Investment-grade sovereign, resilient economy, clean balance sheets: for those who lived through the 2010s, this doesn’t sound much like Greek banking.
Athens’ financial community has recently been abuzz with talk of sovereign credit rating upgrades after its centre-right government beat left and far-left opponents in elections earlier this year. Greece today is one of Europe’s fastest growing economies, with the IMF projecting 2.6% GDP growth in 2023, compared with 0.8% in the eurozone at large and -0.3% in Germany.
In the financial sector, meanwhile, non-performing exposure ratios at the four big Greek banks have fallen to the single digits, down from as much as 50% five years ago. Eurobank and National Bank of Greece were barely above 5% at the end of June.
Growth, perhaps even international growth, is tentatively back on the agenda, if it comes at a relatively small cost in terms of capital and risk
Greek banks are all expected to resume dividend payments out of their 2023 earnings, with the largest pay-outs coming from Eurobank, followed by National Bank of Greece. Those two are also the ones with the highest profitability and capital ratios, according to Citi.
But in late September, even Eurobank and National Bank of Greece were still failing to trade at valuations any better than the eurozone average, around 0.7x book.
Piraeus Bank and Alpha Bank were trading at 0.5x and 0.4x book, respectively, according to Jefferies.
Greek banks, it seems, are struggling to attract investor attention. One financials specialist at a large global asset manager says Greek bank stocks are still not investable because they are too small and because Greece is classed as an emerging market, despite being in the eurozone. Unlike at other European banks, in other words, the problem is no longer size but the lack of it.
Moving on
Private equity firms Fairfax Financial and Paulson & Co and, above all, the state’s Hellenic Financial Stability Fund (HFSF) retain large minority stakes in Greek banks. The HFSF is now looking to exit.
But the banks have less to offer in terms of an equity story because they have had to offload large parts of their business over the past decade, such as non-performing exposures in Greece, fee-generating assets in areas like payments, and international subsidiaries in southeast Europe and elsewhere, partly to satisfy state aid requirements.
Conversations with Greek bankers at a recent conference in London shows that the sector is eager to move on from these lengthy restructuring processes and is looking to find new ways to spark the market’s interest.
Growth, perhaps even international growth, is tentatively back on the agenda, if it comes at a relatively small cost in terms of capital and risk.
The biggest move in this direction so far has been by Eurobank, Greece’s biggest lender by market capitalization and recently also by assets.
Since 2021, Eurobank’s chief executive Fokion Karavias has gradually moved towards attaining a controlling stake of the second largest bank in Cyprus, Cypriot Hellenic Bank. Most recently, in August, Eurobank agreed to purchase stakes in Hellenic of 17.3%, from an entity managed by Pimco, and of 1.6%, from Senvest Management LLC – taking its total stake to 48.1%.
Should Karavias move to a full acquisition, it would cost the bank at least €700 million, based on the price of the Pimco and Senvest stakes, according to Fitch Ratings. That would be about 10% of its common equity tier-1 ratio. It would increase Eurobank’s balance sheet by about a quarter, to about €100 billion.
According to a senior source at Eurobank, the acquisition does not necessarily mean a wider international acquisition strategy is back. Eurobank already owns Cyprus’ third biggest bank, so to that extent it’s more of a domestic merger. Nevertheless, the acquisition has also led to questions, for example, about whether a Greek bank could acquire Cyprus’ largest bank by assets, Bank of Cyprus, which rejected three unsolicited offers by US private equity company Lone Star last year.
Potential growth
Greek banks have, in addition, retained some important footholds in the Balkans: especially in Bulgaria and Romania, which have much lower levels of credit-to-GDP than Greece, offering greater potential loan growth.
In March this year, Eurobank sold its business in Serbia to local lender AIK Banka Beograd, while Alpha Bank completed a sale of its Albanian business to Hungarian group OTP Bank late last year. On the other hand, Eurobank has strengthened its position in neighbouring Bulgaria through the acquisition of BNP Paribas’ local consumer finance subsidiary this year. Previously, Eurobank bought the Bulgarian subsidiaries of Piraeus Bank in 2019 and Alpha Bank in 2015.
In Romania, Alpha Bank suffered a slide in market share in the 2010s due to a regulatory asset cap that was only lifted in 2018. However, its wholesale-banking loan disbursements in Romania in 2022 were about four times as large as in 2018. It now envisages higher-than-market growth in housing loans to 2025, after its mortgage disbursements in 2022 were more than twice as high as in 2018. In August this year, it also announced the acquisition of the Romanian part of digital banking business Orange Money, part of the French telecoms company.
“We are repositioning ourselves in Romania where we have a good chance to improve given our history,” says Alpha Bank chief financial officer and general manager Lazaros Papagaryfallou. “Improving our digital capabilities has been a key focus area in Romania.”
