Greek banks at the turning point

Marco Mencini, Head of Research, Plenisfer Investments SGR

Greek banks have successfully gone through a long phase of deep restructuring, parallel to the one the country underwent after the notorious sovereign debt crisis of 2009.

Against the backdrop of this restructuring, the banks, led by the four main players - NBG, Piraeus, Alpha and Eurobank - have experienced exceptional growth over the last ten years, exceeding market expectations in terms of margins, profits and capital strength[1]. 

Over the period, banking stocks almost always outperformed their eurozone peers1 until a year ago, when the market began to believe that banks had now entered a normalisation phase.

At Plenisfer, however, we think that the sector's re-rating phase is set to continue: banks have just begun to turn the excellent results of the rationalisation process into shareholder returns and will benefit not only from further efficiency gains, but above all, from a strongly improving economic environment, with growth rates above those of the eurozone. 

These conditions, combined with still compressed valuations, make the sector an opportunity to watch carefully.

Strong economy to support the sector

Greece is not only the most important sovereign restructuring case of the past 15 years, it is above all the most successful. After draconian budget cand a strong reform plan, Greece now shows growth rates well above the rest of the eurozone, sharply declining debt and a strong ability to attract foreign investment.

On the GDP front, which has risen from -2.5% (2013)1 to +2.5% (2024)1, Greece has continued to outperform the eurozone for the past twelve consecutive quarters and is projected to grow by 1.9% by 2025[2]. If realised, Greece's economic growth would be roughly double that of the EU, which consensus estimates would be close to 1% in 2025.

The debt-to-GDP ratio reached around 150% at the end of 2024 and is expected to fall further to 132.8% by 2029, a marked improvement from its peak of 207% in 20202. 

The confidence in the economy and positive economic backdrop - characterised by an unemployment rate that has fallen in ten years from 28% to 9.7%, consumption that has risen from -3.4% to +2.5% and a housing market with prices rising by 12% in 20242 - has resulted in an increase in Gross Fixed Capital Formation2, the engine of GDP growth, supported also by loans and grants from the EU Recovery and Resilience Fund.

The re-rating is halfway through, and we expect it to resume at the end of the current pause

Greek credit institutions will benefit from the growth of the economy by having ample room to provide funding, given the low levels of the loan-to-deposit ratio. The sector is also characterised by capital strength, profitability expected to improve further and asset quality recovering sharply. As a result of aggressive clean-ups, write-downs and restructuring, NPEs declined steadily to 6% in 2024 (from 49% in 2017), an impressive improvement even if the figure remains above the EU average (1.9%)1. We believe that this positive trend may continue in 2025-2026.

At Plenisfer, we also think that in the coming years the major banks will maintain CET1 (Common Tier Equity 1, i.e. the ratio of primary capital to total risk-weighted assets) significantly above 13%, while net interest margin should remain stable despite the European rate cut, thanks to further possible improvements in operational efficiency.

Greek banks have already started to turn the excellent results of the rationalisation process into shareholder remuneration of more than 10% in 20241 and, also in light of the recent guidance communicated by the major institutions, we expect a gradual increase in payout ratios from 20% to 40% on average in 2025, with dividend yields increasing from 4% in 2023 to 8% in 2025, which is higher than the average 2024 yield of EU banks of 7%.

Compressed valuations, rising multiples?

Despite the described scenario, Greek banking stocks now trade at about 6x expected earnings in 2025 compared to 9x expected earnings in the eurozone, with lower capital levers than their European competitors (less than 9x against a European average of 12-13x)1. 

At Plenisfer, we believe that the re-rating of the sector is still incomplete and that, while Greek banks, buoyed by strong balance sheets, will ride stronger economic growth than the eurozone, multiples may gradually rise towards the level of European peers.

Disclaimer

This analysis relates to Plenisfer Investments SGR S.p.A. ("Plenisfer Investments") and is not a marketing communication regarding a Fund, investment product or investment services in your country. This document does not constitute an offer or invitation to sell or buy any securities or any asset or venture described herein and does not form the basis of any contract.

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[1] Source: Bloomberg

[2] Source: European Commission