT of E3.9 (from E3.5).
We believe NBG deserves to be trading at a higher P/TBV multiple than the current 0.50x; it enjoys the highest FL CET1 among GR banks; will benefit the most from a loan rate increase given its low L/D ratio; boasts the lowest combination of NPE ratio and NPE coverage.
The high DTA/DTC portion against TBV and CET1 is the biggest risk along with lower-than-expected net lending. On DTA, resuming dividend payments will be a good test about how regulators are thinking about its recoverability; on new loans we stand at the low end of the guidance.

In this note we are addressing the main themes surrounding Greek Banks. Part of the note is in Q&A form. Themes include new lending, DTA, interest rates and valuation. We present our estimates for 2022-2024 in the spreadsheet attached.
The power of momentum. What GR banks lack in mass, they make up for in velocity. They have stormed into 2022, with their share prices up by an average 25% YTD. Out of all the possible reasons why, none is more convincing to us than their low P/TBV multiples at the end of 2021 and the so-called ‘January effect’. The fact they are all up by the same rate, implies they are treated like a single investment case.

This note is about investing, not trading or event-driven ideas. We believe our OI rated stocks will outperform the market on a risk-adjusted basis in the next 12-18 months. We recommend you own OPAP, Jumbo, PPC, Alpha Bank and ADMIE. We downgrade OTE given it is trading at our target price. We assume the pandemic will be less of a risk; we consider the end of free money and elevated costs and reiterate cash flow conversion as our #1 criterion.