Improved course of their sizes, a significant reduction in inoperable indicators loanshis strong growth economy.an increase in new lending and the positive impact of the European Central Bank’s aggressive interest rate hikes strengthen the outlook Greek banksand JP Morgan and Wood issued a new “vote of confidence” in the sector.

However, 2023 is expected to be more challenging due to recession scenarios in the euro area, and the two banks are thus stress testing Greek banks to assess their “hardiness”.

In more detail, JP Morgan points out that the key factors are the net balance sheet, the sustainable trajectory of the Greek economy, support for higher ECB interest rates, as well as the possibility of capital return through the distribution of dividends. for a positive attitude towards Greek banks.

With the benefit of ECB interest rate hikes (with a target deposit rate of 1.5% at end-2022 and 2% at end-2023), the US Bank projects that already robust ROTE ratios will improve to an average of 9% by 2024, but taking into account the cost of risk 1.5 times higher than the normal level, taking into account current macroeconomic conditions.

New grants

Now with NPE at all four banks in single digits and backed by Recovery Fund investment projects, JP Morgan forecasts gross new lending to reach 15% of GDP by 2024, up from 8% in 2019, representing a compound annual growth of 6% . in NPL portfolios in 2021-2024

As the US Bank notes, the NPE securitization is largely complete, payment behavior has improved, and given that new lending in recent years has been limited to a few selected corporate sectors with very strict criteria, the potential deterioration in asset quality should certainly be limited from now on.

Given the many macroeconomic uncertainties, JP Morgan also conducted a long-term analysis of the recession based on the EBA stress test, and its results confirm a relatively favorable trend for Greek banks. While the cost of risk (CoR) will increase to 127 basis points over three years, compared to 60-70 basis points in a “calm” macro environment, Greek banks will still generate ROTE close to 7% given strong support from higher interest rates. rates, while CET1 capital ratios will be high, at 13.4% and 3.8%, above the minimum supervisory requirements.

For her part, Wood, who is also positive about Greek banks, notes that among the issues investors are currently concerned about is the sustainability of the recent strong credit expansion, strengthening net interest income from higher interest rates, the impact on forecasts of a relatively softer GDP growth in 2023 and the re-emergence of political risks on the domestic agenda.

As he notes, the growth in corporate borrowing in 2022 is likely to continue in the long term, as it will be further supported by European Union funds, low leverage of the Greek private sector and increased savings and liquidity of the Greek private sector. Thus, he estimates that a 10% growth in corporate lending is possible in the long term, although a slowdown in 2023 is likely due to the weak global economic outlook.

Regarding the ECB rate hike, the 125 bps cumulative increase in July and September results in €180-200 million net interest income (NIP) gains for each of the four systemically important banks, and thus Wood now expects an increase in NII about 10% in 2023.

Tourism and investment

Wood expects Greek GDP growth in 2022 at 5-5.5%, one of the highest in the eurozone, thanks to strong tourist flows and increased investment. However, 2023 is projected to be more challenging due to higher inflation and higher energy prices, as well as softer growth prospects as Greece sees 2.5% GDP growth. This is Wood’s baseline scenario, according to which growth in the euro area will approach 1%. In this scenario, the generation of new NPEs is expected to be above the thresholds recorded in 2022, but the cost of risk will not deviate significantly from 60 basis points.

However, if the eurozone falls into recession in 2023, Greece will inevitably suffer, and new NPS flows will be larger. According to Wood, in such an unfavorable scenario, the cost of risk will rise to 80-100 basis points, and the reserves for four banks will amount to 1.4 billion euros.