The recent sharp decline in banking stocks has overshadowed the benefits of Greek banks’ return to investment grade.

The upcoming upgrades from the remaining and more powerful houses (S&P, Fitch, Moody’s) will remove a barrier that prevents fund managers from holding Greek bank bonds in their portfolios, which are currently trading at yields significantly higher than those of European bonds.

For the banks, the upgrade to investment grade translates into improved funding conditions, interest cost savings on future MREL (Equity and Eligible Liabilities Requirement) issuances of approximately 8 billion and an improvement in the quality of their securities portfolios, which mainly consist of Greek bonds.

Also, in the long term, Greek banks will be more fortified against any financial crises, as their liquidity will be guaranteed, due to the eligibility of their bonds for lending by the ECB. Banks are therefore expected to have lower funding costs and improved liquidity due to the reduction of the ECB’s haircuts on Greek bond collateral and their inclusion in all its future operations. They will be able to borrow from the ECB with a guarantee of government bonds that will be valued at their real value. Today, the ECB exceptionally accepts Greek bonds as guarantees but with a 50% discount to their value.

The upgrading of the public’s credit capacity will also upgrade the creditworthiness of the banks, which will be able to borrow at lower interest rates from the interbank market. Cheaper borrowing for banks means equally cheaper borrowing for businesses and households.

Barrage of upgrades and positive recommendations from foreign houses

Greek banks have recently received a barrage of upgrades from rating agencies and positive recommendations from foreign investment houses.

Fitch has upgraded the long-term credit ratings of Eurobank, Piraeus and Ethniki by one notch. Upgrade of Greek banks also by Moody’s which even gave investment grade to NGE and Eurobank (Baa3) for their deposits and refers to the good prospects of Greek banks to maintain the relatively good performance for the next two years, which will also strengthen their capital base and ability to absorb losses.

Citigroup, JP Morgan, Morgan Stanley and Goldman Sachs renew their “vote” of confidence in Greek banks.

THE Citi updates its forecasts for the earnings per share of the Greek banks, increasing them in total by +14% this year, +6% next year and +1% in 2025. It considers the correction of the shares of the Greek banks unjustified and considers them an investment opportunity and expects all Greek systemic banks to start distributing dividends from this year’s profits. It also increases the target prices for National to 7.60 euros from 7.30 euros previously, and for Piraeus to 4.15 euros from 4.00 euros previously. For Alpha Bank, the target price is maintained at 2 euros.

THE JP Morgan gives an overweight recommendation, seeing significant upside, stressing that the strong outlook at the profitability level remains intact. He sets a target price for Alpha Bank at 2.20 euros (from 2 euros), for Eurobank at 2.25 euros (from 1.90 euros), for National Bank at 8.10 euros (from 7.30 euros) and for Piraeus at 4.65 euros (from 3.90 euros). Greek bank valuations continue to look attractive with a P/E ratio of 4.5x – 5.5x for 2024 and a book value ratio, P/TBV at 0.45x – 0.7x and moving at a discount of 30% and 25% against European banks and 30% and 50% against banks in the region of Southern Europe, Middle East and Africa.

THE Morgan Stanley remains “bullish” for Greek banks, as it states in its new analysis of emerging markets, considering that the risk-return relationship they offer is the best.

He estimates that their share prices will continue to rise, recommending an increased position on Piraeus and National, with target prices at 4.40 and 8.33 euros, respectively. For Alpha Bank and Eurobank, the target prices are at 2.11 and 2.10 euros, respectively.

The positive outlook of the banks is supported by the higher growth of the Greek economy compared to that of the Eurozone and predicts GDP growth of 2.5% this year and 2.3% in 2024. The ratio of serviced loans will benefit from these growth rates , with their credit expansion projected at 8% on average over the next few years. Asset quality appears resilient as NPL ratios are in single digits.

Greek banks, according to the American bank Goldman Sachs, are an attractive investment case, given the improvement of their fundamentals and the macroeconomic outlook for Greece.

The course of banking stocks

But banking stocks have lost more than €3.5 billion in market capitalization since last July’s highs, while the banking index is down 17%.

A drop which cannot be justified only by the strong profit taking that followed the high returns recorded by the banking index since the beginning of the year, which reached up to 70%.

From their highs, based on Thursday’s close, the Piraeus share is down 25.77%, Alpha Bank by 22.84%, National Bank by 16.94% and Eurobank by 11.87%.

Some analysts believe that it is due to the withdrawal of some foreign investors who invest exclusively in economies that do not have an investment grade, and after its acquisition by Greece, they gradually withdraw from the A.A. At the same time, many funds that invest in investment-grade economies have not yet begun to be placed on the Greek stock market.

Also, several funds that invest in countries with investment grade, based on their statutes, should wait for two officially recognized Houses to include Greece in the investment grade.