Greek banks’ stress test ‘pleasant surprise,’ analysts say

International credit organizations hailed the performance of Greek banks under European Union stress tests as a positive surprise that negates any concerns about their capital position, opening the way to a return to normalcy after years of underperformance and the burden of nonperforming loans and making them more attractive to prospective investors.

Even under the worst-case scenario, which is somewhat extreme – it shows the Greek economy shrinking further by 1.8% in 2021 and 2.5% in 2022, with an anemic 0.7% recovery in 2023 – Greek banks appear more resilient than many other European lenders, even giants such as Deutsche Bank, Societe Generale and Sabadell.

Besides, the stress tests were based on end-2020 data and did not take into account Greek banks’ moves to improve their capital position in 2021.

Thus, BNP Paribas remarks that the European Central Bank’s stress tests on Greek banks came as a positive surprise, with a strong pro forma capital position. Under the worst-case scenario, at the end of 2023, the Common Equity Tier 1 (CET1) ratio, fully loaded, would be 8.3% for Alpha Bank, 7.6% for Eurobank, 6.5% for Piraeus Bank and 6.4% for National Bank. If the scenario were to take into account the banks’ moves to boost the profile of their assets, these ratios would rise to 10.2% for Alpha, 10% for Piraeus and 9.4% for National.

Under this worst-case scenario, the banks’ CET1 ratios would drop by 6.4% for National Bank, 6.3% for Alpha, 4.8% for Piraeus and 4.4% for Eurobank.

Under the base scenario, as presented by the European Banking Authority, the Greek economy will expand 4.2% in 2021, 4.8% in 2022 and 3.7% in 2023, with joblessness at 16.5%, 15.6% and 13.9%, respectively, compared with 18.9%, 22.1% and 22.2%, respectively, under the worst-case scenario.

In the base scenario, the four Greek banks’ average CET1 will be 12.675% in 2021, rising to 15.675% at the end of 2023.

Axia Research says the result show the banks’ capital positions are adequate and that they can focus on their business plans. And even three years of severe macroeconomic shock will not necessarily require a capital infusion.