The optimistic messages received by JP Morgan from its visit to Athens last week, where it met with executives from banks, companies and industry experts.
Sentiment remains upbeat with the message from banks about sustainable return on capital (ROTE) trajectories strong, despite peak interest income (NII).
“To our surprise, there was relatively little focus on NIIs and their margins in our meetings, signaling that the catalysts are now well understood, with loan growth performance and capital return prospects dominating our conversations,” it said. JP Morgan.
At the same time, near-term catalysts appear more limited, which is also likely the main reason behind the relatively soft performance of share prices (up 18% year-on-year).
Greek banks trade at 0.7x P/TBV and 6.0x P/E based on 2025 estimates, and Eurobank remains JP Morgan’s favourite.
In addition, the bank is monitoring the developments related to the final placement of 18% of National Bank by the HFSF for a possible acquisition.
JP Morgan also reiterates that it assumes an 8% buyback from the National Bank in 2024 in relation to the HFSF stake.
Loan growth rebounds in 2024
After a disappointing year for loan growth in 2023 – due to high interest rates and large volumes of corporate repayments – it was observed that there will be a visible recovery this year.
The corporate sector is still the main driver of growth, but banks are increasingly talking about improving unsecured consumer lending, albeit from a very low base.
Banks continue to forecast 4%-6% annual growth in NPLs for the next few years.
While this is in line with nominal GDP growth, it shows that improvements in penetration are not yet evident, mainly due to stagnant mortgages, with annual disbursements of €1-1.2bn still at 10% of levels before from the crisis.
Banks cite a lack of affordable, modern housing and rising house prices as challenges, along with cumbersome lending processes.
Early efforts to boost housing lending, such as the government’s youth homebuyer scheme, are promising but require significant effort from both government and industry.
Bankers are safe with the 2024 plans
Interest income remains a key focus for investors as the NIM-driven growth cycle has reached its final stages.
“To our surprise, there was relatively little focus on NII and margins in our meetings, which signals that the catalysts are now well understood,” reports JP Morgan.
Banks expect a sequential decline in NII in Q1 2024 due to hedging-related negative carry and recent bond issuances, but remain comfortable with the outlook for the year, assuming up to three rate cuts and a shift in deposits to term accounts.
Revolving loans are a potential avenue for capital growth in the medium term
There is currently a ~€69.5bn stock of non-performing exposures in Greece in the hands of specialist NPL servicers managed on behalf of credit recovery firms, which could eventually return to bank balance sheets as these loans are cured and brought back into replay status.
Banks are keen to explore opportunities in RPL as a capital deployment area as the economic backdrop continues to improve.
Estimates of potential volumes range widely, from €10-15 billion to €30-40 billion, with approximately €6.5 billion of the total inventory currently classified as “performing” or “expected to perform” under the definition of the server itself.
However, the regulator raised concerns about asset quality, as we understand that the definition of NPLs differs from the EBA guidelines, while data quality is also seen as an issue.
The banks generally agreed and we heard from one of the banks that in a €300m portfolio they assessed, only €26m would qualify for S1 loan execution.
At the same time efforts are being made to improve and harmonize data quality and reporting, some of these loans are expected to return to bank balance sheets over time.
Also, JP Morgan reports, the regulator is not imposing a blanket ban on RPL purchases as a non-systemic bank recently acquired a small loan portfolio consisting of three restructured hotels.
The DTC issue
According to JP Morgan, banks appeared optimistic about the return of capital from 2024 with the approval of the SSM.
As previously announced, initial dividend payout ratios are modest, ranging from ~10% for Piraeus to over 25% for Eurobank and National, but are expected to increase gradually, reaching 40%-50% in the next 2-3 years.
However, given the strong capital ratios, especially for National Bank and Eurobank, as well as the high organic capital formation expected in 2024-2026, addressing excess capital becomes increasingly important.
While Eurobank highlighted its ongoing mergers and acquisitions in Cyprus, NGE is focusing on portfolio purchases as well as capital development partnerships.
Takeovers are also in focus, with National hoping to supplement dividends with an “aggressive acquisition strategy” from next year onwards.
www.bankingnews.gr
