CITI: ‘Ωρα αγορών για τις μετοχές των ελληνικών τραπεζών

07.07.2016 15:56

Συνάντησε χθες τις (4) και την Τράπεζα της Ελλάδος – τι εκτιμά,παρατηρεί και επισημαίνει

Improving Economic Outlook, NPE Reduction Target Set
Greek Banks Athens Investor Trip Takeaways


·         Greek Banks Investor Trip:

We hosted an investor trip to Athens on 6th July and met the management of four Greek banks and Bank of Greece. We are cautiously optimistic on Greek banks following the trip based on improving macro-economic outlook and increasing clarities around Greek banks’ NPE reduction targets. The valuation is getting very attractive at 0.2x 2016 P/TB especially after the c50% price decline from recent peak in May on Brexit and Italian banks’ NPL concerns.

·         Early Signs of Economic Recovery:

Recent key economic indicators suggest there are signs of improvements in Greek economy. Manufacturing PMI rebounded in June to 50.4 (above 50 means expansion). Unemployment showed a continued downward trend in 1Q16 to 24.9%. There is a net inflow of 76k new jobs in May, mainly driven by tourism sector. International arrivals at Greek airports were up 7% yoy from Jan-Apr 2016. Greek Tourism Confederation (SEFE) expects tourism arrival to be up 5% yoy in 2016 to reach 27.5m. The economist from Bank of Greece expects the impact of fiscal austerity to be muted as the fiscal impact is likely to be neutralized by government’s arrears payments (€7bn). Better economic outlook has resulted in falling gross NPL formations for Greek banks.


·         NPE Reduction Target in Focus:

The Greek banks have submitted to BoG and SSM in May their NPE/NPL reduction targets, which is expected to be disclosed by BoG in September. The Greek banks would be monitored quarterly against the targets by BoG. While the NPE reduction target could vary by banks, we consider a 30-40% reduction in the absolute level of NPLs by end of 2019 a realistic target, driven by a combination of debt restructuring, foreclosure, asset liquidation and write-offs. Currently, the Greek banks restructure c5% of its NPL per quarter, it would take Greek banks on average 4 years to restructure the NPLs. The re-default rate of recently restructured loans range between 25% to 50%.


·         Adequately Capitalized for Now:

A key concern investors have is that Greek banks NPE coverage ratio could fall as the banks write off the fully covered NPEs. There could be a risk of increased provisions to maintain the current coverage ratio. The banks and BoG officials we met sounded sanguine about the provision level of Greek banks. They believe the banks’ NPEs are adequately provisioned for after the AQR exercise last year, which was based on very tough macro-economic and collateral value assumptions. The collateral value were heavily discounted (c40-50% haircut vs June 15 price), taking into consideration of liquidation cost. The Greek banks’ coverage ratio should be allowed to fall as banks dispose loans. BoG official also expects very limited impact from IFRS9 on Greek banks.

  • cid:citiLogo.pngLower Funding Cost to Drive PPI Improvements:
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  • Greek banks’ have scope to improve pre-provision income further mainly driven by lower funding costs, which is highly dependent on deposit inflows. At the present, there are very limited deposit inflows from retail depositors and some inflow from corporate depositors. Gradual relaxation of capital control over the next few years could be a catalyst for the inflow of retail depositors. Since Dec 2014, €40bn of deposits have left the banking system, a large part of which remain in Greece and could return to the banking system overtime. Dependence of Greek banks on ELA has fallen by €29bn from the peak in July 2015 to €61bn.
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  • Key Risks and Uncertainties:
  • The biggest risks for Greek economy and Greek banks are high level of taxation, failure to meet fiscal surplus targets, political instability and external risks. The measures implemented so far as part of bailout MoU are mostly revenue related through higher taxation rather than expenditure cuts. Higher taxation could have a bigger drag over economy by dampening consumption. The primary surplus target of 3.5% in 2018 is a challenging target. Failure to achieve the target could result in triggering of contingency measures. Recent MRB poll suggest New Democracy is 6% ahead of ruling party Syriza. The falling support of Syriza versus ND could trigger another election and renewed political uncertainties. Finally, external risks from Brexit and Italian banks’ NPL resolution could result in higher CoE by investors in the near term.
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  • Attractive Valuations:
  • Greek banks are down 50% from recent peak in May and trading on 0.2x 2016 P/TB. We forecast 7% 2018 RoE, assuming a normalized CoE of 14%, Greek banks could trade on 0.5x P/TB. However, we maintain our Neutral stance on Greek banks due to higher CoE from uncertainties in the external environment (Brexit, Italian banks’ NPL issue).
*Τα όσα αναγράφονται στη στήλη είναι προιόν δημοσιογραφικής έρευνας και δεν αποτελούν προτροπή αγοράς, πώλησης ή διακράτησης μετοχών


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