JP Morgan – Positive messages for Greek banks

After a break of almost two years due to the pandemic, JP Morgan executives were in Athens for contacts with bankers and people in the market.

The American house emphasizes that there is optimism that the government continues the reforms aimed at growth, while the banks are very close to achieving a single-digit NPEs index.

Therefore, after some years of pressure, the focus of the industry is on sustainable development and achieving returns.

Beyond that, and based on what JP Morgan executives have learned from their visit to Athens, managements are optimistic about the ROTE target at 8-10% in 2022-23.

At the same time, the house draws attention to the net interest income (NII) front, adding that other critical parameters such as commissions and costs are moving better than the initial expectations.

Forecast

The house forecast is slightly more conservative than the estimates of the managements as he points out, he does not see support in the return on capital (ROTE) from the pre-forecast profits for the next three years. While the improvement in supplies / costs is impressive, it is not enough to offset the pressure of NIIs. Even so, however, with the large normalization of risk costs, he estimates that a return of 7-9% in 2022-23 is possible.

Valuations suggest that optimism has already been significantly priced. With a future P / TBV of 0.48, Greek banks are trading at a 40% discount from competitors with a corresponding ROTE.

The company’s report states that it has re-evaluated Greek banks as attractive based on ROTE.

With the price index for tangible value (P / TBV) now close to 0.5 times in 2022, the general optimism for macroeconomics and the settlement of red loans to have been largely achieved, the first part has been implemented.

Evaluation

For JP Morgan, Eurobank remains the top pick.

On the NPEs front, JP Morgan notes that the decline, through securitization, is moving faster than anticipated and the execution risks on this front are henceforth limited.

Eurobank and National Bank are expected to reach single digit NPEs by the end of this year, while Alpha Bank and Piraeus Bank will follow in the first half of 2022.

This is an important turning point for the industry as more than 10 painful years have passed. It is pointed out that banks and authorities have in mind to reduce the risk of creating a new generation of red loans.

The signs are encouraging: service providers who have met with US executives say payments are improving, while reforms to the new bankruptcy law are gradually reducing collection costs.

If all parameters are taken into account, banks are optimistic about normalizing the cost of risk (CoR) by 50-80 basis points.

Target prices

In terms of target prices:

-For Alpha Bank, the recommendation is overweight with a target price of 1.5 euros.

-For Eurobank, the recommendation is overweight with a target price of 1.2 euros

-For National, the recommendation is overweight with a target price of 3.3 euros

-For Piraeus, the recommendation is neutral with a target price of 1.9 euros.