UBS has released a report identifying growth opportunities for Greek banks, noting a shift from a singular banking narrative to two distinct investment paths. This follows a strong start to the year, as detailed in a report shared with Greek business outlet Newmoney.
Investment Recommendations for Greek Banks
Among the key findings, UBS maintains a buy recommendation for both Eurobank and the National Bank of Greece (NBG), attributing their positive outlook to robust profitability and strategic upgrades. Notably, Eurobank serves as an example of regional presence and resilient income, while NBG has gained traction through a recent bancassurance agreement with Allianz, which has acted as a new upgrade catalyst.
Price Target Adjustments
The report outlines specific price target adjustments, with NBG’s target increased to €18.20 from €17.50. Meanwhile, Eurobank’s target remains steady at €4.70. Limited changes to the valuation model suggest that Eurobank’s target is stable, yet there is noted upward potential against management goals for net interest income and fees.
Future Earnings Projections
UBS forecasts adjusted earnings per share for Eurobank to reach €0.43 by 2026, indicating a 14 per cent increase, alongside a return on tangible equity projected at 16.7 per cent. By 2028, this return is expected to rise to approximately 18 per cent, surpassing the official guidance of about 17 per cent.
Geographical Insights into Eurobank
Geographical analysis highlights Eurobank’s asset distribution, with Greece accounting for 58 per cent of assets, while Cyprus has emerged as a significant player, comprising 27 per cent of assets and contributing 29 per cent of profits. Bulgaria further contributes 13 per cent of assets and 16 per cent of profits, indicating a positive trend in net interest income within Southeast Europe.
Net Interest Margin and Credit Expansion
UBS notes that the net interest margin in Southeast Europe stands at 2.77 per cent, significantly higher than the 2.23 per cent recorded in Greece. Current credit expansion in the region is at 8.5 per cent annually, with UBS projecting an average annual increase of 11 per cent between 2025 and 2028.
Operational Changes in Cyprus
In Cyprus, a voluntary exit scheme has seen a reduction of 200 staff members, while anticipated bank mergers in early 2027 are expected to enhance operational efficiency. Furthermore, the adoption of the euro in Bulgaria is anticipated to stimulate loan growth, with lower reserves projected to yield an annual benefit of approximately €20 million to net interest income.
NBG’s Strong Performance Metrics
The National Bank of Greece reported first-quarter results that exceeded market expectations, bolstered by high trading income and a 2 per cent quarter-on-quarter rise in net interest income. An annual loan growth rate of 12 per cent indicates performance that is currently outpacing the bank’s strategic plan.
Impact of the Allianz Agreement
A significant element in NBG’s growth strategy is its partnership with Allianz, which has prompted UBS to upgrade adjusted earnings per share by 5 per cent to 6 per cent for the next three years. Currently, NBG generates approximately €17 million annually from insurance-related commissions, suggesting considerable growth potential in this sector.
Financial Projections and Shareholder Returns
The exclusive bancassurance agreement, alongside a 30 per cent stake in Allianz Greece, allows UBS to incorporate estimated annual revenues of approximately €65 million into its financial models through to 2028. This transaction is projected to contribute about 4 per cent to earnings per share and add 50 basis points to the return on tangible equity with minimal capital costs.
Valuation and Market Position
While valuations of both banks are no longer historically low, UBS correlates them with the strong profitability observed in both institutions. Eurobank is currently trading at 9.3 times its 2026 earnings, with a projected dividend yield of around 7 per cent for 2027. In contrast, NBG is trading at 10 times its 2026 earnings, with strong prospects for shareholder distributions.
Future Distribution Plans
NBG shows potential for substantial shareholder returns, with UBS’s model incorporating a 60 per cent normal distribution alongside special distributions of €150 million planned for 2026 and 2027. This financial strategy indicates a strong commitment to creating value for shareholders while navigating the evolving banking landscape.
