Greek Banks — Falling Political Risks, Upgrade Sector to Buy
Upgrade Greek Banks to Buy — All the four Greek banks in our coverage are now rated Buy/High Risk (1H). Positive 1) Asset Quality Clarity — BoG’s report on NPE reduction for the banking system gives more clarity. Positive 2) Falling GGB Yield — Greek banks could have €100-180m per bank capital and P&L benefit through GGB holdings and lower cost of equity. Positive 3) Crisis Valuation —The sector is trading at 0.3x 2016 P/TB. We forecast 5.4% 2019E RoE or 11.3% excluding surplus capital. Risk 1) Asset Margin Pressure — 8-20% of Greek banks’ NIIs are from NPLs. We expect muted NII growth for Greek banks. Risk 2) Medium Term High Loan Losses — Greek banks might need to take large write-offs, leading to elevated loan losses in coming years. Risk 3) Macro & Political Uncertainties — While the political risks are receding, the uncertainties remain high and economic recovery is fragile to external shocks.