Greek bank stocks are expected to receive a new boost after their impressive recovery from the country’s sovereign debt crisis, as the four largest groups rejoin the leading European benchmark index on Monday.
The National Bank, Eurobank, Piraeus and Alpha Bank will rejoin the Stoxx Europe 600 index next week, when Greece’s reclassification by the index provider as a developed market takes effect, Bloomberg recalls.
The Stoxx upgrade comes about ten years after Greece’s downgrade to emerging market status and will open the door to a new wave of investors, including passive funds tracking major indices and active managers restricted to developed markets.
The sector has recorded a spectacular recovery after the crisis. The stock market remained closed for five weeks in 2015, as capital controls were imposed in the country, with Greek bank shares collapsing by 94%.
Since then, Greece has reversed the course of its economy, regaining investment grade from all major rating agencies. The FTSE ATHEX Banks index has risen by more than 400% over the past decade.
“Gradually, but steadily, Greece moved from crisis to growth and is no longer a restructuring story”, said Eglé Fredriksson, portfolio manager at East Capital Group. “Similar valuations and faster growth actually make for an attractive profile for Greece versus developed Europe”.
Investor Joe Faraday, head of European equities at Baillie Gifford, particularly favors Piraeus because of its rapid growth in corporate lending and fee income. “The years spent surviving created a performance culture that is rare in the banking sector and is now combined with a much healthier Greek economy”.
Greek banks have also outperformed most of their European peers this year, with the shares of all four largest lenders rising by more than 30%. This compares with a 22% gain for the Euro Stoxx Banks index, which they are set to join.
“Greece offers one of Europe’s most attractive banking markets, supported by investment-led GDP growth and one of the highest rates of credit expansion in Europe”, analysts at Jefferies, including Alexander Demetriou, wrote in a note this month. Greek GDP is forecast to grow by 1.9% in 2026, exceeding the European Union’s 1.2% growth, according to Bloomberg consensus estimates.
These fundamentals have already attracted investors’ attention, but inclusion in the Stoxx 600 index will also attract passive investments into the stocks. The four banks are estimated to see total inflows of about $2.2 billion, according to strategists at JPMorgan Chase & Co.
Despite the sector’s rally, Greek bank stocks remain among Europe’s cheapest banks. Their average price-to-book ratio, at 1.3 times, is more than 20% lower than that of their Italian peers and almost 30% lower than that of Spanish banks, according to Bloomberg Intelligence.
Positive ratings
The sector’s recovery is reflected in analysts’ ratings, as all four Greek banks receive overwhelmingly positive recommendations among the analysts tracked by Bloomberg.
Deutsche Bank analyst Alfredo Alonso rates all the banks as Buy, highlighting strong second-quarter results and guidance upgrades for some of the groups. “The sector offers clear earnings visibility, which in our view continues to be insufficiently priced in, especially when taking into account the higher growth expected relative to many European peers”, Alonso wrote in a note this month.
Of course, the path may not be entirely smooth. Strategists and economists at Morgan Stanley, including Matthew Nguyen and Chiara Zangarelli, wrote in a recent report that “the balance of risks becomes less one-sided by early 2027, as the index upgrade trade matures and the spring elections bring political prospects into focus”.
The outcome of next year’s elections is far from certain at this point, Bloomberg writes. Prime Minister Kyriakos Mitsotakis’ center-right New Democracy party maintains a comfortable lead in the polls, but it is also estimated to fall short of the share of votes required to form a single-party government, as Greeks face a cost-of-living crisis and a decline in living standards.
However, bank stocks have another market-related catalyst ahead of them, as index provider MSCI is expected to officially upgrade Greece from emerging to developed market in May 2027, an event that Morgan Stanley described as a “more important benchmark event for European long-only investors” compared with the Stoxx upgrade.
Another five Greek stocks are also set to join the Stoxx Europe 600 on Monday, including Metlen Energy, PPC, GEK Terna, Motor Oil and Jumbo.