her Eleftherias Kourtalis
Last week JP Morgan was in Athens and met with banks, companies and industry experts. Sentiment remains upbeat, he points out, with a comfortable signal from banks on sustainable ROTE trajectories despite a peak in NII net interest income.
“To our surprise, there was relatively little focus on NII and net interest margins in our meetings, which signals that the drivers are now well understood, with NPL growth and capital return prospects dominating our conversations,” he points out. the JPM.
At the same time, short-term catalysts appear more limited, which is likely the main reason behind the relatively lackluster performance of Greek bank stocks in recent weeks.
Going forward, Q1 2024 earnings and dividend approvals (expected in June) are key to the sector’s path, the US bank stressed, adding that Greek banks are trading at a 2025 P/TBV book value ratio at 0.7x and P/E at 6.0x P/E, and Eurobank remains her preference.
Loan growth is recovering
After a disappointing year for loan growth in 2023 – driven by high interest rates and large volumes of corporate repayments – discussions held by JP Morgan in Athens indicated that a recovery is visible this year. The corporate sector is still the main driver of growth, but banks are increasingly talking about improving 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 cited 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 Help to Buy scheme for young people, are promising but require significant effort from both government and industry.
The NII will decrease but the 2024 guidance does not change
The outlook for Greek banks’ NIIs remains in focus for investors as the growth cycle led by margin growth has reached its final stages. There was relatively little focus on NIIs and margins in JPM’s meetings with banks, signaling that the drivers are now well understood.
Banks expect a sequential decline in NII in the first quarter due to recent bond issuances as well, but remain comfortable with the outlook for 2024, assuming up to three rate cuts and a shift in term deposits.
RPL loans a potential avenue for capital growth in the medium term
As JP Morgan notes, there is currently a €69.5bn backlog of non-performing exposures in Greece at servicers, which could eventually return to bank balance sheets as these loans are cured. Banks are keen to explore opportunities on this front as an area of capital deployment as the economic backdrop continues to improve. Estimates of potential volumes range widely, from €10-15 to €30-40 billion, with around €6.5 billion of the total inventory currently classified as “performing” or “forborne performing” as defined by servicers .
However, the regulator raised concerns about asset quality, as the above definition differs from the EBA guidelines, while data quality is also seen as an issue. Banks generally agreed and one of the banks reported that of a €300 million portfolio it assessed, only €26 million would qualify for Stage 1 lending.
At the same time, given efforts to improve and harmonize data quality and reporting, some of these loans are expected to return to bank balance sheets over time. The meetings were also told that 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.
Upbeat message on capital return despite DTCs
Banks appeared bullish on capital return starting in 2024, with SSM approval, cautious dividend payout. As announced the initial dividend payout ratios are moderate and range 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.
Buybacks are also in the spotlight, with Ethniki hoping to top up dividends with an “aggressive” buyback strategy from next year. In addition, the bank is monitoring developments related to the placement of 18% of National Bank’s share by the HFSF for a possible acquisition.
