The "fine print" of the banks, what KBW saw: Prefers Piraeus, National Bank, and Bank of Cyprus, upgrades Alpha Bank

The picture remains particularly positive for Greek and Cypriot banks, according to the American investment firm KBW (Keefe, Bruyette & Woods), which notes that the latest quarterly results generally exceeded market expectations, while managements also proceeded with upgrades to their forecasts. KBW maintains a positive stance toward the banking sector, increasing its estimates for the banks' figures by approximately 2% to 5%. Simultaneously, it points out that Greek banks trade at a discount of roughly 17% compared to domestic Spanish banks, a factor that leaves room for further revaluation. At the center of the analysis is Alpha Bank, for which KBW upgraded its recommendation from Underperform to Market Perform, following the presentation of the bank's new business plan.

However, the American firm makes it clear that it continues to prefer National Bank of Greece, Piraeus Bank, and Bank of Cyprus, due to their greater sensitivity to interest rates and the higher returns they offer to shareholders.

Alpha Bank: Upgrade from KBW, but targets do not impress

Alpha Bank constitutes the most interesting development of the report, as KBW upgraded its recommendation to Market Perform from Underperform, recognizing that the bank exhibits strong growth momentum and possesses credible targets. Management has set a target for a return on tangible equity (RoTE) of 14.5% for 2028. However, according to KBW, this specific target does not justify the higher valuation priced in by the market for 2028, with the P/E ratio standing above that of Piraeus Bank and Eurobank, which already achieve returns on tangible equity in the mid-to-high teens. Despite reservations, KBW recognizes that Alpha Bank is recording strong growth, with the positive macroeconomic environment acting supportively. The American firm's target price implies an upside potential of approximately 14%, while valuing the bank at 9.4 times estimated 2028 earnings. Particularly positive is considered the emphasis placed by management on increasing business volumes rather than on aggressive assumptions regarding the trajectory of interest rates. At the same time, the capacity for distributions exceeding 4 billion euros reflects significant prospects for capital return to shareholders.

However, KBW points out that the cash payout remains at relatively low levels, while the projected compression of the net interest margin by 20 basis points over a four-year horizon may prove to be an optimistic assumption. In terms of results, Alpha Bank's net interest income (NII) increased by 8% on a quarterly basis.

Piraeus: Provisions masked the strong operational picture

For Piraeus Bank, on which it maintains an Outperform recommendation, KBW identifies positive operational trends, which were overshadowed by higher provisions due to reclassifications of certain non-performing exposures (NPEs). Despite the burden, management reiterated its forecast for a cost of credit risk (CoR) of approximately 60 basis points. Indeed, according to KBW, this specific decision was taken with the aim of laying the foundations for 2027, which, as management noted, "is proving to be a period of significant upside prospects."

Of particular importance is the fact that the bank's forecasts now incorporate a European Central Bank (ECB) interest rate at 3% for 2027. This assumption supports the estimate for net interest income to assets higher than 2.4%, compared to approximately 2.2% which is the target for 2026. Furthermore, the integration of Ethniki Insurance appears to be progressing faster than initial expectations, with revised targets expected during the announcement of annual results.

National Bank: RoTE return of 15.7% and room for further upgrade

KBW characterizes the picture of National Bank of Greece as particularly strong, maintaining an Outperform recommendation. The loan portfolio continues to grow at a double-digit pace, at levels in the region of 10% to 13% on an annual basis, supporting the increase in net interest income by 6% on a quarterly basis. The return on tangible equity (RoTE) stood at 15.7%, while adjusted for excess capital it reaches 20.7%. Simultaneously, commissions continue to increase at a double-digit pace on an annual basis, while the CET1 capital adequacy ratio remains strong at 17.5%. The most important element of the analysis is that management now sees upside risks against existing forecasts for net interest income, the cost-to-income ratio (C/I), earnings per share (EPS), and return on tangible equity. More details are expected in February, during the update of the business plan.

Bank of Cyprus: CET1 at 20.3%, raises the bar for profitability

KBW also remains positive on Bank of Cyprus, maintaining an Outperform recommendation. The bank's profits were boosted by provision reversals; however, core revenues moved above market estimates, while business volume growth was better than expected. The CET1 capital adequacy ratio stands at a particularly high 20.3%, taking into account the recent transaction with CDB on a pro forma basis. At the same time, management upgraded its estimates for net interest income. Even more interesting is the forecast for profitability: the bank now estimates that it will achieve a return on tangible equity (RoTE) in the high teens for the current year, compared to a previous estimate for mid-teen levels.

Eurobank: High profitability, but KBW sees weaknesses

For Eurobank, KBW maintains a Market Perform recommendation, despite its strong growth and high profitability. The bank posted a quarterly return on tangible equity (RoTE) of 17.8%, with a significant contribution from credit expansion in Bulgaria, where loans increased by 17% on an annual basis. Simultaneously, growth accelerated in Cyprus, with loan growth of 7% on an annual basis. KBW upgraded its forecast for net interest income growth this year to 9%, from 7% previously, estimating however that management's guidance remains conservative. The trajectory of commissions is also positive, expected to be further strengthened by the consolidation of Eurolife, with KBW estimating an additional contribution of 20 to 25 million euros during the fourth quarter. However, the American firm maintains reservations regarding Eurobank, as it considers it to be the Greek bank with the largest exposure to time deposits in Greece, a fact that renders it more vulnerable to funding cost developments. Additionally, it exhibits a weaker picture in the area of operational efficiency compared to other banks.

The big bet for Greek banks

KBW's main conclusion is that Greek banks continue to possess significant room for growth, with credit expansion, the resilience of net interest income, and increased capacity for capital distributions to shareholders serving as the primary catalysts. The American firm maintains a preference for National Bank of Greece, Piraeus Bank, and Bank of Cyprus, primarily due to their greater sensitivity to interest rates and prospects for higher distributions to shareholders. Alpha Bank is gaining ground following the recommendation upgrade, while Eurobank, despite its strong performance, continues to face reservations due to deposit costs and operational efficiency. In any case, KBW's message is clear: the Greek banking sector remains attractive, with valuations continuing to show a significant discount compared to Spanish banks.

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