We have set up a Scorecard for Greek Banks. Placed side-by-side, you can see which bank scores good or bad in P&L items; balance sheet; asset quality and capital. We are also showing their theoretical valuation based on a) their own RoTE 2022 guidance and b) our own RoTE estimates.

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).

In 2021, focus should be on EBITDAR margins; for the IKEA division we model an uplift of 50 bps at 10% (11.7% by 2023) and for Intersport which may have been zero last year, 3-4% and to flirt with double digits by 2023. Fourlis does not provide such a breakdown for now and we believe they will as they have excellent disclosure from corporate Greece. We believe IFRS 16 has increased the modelling perplexity for Fourlis. We calculate…

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.

Last year PPC spit E605m FCF and we calculate supply and production FCF at E200m when adjusting for the securitization. We also model net debt to hover at E3-3.2bn over the next couple of years. The management team is best in class, in our view. The good news is that FCF generation should continue and we model E750m over 2021-22 on E1bn capex, skewed in RES, which we do not include in EBITDA, just yet. If we did, our target price would up by…