The first-quarter earnings season reinforced our positive stance on the Greek banking sector, as total adjusted net profits came in at 1.14 billion euros (-1.5% year-over-year), remaining broadly at the exceptionally high level seen in the fourth quarter, despite the seasonally weaker performance of the first quarter, according to an analysis by Eurobank Equities.
Operating trends remained resilient, with net interest income (NII) rising by 1.9% year-over-year (+1.7% quarter-over-quarter and +1.9% year-over-year), to 2.1 billion euros, supported by double-digit growth in corporate lending (over 11% year-over-year for all four systemic banks), the early recovery in retail banking financing and the stabilization of margins (net interest margin—NIM—for the first quarter: 2.39%), while fee income exceeded expectations in most cases.
Core pre-provision profits (Core PPI) increased by 4% year-over-year, cost discipline was maintained despite investments in technology and the integration of mergers and acquisitions, while the cost of risk (CoR) fell to 45 basis points, underscoring the favorable credit environment.
Overall, the first-quarter results reinforced our belief that management teams can comfortably meet—and, in several cases, exceed—their medium-term business targets, the analysts write.
Although Greek banks remain among the most sensitive to interest rate changes in Europe, we believe that sustainable outperformance will increasingly stem from stronger loan growth and accelerated revenue diversification, with the more favorable interest rate environment providing additional upside momentum rather than serving as the primary investment rationale.
We now assume that the European Central Bank’s (ECB) terminal interest rate will reach 2.50% by the end of 2026, in line with market valuations, before gradually declining to 2.25% by the end of 2027 and remaining broadly stable through 2028, they continue.
Reflecting our updated assumptions regarding interest rates and a broader review of our models, we are raising our forecasts for the sector’s adjusted net income by 2%, 3%, and 2% for the years 2026, 2027, and 2028, respectively, and now project an increase in the sector’s earnings per share (EPS) of approximately 10% in 2026 and approximately 12% in 2027.
We remain positive on the medium-term outlook for credit expansion and are slightly more optimistic following the de-escalation of geopolitical tensions and the continued resilience of domestic investment activity.
Although the Recovery and Resilience Facility (RRF) has formally concluded, its impact will extend beyond 2026, as disbursements for approved projects will continue to support lending through 2028, while excess demand for RRF resources is expected to shift to conventional bank financing and new programs of the Hellenic Development Bank (HDB), thereby limiting the risk of a sharp slowdown in credit expansion after the RRF expires.
We now forecast a cumulative net increase in loans of over 38 billion euros for the 2026–2028 period at the three systemic banks (a compound annual growth rate of approximately 8%), driven primarily by corporate lending.
We also estimate that resilient funding costs and easing pressure on loan margins will support a recovery in the net interest margin of approximately 20 basis points by 2028.
Recent strategic transactions, including Alpha Bank’s additional acquisitions, Eurobank’s acquisition of Eurolife, Piraeus Bank’s integration of Ethniki, and National Bank of Greece’s agreement with Allianz, are expected to increase fee and commission income to approximately 25% of total revenue by 2028 (up from 23% in 2025), strengthen sustainable return on tangible equity (RoTE) to approximately 16% (compound annual EPS growth rate of approximately 10% over a three-year horizon), and further diversify profitability beyond net interest income.
Recent concerns regarding interest rate caps on consumer loans, the restructuring of Swiss franc-denominated mortgage loans, step-up loans, and cases under the Katseli Law are unlikely to alter the sector’s investment outlook, in our view.
Based on disclosures to date and our own analysis, we expect only a limited financial impact, which can be comfortably absorbed within existing assumptions regarding profitability and forecasts, without requiring a revision of either business plans or market estimates.
Despite the approaching election season, we continue to view the likelihood of an emergency tax on windfall profits as low, following the reaffirmation by the government and the Bank of Greece of their support for the existing banking framework, including the deferred tax liability (DTC) regime.
More broadly, the demand of approximately 6 billion euros generated by recent trading in Greek stocks and corporate bond issuances suggests that investors continue to price in a stable and investment-friendly economic policy environment.
Greek banks have outperformed the SX7E index by about 10% since the beginning of the year, although since late May they have underperformed by about 5%–6%, due to technical pressures from successive secondary share placements (by non-financial companies) and, in our view, unfounded concerns regarding the Katseli law.
The sector combines profitability approaching the levels of the Eurozone periphery (RoTE approximately 100 basis points lower than that of comparable banks), with stronger loan growth (compound annual growth rate of approximately 8% versus approximately 4%), higher earnings per share growth (compound annual growth rate of approximately 10% versus approximately 8%), superior operating efficiency (cost-to-income ratio of 39% versus 50%), and cumulative shareholder distributions of approximately 20% over the next three years, while it continues to trade at a 20% discount to its price-to-tangible book value (P/TBV) and a 15% discount to the price-to-earnings (P/E) ratio compared to Southern European banks.
In this context, Alpha Bank remains our top investment pick, having replaced Piraeus Bank as our preferred regular pick for the second half of 2026, as its valuation—trading at a discount of approximately 25% based on the P/TBV ratio—is becoming increasingly difficult to justify, given that the difference in return on tangible equity has narrowed to about 3 percentage points, while Piraeus Bank’s valuation has already largely converged with that of Eurobank and National Bank of Greece. We reiterate our Buy recommendation for all five banks we cover.
Target prices:
- Alpha Bank: 4.95 euros
- National Bank: 18.7 euros
- Piraeus Bank: 11.1 euros
- Optima Bank: 11.6 euros
- Bank of Cyprus: 11.6 euros.