Deutsche Bank: "Vote of confidence" for Greek banks due to Recovery Fund

The shares of Alpha Bank, Eurobank, National Bank and Piraeus Bank are the names he chooses among the shares of the European south, for which he recommends a buy, as they comply both with the course of the country and with the advantages of the sector. The list of Greek stocks includes the Italian bank BMP, the Portuguese Milennium BCP and the Spanish Sabadell.

In its latest analysis, the German bank upgraded the shares of Eurobank (buy recommendation, target price 1.70 euros from 1.45 euros) and Piraeus Bank (buy recommendation, target price 3 euros from 2, 95 euros), while keeping the buy recommendations for National Bank, but increasing the target price to 6.15 euros from 5.10 euros and for Alpha Bank to 1.60 euros from 1.55 euros.

Deleveraging and borrowing

Greece has suffered the most deleveraging in Europe for more than a decade, mainly due to a reduction in non-performing loans (which at one time accounted for nearly half of loans) and a lack of demand. This remains an issue in mortgages, where declines remain significant, around -4% year-on-year, and has led to a small weighting of total loans relative to other countries.

However, corporate lending is now growing at a near double-digit rate and is expected to continue so, allowing total loans to be in positive territory year-on-year (around +3%). Overall, hopes are based on a revival in investment, with GDP growth well above the EU average, for which EU funds should remain a large contributor. "Even if the multipliers for the total injection of around €70 billion until 2026 are likely to remain relatively low, the overall impact (given the country's low leverage) will undoubtedly be strong," the bank explains.

“As a result of our analysis, we confirm our previous position that the volume boost from NGEU funds is not going to be a material factor in most cases, with Greece likely to be the main beneficiary. The importance of the NGEU will be much less in Portugal, Italy and, above all, Spain, where the fight against deleveraging is likely to last longer than in the other southern European countries,” continues DB.

The details

As Deutsch Bank notes, while the resilience of European economies has been better than initially expected, with most EU countries having recovered to pre-Covid GDP levels (except Spain, which is likely to close the gap in Q2 quarter), the risk of high inflation and economic deterioration due to higher interest rates has reignited fears that southern European countries could once again become the weakest link in the EU. Sovereign risk is seen as a potential negative factor for these countries, and therefore for their banks. Looking at the details Deutsche Bank finds the following:

-Government bond spreads continue to perform well (especially in Greece, Portugal and Spain, while Italy poses the main question mark). In fact, Greece has been the best performer of late thanks to positive economic developments and recent credit rating upgrades, approaching investment grade, with its recovery allowing many long-term investors to start investing in Greek bonds for the first time. time after a very long time, leading to cheaper financing in the future.

– the potential need to reduce budget deficits would pose more of a threat in the form of an economic slowdown than a direct impact on banks' balance sheets or capital due to their direct exposure to government bonds, and

– Southern European economies are expected to be among the best performers in 2023-2025, which is supportive of their ratings (only Italy faces a slight threat).