BofA: Buy shares of Greek banks at low prices

Bank of America recommended the purchase of shares of Greek banks.

In its new report it refers to Eurobank, National Bank, and Alpha Bank. The three banks are among those that BofA evaluates with a buy recommendation and which… give a 20% discount on the tangible net worth, current return of 5% and a forecast for 14% increase in profits until 2023.

Banks with a very low price multiplier (P / E), at 8 times or lower in 2023, include the following: Eurobank BNP, CASA, UBS, Barclays, NatWest, Raiffeisen, Greek and Irish banks and BofA in total reiterates its positive view of the industry.

Eurobank

The price for Eurobank (1.15 euro target with buy recommendation) is based on the Gordon Growth model. The analysts of the bank use equity costs of 11.1% (1.5% risk-free interest rate, 6% equity risk premium, 1.59 beta risk index) and the 2025 (sustainable) return index of 8.7% (RONAV) for to value Eurobank shares. The assumption for the final growth rate is 2%. then subtracts (or adds) any capital gap (surplus) per share with a capital ratio with full integration of Basel 3 at 12.5% ​​(15.0%) in 2022.

Important factors are the acceleration of GDP growth, which could lead to better volumes and faster reduction of NPEs.

The fiscal constraints of the Greek economy and the growing dependence on exports are dangerous, which shows vulnerability to macroeconomic shocks, such as trade wars, Brexit and the EU slowdown. A slower-than-expected macroeconomic recovery could negatively affect reductions in non-performing exposures and the rate of disbursement of new loans. However, as conditions in Greece improve, regulators may increase security capital reserves or total capital requirements.

National (Ethniki) Bank

The target price for the National Bank is 3.3 euros. In this case, too, an important factor is the stronger GDP growth, which could accelerate the reduction of NPEs and the creation of new loans, making it easier to achieve the goals.

The pure organic formation of NPEs could be a concern, but this could be jeopardized if the economy does not improve rapidly enough. According to BofA forecasts, the EIB is the best group with a high level of capital and on this basis should be able to pay a dividend. However, regulators may impose stricter capital quality requirements in the future, thus preventing this possibility.

Alpha Bank

The target price of 1.45 euros for Alpha is based on the same methodology as in the cases of Eurobank and National Bank.

Again, accelerating GDP growth could lead to better volumes and faster reductions in NPEs. Hercules Asset Protection Plan could offer an additional boost to Alpha Bank’s securitization plan.

However, a slower-than-expected macroeconomic recovery could negatively affect the reduction of NPEs and the disbursement rate of new loans.