An analysis by Goldman Sachs focuses on the reaction of banking stocks after the victory of New Democracy in the elections, pointing out that the shares of Greek banks strengthened by 13%, while bond yields took the opposite direction, with those of AT1 falling by 30 – 50 basis points and the senior preferred bonds by approximately 10 – 20 basis points.

The comments from a portion of investors received by Goldman Sachs indicate that the election result and the subsequent outlook on the economic policy side were seen by the market as an important element for the possible upgrade of the Greek bond to “investment grade”.

Goldman Sachs maintains a relatively constructive stance on Greek banks (buy recommendation for NBG, Piraeus Bank and Alpha Bank), expecting an average ROE of 12% – 10% in 2023 – 2024, from 8% in 2022, with the average CET1 ratio further improving to 14.6% – 15.4% (from 13.7% in 2022).

We expect, it notes, a combination of healthy Greek GDP growth (2.6%/1.5% in 2023/24 according to the IMF, against around 0.7%/1.3% which is the estimate for Europe) and support from the Recovery Fund to the increase of an average of 5% per year of serviced loans.

According to Goldman Sachs analysis, Greek banks have some of the strongest liquidity/funding buffers within the eurozone, with an average liquidity coverage ratio (LCR) of 198% (compared to an EU average of 153%). On the asset quality side, Greek banks reached an average NPE of 6% in 2022: we expect it to continue to decline in 2023/24, to 5%/3.5%, heading towards the EU average of 2%-3%, he adds.

The three catalysts for Greek banks

Possible upgrade of the state’s credit rating to investment grade in the second half of 2023.
Room for positive revisions to earnings per share estimates and
Further details on Greek banks’ plans to distribute dividends.

Goldman Sachs recalls the “green light given” by SSM, after more than a decade, for Eurobank to repurchase its shares (1.4%) held by the HRADF.

In addition, NBG has sought approval from the SSM to pay a first dividend in 2023 (from fiscal 2022) with an outlook for an earnings distribution rate of 20% – 30% in the medium term.

Eurobank’s management is aiming for a minimum distribution rate on profits of 25% from 2023, which is expected to rise towards the European average in the medium term.

On the other hand, Piraeus Bank received a forecast for a dividend distribution of 10% of 2023 earnings and plans to increase the distribution rate to 35% in 2025, while Alpha Bank also put together a plan for a distribution rate of of profits to 20%, with further increase in the following years.

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