Greek banks in rude health as government exits bailout stakes

Greek government plans to divest stakes in its top four banks come as share prices have jumped, thanks to improved profitability and asset quality.

Shares in Piraeus Financial Holdings SA, National Bank of Greece SA, Alpha Services and Holdings SA and Eurobank Ergasias Services and Holdings SA have all risen in 2023, led by Piraeus with a 140% jump. The bank emerged as the best-performing stock among its large European peers in the second quarter as its shareholder returns increased by more than 50%. Greece's FTSE/ATHEX Banks Index has increased nearly 70% so far this year.

Banks' stock performance has remained strong since the country's snap elections in May, after which Prime Minister Kyriakos Mitsotakis pledged to regain Greece's investment-grade status by the end of the year.

Greek GDP grew 5.9% in 2022, buoyed by private consumption, significant investment activity and a rebound in tourism, which offset the energy crisis and the effects of inflation.

Bank profits also increased following the bad loan clean-up and cost reduction efforts in the years following the Greek sovereign debt crisis, which emerged after the global financial crisis of 2008–2009. Profits at all four banks were higher in 2022 than the year before, with Eurobank recording the strongest growth. Its net income for 2022 came in at €1.17 billion, up more than 178% from 2021.

Eurobank recently received shareholder approval to repurchase the Greek government's 1.4% stake held by the Hellenic Financial Stability Fund (HFSF) for up to €1.90 per share. Eurobank aims to expand in new markets, including Saudi Arabia, the United Arab Emirates, India and Israel, Stavros Ioannou, its group chief operating officer, told Bloomberg News in early July. It is also aiming to have full control of Cyprus' second-largest lender, Hellenic Bank PCL, "at some point," Ioannou said.

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The HFSF plans to follow the Eurobank transaction with the sale of roughly half of its 40.39% stake in National Bank of Greece, and it plans to sell its stakes in Alpha Bank and Piraeus Bank later in 2023 or in 2024, sources told Reuters earlier in July. The fund's holdings in Alpha Bank and Piraeus Bank stand at 9% and 27%, respectively, according to its website.

The asset quality of the large Greek banks has improved in recent years, with the ratios of nonperforming assets to total loans at Alpha Bank and Piraeus Bank declining most sharply year over year in 2022. Further improvement is expected in 2023.

Greek banks have controlled costs in recent years by streamlining their operations through cost-efficiency measures and sales of noncore assets. Their cost-to-income ratios at the end of 2022 were close to or below 40%, placing them among the most cost-efficient in Europe, S&P Global Ratings said in a recent report.