Greek banks overlooked, but on bumpy road to re-rating

Rising interest rates will provide a significant tailwind to Greek bank earnings this year and the next, Eurobank Equities said on Thursday, rating Alpha Bank, National Bank and Piraeus Bank a “buy.”

In a research report, it said Greek bank shares were “out of sync with fundamentals,” up just 3% so far this year and trading at a steep 25% discount to peers on Europe’s periphery.

“A lot of bad news is priced in and we believe the risk-reward balance is tilted to the upside in the long run, given the ultra-low valuation, a 2023 price-to-book value of 0.3-0.5 times,” the report said.

While a sustained rally is not expected in the near term, given uncertainty over the impact of higher interest rates on economic growth and asset quality, there are factors that will offset global macroeconomic headwinds.

Greek banks will benefit from a new credit cycle following a decade of deleveraging while rate hikes will boost their net interest income, Eurobank Equities said.

Greece’s economy is also proving resilient thanks to tourism while banks’ asset quality has improved in the last three years.

“Besides their higher sensitivity to rate hikes versus EU peers, Greek banks have additional levers to pull, including continuous cost-cutting and accelerated fee generation,” the report said. [Reuters]