Investors regaining confidence in the domestic banking sector

There was an immediate reaction by investors to the prospect of the second review of Greece’s third bailout being completed in a timely manner, with bank stocks reaping major gains that amounted to 30 percent within just a few days. The departure of the creditors’ representatives on Tuesday did not discourage traders, with bank stocks posting fresh gains while expectations were bolstered by Moody’s.

The international rating agency upgraded the outlook on Greek lenders from negative to stable, which reflects its anticipation of improved financing and profitability despite the huge pile of bad loans and limited loan issue opportunities. Moody’s notes that local banks will likely remain dependent on European Central Bank funding, and singles out tackling bad loans as the biggest challenge.

The lenders’ upgrade combined with confidence that this time the review will be completed on time allowed bank stocks to reap strong gains, fed by the buying interest in ATHEX, while the interventions to come in the national debt and the country’s anticipated inclusion in the European Central Bank’s bond-buying program are creating additional expectations for a dynamic rebound of the economy next year.

The banks index has risen by almost 30 percent in just six sessions, which is more than three times the bourse benchmark’s increase. Still, despite those impressive gains, bank stocks remain below the prices of last year’s share capital increases, conducted at historically low price levels.

Alpha Bank offers the best picture among the four systemic lenders, as its stock closed on Tuesday just 5.5 percent below the price of its recapitalization (2 euros). National stands 24.33 percent below the capital increase price of 0.30 euros, Eurobank is 28 percent lower than the 1-euro price of its increase, and Piraeus still stands 30 percent below the 0.30-euro price its shareholders paid last year.

The price decline recorded earlier this year (to more than 50 percent below the recapitalization prices) was due to the big delay in the completion of the first review, but the situation is now changing. This is also evident in the interbank transactions through treasury bills the banks can conduct, and the drop in the spread between the Greek and German 10-year bond yields, which has fallen to less than 7 percent.