The stock market performance of Greek banks since the beginning of the year has been excellent, despite persistent external uncertainties; the index is up 38% this year, trading near 11-year highs and outperforming the SX7E by about 19 basis points, close to the widest spread of the year, an Axia-Alpha Finance analysis notes.
In our view, this is a two-sided story: on the one hand, the market is gradually absorbing the expected fundamental strengthening of the next two years (with the 2Q26 results reaffirming the thesis), which is supported by multiple positive catalysts (strong credit expansion, a higher interest-rate base, stronger fee income, favorable asset quality); on the other hand, the transition to DM, which triggered flows from both active and passive portfolios.
We are updating our estimates for the banks we cover, incorporating: 1) a higher interest-rate regime for a longer period of time, 2) a marginal reduction in previous estimates for credit expansion, given the higher interest rates, 3) the latest operating trends in the P&L lines, especially better-than-expected fees, and 4) the updated guidance from the 2Q26 results.
As a result, at the sector level, our updated revenue forecasts for FY26-28 are about 4.4% higher on average, leading to upgrades of 5.5% and 5% respectively for PPI and net profit, while our RoTE estimates now average 16.2%/17.1%/17.2% for FY26/27/28 respectively, the analysts note.
We analyze the profitability of Greek banks through a decomposition of RoTE and conclude that, interestingly, Greek banks could structurally be characterized by higher RoTE (closer to the high teens rather than the mid-teens), therefore they are inherently more profitable than the headline metric suggests.
In our view, this “hidden” profitability will gradually emerge over the medium to long term through two channels: the cleanup of non-productive assets, so as to increase RoA, and the elimination of burdens from regulatory capital, which constrain leverage and prevent the true earnings potential from being reflected in the headline RoTE figure. How quickly this “hidden” profitability will appear in the headline figures will depend on how each bank uses the levers discussed below.
We maintain a structural long position in the sector and believe that the medium-term phase of the fundamental strengthening story has not yet been fully priced in, while we are adopting a tactically cautious stance, as, after the strong YTD rally and possibly some positioning ahead of the DM rebalancing, we consider some profit-taking/consolidation very likely.
Overall, the investment case has shifted from the valuation gap versus peers back to fundamentals growth. The sector is trading on FY27E at 1.50x P/TBV and 9.5x P/E, for expected RoTE >16.0% and EPS CAGR of about 11% for the period ‘26-28, a combination we consider attractive, especially compared with Southeast European peers in both P/TBV and P/E terms.
We reiterate our positive stance, with higher target prices across our coverage universe, reflecting higher earnings estimates and our assumptions for the long-term growth rate. Eurobank (Buy, TP €5.70) and Bank of Cyprus (Buy, TP €12.30) remain our top picks — the former due to its steady earnings growth trajectory, the latter due to its safe, profitable model and high distributions. National (Buy, TP €19.00) is the natural choice for dividend-oriented investors, while Piraeus (Buy, TP €11.60) is a pure domestic growth play.