What Alpha Bank’s capital increase mean for Greek banking

The forthcoming capital increase of Alpha Bank heralds a new page in the domestic banking market. Although the news caused a stir in the stock market, this does not worry analysts, as always in such cases sell-offs increase, pushing prices to lower levels.

The fact that the move of Alpha Bank, which comes a few weeks after the capital increase of Piraeus Bank, was interpreted in the same direction by several investors as the beginning of a cycle of capital increase by Eurobank and National Bank.

Stock exchanges consider that these liquidations will have a short-term character, emphasizing that nothing shows that we are moving after Alpha Bank and Piraeus, towards new issues of shares.

Contact with markets

The same circles claim that what is most important is the fact that for the first time in many years, there is a particularly high willingness of the investment community for placements in Greek banks.

In other words, domestic groups can turn to the markets to raise liquidity and capital on preferential terms, thus securing the necessary fuel to return to sustainable profitability.

This is a development that undoubtedly in a decisive way helps the implementation of their business plans.

This is because, among other things, it will lead to a reduction in the cost of bonds that banks intend to issue, under the new capital requirements (MREL).

The plans of the Big-4

Banking sources emphasize that each bank has its own special characteristics on which its movements depend. Piraeus Bank raised € 1.3 billion to clear its balance sheet, and lay the groundwork for a return to high profitability by 2024.

Alpha Bank, on the other hand, does not want to raise the 800 million euros for NPLs, as the coverage of their reduction costs was guaranteed even without this injection. The additional funds will be used exclusively to enhance its credit expansion.

As for Eurobank, CEO Fokion Karavias stated publicly last Friday that the bank does not intend to issue shares.

According to sources from the group, Eurobank, the first since 2019, has increased its capital by 1 billion. euros, after the merger with the real estate management company Grivalia. As a result, the increases of Piraeus and Alpha Bank follow the respective move of Eurobank.

Moreover, it has already reduced arrears to 9% with a prospect of 6% by the end of 2021, while the necessary forecasts can be fully covered by organic profitability and its net worth.

Finally, the bank points out that if they made a capital increase, the goal of increasing its return on investment (IIR) to 10% would be called into question, as in this case the denominator of the relevant fraction would grow.

At the National Bank, on the other hand, they have secured the reduction of arrears to low single-digit levels over the next 18 months, taking advantage of the high forecasts that have been formed.

In addition, a priority for the bank at this phase is the gradual elimination of the participation of the Financial Stability Fund (FSF) which amounts to 20%.

This is a goal that can be achieved through the sale of securities held by the Fund and not through a new issue of shares.