Greek Banks: H122 Shows Improved Credit Fundamentals, but Momentum Likely to Decelerate due to Slowing Economy

The commentary analyses the H1 2022 results for the four major Greek banks: Alpha Bank, Eurobank, National Bank of Greece, and Piraeus. The improved results reflect the significant progress made in de-risking and restructuring in recent years along with recovery in the Greek economy from the COVID-19 global pandemic. However, the positive momentum is likely to decelerate due to a slowing economy.

Summary highlights from the commentary include:

• Greek banks reported aggregate net profit of EUR 2.3 billion in H1 2022 which compares to a net loss of EUR 4 billion in the same period of 2021, driven by higher revenues, lower operating expenses and reduced credit costs.

• Revenues held up well despite continued pressure on net interest income (NII) due to de-risking, supported by net fees, trading and other income. The increase in interest rates should boost Greek banks' NII due to a faster repricing of assets compared to liabilities.

• LLPs and cost of risk reduced significantly in H1 2022, thanks to the strong improvement in risk profile. Asset quality metrics continued to improve, supported by negative Non-Performing Exposure (NPE) formation and new loan originations exceeding expectations.

• After being severely impacted by accelerated de-risking in 2020 and 2021, capital started to grow in H1 2022, supported organically and inorganically.

“With most of the planned loan clean-up process already absorbed, we view Greek banks' capitalisation as set to benefit from improved internal capital generation going forward, on the back of higher revenues in the context of progressively higher interest rates and sound new loan generation, as well as reduced credit costs. However, the indirect negative effects due to Russia's invasion of Ukraine might contribute to a slowdown in the economy and add pressure to credit quality in the medium-term, therefore absorbing part of the positive momentum” said Andrea Costanzo, Vice President from the DBRS Morningstar Global Financial Institutions team.