Goldman Sachs Optimistic on Greek Banks, Sees Valuation Improvement

Goldman Sachs maintains a constructive outlook for Greek banks ahead of the 2024 earnings announcements, continuing to expect that the valuation discount at which Greek banks trade compared to their European counterparts will gradually narrow over the next 12 months.

According to the investment bank, dividend payment increases and a gradual reduction in Deferred Tax Credit (DTC) balances will be key factors driving a further re-evaluation.

On an individual stock basis, Goldman Sachs sees the highest upside potential for Alpha Bank over a 12-month horizon, supported by its strong positioning for 2025 and significant valuation discount.

In this context, the bank has made two rating changes: First, it upgrades Alpha’s stock to “Buy” from “Neutral,” anticipating that its net interest margins (NIM) will prove more resilient to interest rate cuts while reducing the gap in return on equity (ROE) relative to its peers.

Secondly, Goldman Sachs downgrades Eurobank to “Neutral” from “Buy” due to its valuation, trading at 1x price-to-tangible book value (P/TBV).

At the same time, the investment bank reiterates its “Buy” ratings on National Bank of Greece and Piraeus Bank.

Over the past two months, Greek bank stocks have risen by 24% (compared to 12% for the SX7P index), now trading at an average P/TBV of 0.83x/0.73x.

Goldman Sachs reports that the relative outperformance of Greek banks compared to their EU peers’ bonds is partly due to higher expectations for interest rates, with Greek banks’ NIMs being more sensitive to interest rate changes than other eurozone banks.

Looking ahead to 2025, Goldman Sachs expects three key factors to shape the Greek banking sector: First, the impact of interest rate cuts on NIM and ROE, with analysts forecasting the European Central Bank’s rate to decrease from 3% to 1.75% over the next 12 months.

Secondly, it sees an acceleration in loan portfolio growth, with the third factor being capital allocation priorities.