The first-quarter results announcement period reinforced our positive stance toward the Greek banking sector, as total adjusted net profits came in at €1.14 billion (-1.5% year-on-year), broadly remaining at the exceptionally high level of the fourth quarter, despite the seasonally weaker performance of the first quarter, a Eurobank Equities analysis notes.
Operating trends remained resilient, with net interest income (NII) increasing by 1.9% year-on-year (+1.7% quarter-on-quarter and +1.9% year-on-year), to €2.1 billion, supported by double-digit growth in corporate lending (above 11% year-on-year for all four systemic banks), the early recovery of retail banking financing and the stabilization of margins (first-quarter net interest margin - NIM: 2.39%), while fee income exceeded expectations in most cases.
Core pre-provision income (Core PPI) increased by 4% year-on-year, cost discipline was maintained despite investments in technology and the integration of mergers and acquisitions, while the cost of risk (CoR) declined to 45 basis points, underscoring the favorable credit environment.
Overall, the first-quarter results strengthened our conviction that management teams can comfortably achieve and, in several cases, exceed their medium-term business targets, the analysts write.
Although Greek banks continue to rank among the most sensitive to interest rate changes in Europe, we believe that sustainable outperformance will increasingly come from stronger loan growth and the acceleration of revenue diversification, with the more favorable interest-rate environment providing additional upside potential rather than constituting the main investment case.
We now assume that the terminal rate of the European Central Bank (ECB) will stand at 2.50% by the end of 2026, in line with market pricing, before gradually declining to 2.25% by the end of 2027 and remaining broadly stable through 2028, they continue.
Reflecting our updated interest-rate assumptions and the broader revision of our models, we raise our forecasts for the sector’s adjusted net profits by 2%, 3% and 2% for 2026, 2027 and 2028 respectively, now forecasting sector earnings per share (EPS) growth of about 10% in 2026 and about 12% in 2027.
We remain positive on the medium-term prospects for credit expansion and appear slightly more optimistic following the easing of geopolitical tensions and the continued resilience of domestic investment activity.
Although the Recovery and Resilience Facility (RRF) has formally been completed, its impact will extend beyond 2026, as disbursements of approved projects will continue to support lending through 2028, while excess demand for RRF resources is expected to shift to conventional bank financing and the new programs of the Hellenic Development Bank (HDB), limiting the risk of a sharp slowdown in credit expansion after the end of the RRF.
We now forecast cumulative net loan growth of more than €38 billion for the 2026-2028 period at the three systemic banks (compound annual growth rate of about 8%), driven mainly by corporate lending.
We also estimate that resilient funding costs and the easing of pressure on loan margins will support a recovery in the net interest margin by about 20 basis points by 2028.
Recent strategic transactions, including Alpha Bank’s bolt-on acquisitions, the acquisition of Eurolife by Eurobank, the integration of Ethniki by Piraeus Bank and the agreement of the National Bank with Allianz, are expected to increase fee income to about 25% of total revenues by 2028 (from 23% in 2025), strengthen sustainable return on tangible equity (RoTE) to about 16% (three-year EPS compound annual growth rate of about 10%) and further diversify profitability beyond net interest income.
Recent concerns regarding interest-rate caps on consumer loans, the regulation of Swiss franc mortgages, step-up loans and Katseli law cases are unlikely to alter the sector’s investment picture, 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 profitability and provisioning assumptions, without requiring a revision of either business plans or market estimates.
Despite the approach of the election period, we continue to consider the likelihood of imposing a windfall tax on excess profits to be low, following the reaffirmation by the government and the Bank of Greece of their support for the existing banking framework, including the deferred tax credits (DTC) regime.
More broadly, the demand of about €6 billion generated by recent transactions in Greek equities and corporate issues suggests that investors continue to price in a stable and friendly economic policy environment for investments.
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 (of non-financial companies) and, in our view, unjustified concerns regarding the Katseli law.
The sector combines profitability approaching the levels of the Eurozone periphery (RoTE about 100 basis points lower than that of peer banks), with stronger loan growth (compound annual growth rate of about 8% versus about 4%), higher earnings per share growth (compound annual rate of about 10% versus about 8%), superior operating efficiency (cost-to-income ratio 39% versus 50%) and cumulative distributions to shareholders of about 20% over the next three years, while it continues to trade at a 20% discount on the price-to-tangible book value (P/TBV) ratio and 15% on the price-to-earnings (P/E) ratio versus Southern European banks.
In this context, Alpha Bank remains our top investment pick, having replaced Piraeus Bank as our preferred tactical choice for the second half of 2026, as its valuation at a discount of about 25% based on the P/TBV ratio is becoming increasingly difficult to justify, given that the gap in return on tangible equity has narrowed to about 3 percentage points, while Piraeus Bank’s valuation has already largely been repriced to the levels of Eurobank and National Bank. We reiterate the Buy recommendation for all five banks we cover.
The target prices:
- Αlpha Bank: €4.95
- National: €18.7
- Piraeus: €11.1
- Optima Bank: €11.6
- Bank of Cyprus: €11.6.