Oversize Greek banks compared to market and management estimates, due to a strong increase in net interest income and improved asset quality, Aksia Ventures. However, he estimates that the dividends they will distribute will be lower than banks currently expect, and believes that distributing excess capital is “key” to their outlook.

According to Axia, the political situation is favorable for the sector, as maintaining a stable, pro-investment government over the next four years will pave the way for Greece to return to investment grade, which will attract institutional investors.

In terms of fundamentals, lending to Greek banks is expected to expand with new funds provided by the Recovery Fund and the continued growth of foreign direct investment. Axia believes that the market continues to underestimate the dynamics of net interest income and the cost of risk. According to his analysis – and given conservative forecasts of no further ECB interest rate hike and no rate cuts to 3% in 2024 and 2.5% in 2025 – net interest income for the sector will increase by an average of 8-10% in year in the period 2022-2025 In terms of cost of risk, Axia notes that Greek banks have shown remarkable resilience in their loan portfolios. Consequently, administrations’ estimates for 2023 appear to be rather conservative. The big “mystery” for the house is the distribution of excess capital. As he notes, banks have narrowed the CET1 capital gap compared to EU banks. (where the ratio is 14.8%), however, the ESM still does not allow high payments until they reduce the levels of deferred tax assets. As such, Axia forecasts that they will distribute lower dividends than management anticipated, and that the distribution of HFSF rates will affect the overall payout. According to Axia, SSM prefers that Greek banks complete investments that increase organic profits, rather than continue to distribute dividends. As such, their ability to leverage excess capital effectively is a key catalyst in their investment narrative.