Credit growth in Greece remained broad-based in the second quarter, driven by business lending. Performing exposures rose by around 9–14% year on year at the four systemic Greek banks, around 8% at Bank of Cyprus (BoC) and 37% at Optima Bank, with the latter two having achieved around 70% of their respective 2026 targets, a new sector analysis by Eurobank Equities notes.
Volume growth, investment in securities and resilient lending margins supported quarter-on-quarter growth of 3–6% in net interest income (NII) at the systemic banks, while underlying fee income rose by 4–20%, driven by transaction banking, investment products, financing activity and insurance.
This momentum prompted upward revisions to 2026 forecasts, with cost discipline, improved efficiency, healthy asset quality trends and capital generation continuing to provide support, the analysts write.
Although credit growth is expected to normalise after its exceptional pace in the first half, we expect the third quarter to remain strong, as the higher level of activity at the end of the second quarter feeds through to NII and fee income in the second half. We therefore forecast a 2026 return on tangible equity (RoTE) of 12.0%–16.7% for the systemic banks and 17.6%–26.6% for BoC and Optima, respectively.
Growth in performing loans at the four systemic banks is expected to moderate from 8.6% in 2026 to 7.6% in 2027 and 7.0% in 2028, reflecting normalisation rather than a sharp slowdown after the end of the Recovery and Resilience Facility (RRF).
Greece has received €11.7bn of the €17.7bn total allocation in RRF loans, while agreements have been signed covering investments worth €29.2bn, financed by €13.2bn in RRF loans, €9.4bn in bank lending and €6.6bn in investors’ equity.
With €6.0bn disbursed by May and disbursements expected to continue through 2029, the existing project pipeline supports lending activity beyond 2026.
We also note that direct co-financing from the RRF accounted for only around 10% of new medium- and long-term bank loan agreements between July 2022 and February 2026. Broader demand is underpinned by needs to replace capital equipment and by investment in energy, infrastructure and modernisation, as well as working capital requirements.
Public investment outside the RRF is also forecast to rise by 12% to €11.0bn in 2027, the analysts write, although the €1.2bn increase only partly offsets the end of €7.2bn in RRF spending. In our view, the greatest risk concerns the timing of investment, as government formation talks or a repeat election in 2027 could delay projects and disbursements.
Our forecasts do not factor in delays. However, a scenario based on research findings, in which investment falls 5% short of forecasts in the election year, would reduce GDP and loan growth by around 0.5 and 0.36 percentage points (pp), respectively, while keeping both rates in positive territory, at around 1.4% and 7.2%, respectively, in 2027.
Greek banks continue to benefit from rising interest rates, although less than when rates were moving out of negative territory, while competition may limit the gains. Based on our assumptions for the ECB’s deposit facility rate (DFR) — 2.75% at the end of 2026 and 2.50% in 2027–2028 — a further increase of 50 basis points (bp) would boost 2027 earnings by around 2.6–5.0%, while an increase of around 35bp would offset a 10bp contraction in margins.
Higher funding costs may marginally delay viable investment projects, but trends in lending activity suggest that investment demand and the financing pipeline matter more than the absolute level of interest rates.
Against this resilient earnings backdrop, fiscal pressures in France pose a short-term valuation risk, as the spread between Greek government bonds and German benchmark bonds (GGB-Bund) widened by more than 25bp to around 95bp.
A 50bp increase in the cost of equity (CoE) would reduce fair values by around 4.4–7.0%, while the earnings boost from a simultaneous 50bp increase in the DFR would limit the remaining downside to 0.4–3.0%. We therefore view the episode as a valuation repricing risk, with a limited impact on earnings.
We are raising our overall net profit forecasts for FY26–28 by around 2–6%, mainly on higher net interest income (NII) driven by interest rates, stronger fee income and improved cost efficiency, while share buybacks provide further support for earnings per share (EPS) growth.
After rising by around 32% year to date (YTD), the systemic banks trade at a price-to-earnings (P/E) ratio of around 9.0x for FY27 and a price-to-tangible-book-value (P/TBV) ratio of 1.46x, implying discounts of around 14% and 12% to Italian and Spanish peers, respectively.
The lower forecast adjusted RoTE for FY27E, at around 17% versus 18.6%, partly explains this discount. However, in our view, stronger EPS growth, at 11.4% versus 9%, and faster loan growth, at around 8% versus 4%, support the case that valuations remain relatively attractive. We reiterate our Buy rating on all the banks we cover, with 13–34% upside to our price targets.
Alpha Bank remains our top pick, trading at a P/E ratio of around 8.2x for FY27E and a PEG ratio of around 0.49x, compared with 0.82x for domestic peers. Its roughly 25% discount on P/TBV to Greek peers (that is, against a peer multiple of 1.46x), 17% compound annual EPS growth over FY25–28 and improving returns create scope for further valuation convergence. The Investor Day on 5 November is a catalyst for updating profitability and shareholder return targets.
Alpha Bank
Rating: Buy
Price target: €5.75
National Bank
Rating: Buy
Price target: €20.80
Piraeus Bank
Rating: Buy
Price target: €12.25
Optima Bank
Rating: Buy
Price target: €16.55
Bank of Cyprus
Rating: Buy
Price target: €12.75