Shares in Greece's "big four" banks rallied on news of a potential vaccine against COVID-19 combined with Moody's surprise upgrade of the sovereign's credit rating.
Analysts say that the rally was to be expected as shares were underpriced, even taking into account the impact of the pandemic, though there is skepticism about how sustainable the recovery will be.
The stock prices of Alpha Bank AE, National Bank of Greece SA, Eurobank Ergasias Services and Holdings SA and Piraeus Bank SA rose following Pfizer Inc. and BioNTech SE's announcement about the efficacy of their vaccine and the Moody's upgrade.
Moody's announced after market close on Nov. 6 that it had upgraded Greece's credit rating to Ba3 from B1 previously, with a stable outlook. The rating agency said Greek institutions' steps to improve governance and boost tax collection were encouraging. It also cited a more "systemic approach" to reducing the high level of bad debts in the banking system via Project Hercules, a state-backed program to encourage the securitization of nonperforming loans.
Greece is slated to receive €32 billion in EU recovery funds, which should help to stimulate a recovery, Moody's said. While the agency is expecting Greece's GDP to shrink by almost 9% in 2020, it said that a "strong recovery" is on the horizon for 2021. The banking sector remains weak, but lenders have made notable progress in reducing bad loans, with NPLs falling by €15.7 billion in the 12 months to June 2020, Moody's said.
A spike in the share prices is not unexpected, Alex Boulougouris, co-head of research at Wood & Company, said.
"Greek banks are a high beta play (as they have under-performed substantially during the pandemic). Thus, a spike in the share prices on good news is not surprising," he said.
Greek bank stocks took a hammering during the crisis and even with the recent boost, remain well below pre-pandemic prices. National Bank of Greece closed at €1.22 per share on Nov. 11, compared to a closing price at €3.05 per share on Jan. 2, the year's first day of trading. Eurobank shares were trading at 39 euro cents per share as of close of trading on Nov. 11, compared to 89 cents on Jan. 2.
The recent rally in share prices was largely due to the vaccine news, but also fact that Greek banks had been trading at "very depressed valuations" for most of the year, according to Jonas Floriani, director at Axia Ventures Group and regular commentator on Greek and Cypriot banks.
"Over the medium term, the majority of international long-only buyers remain skeptical about 2021 and the banking sector. With COVID there is still a lot at play," he said.
Q3 earnings on the horizon
There is a good chance that little will change when the four banks report their third-quarter earnings later this month, since all of the banks are still operating under "unusual" conditions in the form of government guarantees on loans and moratoria for struggling borrowers, Floriani said.
Near the beginning of the pandemic, the big four said they would grant repayment holidays to individuals and businesses who were unable to meet repayments due to the pandemic. These moratoria, for the most part, have yet to come to an end.
Investors will likely be paying close attention to two news stories in the coming months, according to Floriani. These are whether Alpha can conclude the sale of its Galaxy loan portfolio, and what decision the board of Piraeus will make over the conversion of CoCo, or contingent convertible, bonds.
Alpha is understood to have received binding offers for the so-called Galaxy portfolio of bad loans, which has a total gross book of €10.8 billion. The lender is hoping that the sale will relieve pressure on its balance sheet and free up resources for digitization.
Piraeus is awaiting a decision from the Single Supervisory Mechanism this month about whether it can pay the coupon on the CoCo bonds, which have a nominal value of €2.04 billion and a yearly interest rate of 8%.