For the first time since fiscal 2008, Greek banks are sending their shareholders to the “treasury” this summer. They will distribute dividends amounting to €814 million.

The dividend stay seals the return of Greek banks to normality, having travelled a difficult road for the Greek banking system.

Eurobank will pay a total dividend of 342 million euros, Ethnik 332 million euros, Piraeus will pay a dividend of 79 million euros and Alpha Bank 61 million euros.

Foreign and domestic investment houses are raising their target prices for Greek banks after the first-quarter results and the ECB’s decision to give the green light to dividend payments for the first time in 16 years.

Analysts see the dividend payout as a positive catalyst for bank stocks and believe it will “unlock” value.

The positive outlook for the sector is due to the optimistic business plans presented alongside the 2023 results, which forecast resilience in profitability for 2024-2026, despite falling interest rates and the dividend distribution from 2023 earnings, which are expected to increase in the future.

Greek banks’ dividend yield will reach 10% in 2026, as it aligns with that of European peers, Jefferies estimates. Although dividends start from low levels (10-30% of 2023 earnings), however, they are expected to reach the European average of 50% by 2026. JP Morgan’s view is that distribution ratios will align with European averages by 2025-2026.

Profitability

Banks are emerging strongly from the Greek debt crisis and are well positioned to capitalise on the strong macroeconomic recovery and credit cycle. Analysts see high upside to what they describe as conservative three-year business plans.

Another strong quarter of profitability is coming for Greek banks, which next week begin reporting Q2 2024 results.

Banks were on track for strong profitability in the first quarter of 2024, with analysts expecting them to exceed their full-year targets.

The total profits of the four systemic banks amounted , in the first quarter of 2024, to EUR 1.09 billion, compared to EUR 788 million in the corresponding quarter of 2023, up +38.4%.

National Bank reported a net profit of 358 million euros (+38%), Eurobank 287 million euros (+21.4%), Piraeus 233 million euros (+29.4%) and Alpha Bank 211 million euros (+89.91%).

Upgrade

Note that all Greek banks have been upgraded to investment grade and in fact two notches above the minimum threshold. Recently, Standard & Poor’s and Moody’s gave a strong vote of confidence in banks by upgrading Greek

As S&P notes, the active clean-up of the Greek banking system’s balance sheets is coming to an end, as Greek banks are achieving a full post-crisis recovery and beginning to benefit from the positive economic momentum in Greece.

Banks in Greece have also, individually, have each made significant progress towards improving profit generation and the resilience of their business model, according to the house. Three of the four largest Greek banks already have non-performing loan (NPE) ratios of 3%-4% at the end of the first quarter of 2024, and S&P expects further improvement by the end of 2026.

Raising the bar for bank stocks

Foreign and domestic investment houses are raising their target prices for Greek banks in anticipation of another strong quarter and the ECB’s decision to give the green light to dividend payments for the first time in 16 years, while they consider upgrades to bank management guidance almost certain.

Coverage of Greek banks was initiated by the powerful Swiss investment house, UBS, declaring itself a “buyer” of all four systemic banks with high target prices. It gives a target price for Alpha Bank at 2.30 euros, for Eurobank at 2.60 euros, for National Bank at 11 euros and for Piraeus at 5.50 euros.

The target prices given by JP Morgan are 2.40 euros for Alpha Bank, 2.40 euros for Eurobank, 8.30 euros for Ethniki and 5.35 euros for Piraeus.

Goldman Sachs gives a target price of 10 euros for National Bank, 5.30 euros for Piraeus, 1.95 euros for Alpha and 2.5 euros for Eurobank.

Jefferies reaffirms its buy recommendations for the shares with a target price of 2.60 euros for Alpha Bank, 10.35 euros for Ethniki , 5.25 euros for Piraeus and 2.70 euros for Eurobank.

Eurobank Equities upgrades the target price for Piraeus to EUR 5.78 from EUR 5.40. For Alpha Bank the target price is 2.41 euros and for Ethniki 10.37 euros.

Axia reiterates its “buy” recommendations for the four banks . It raises the target prices for Alpha Bank to 2.50 euros, Eurobank to 3.00 euros , Ethnik to 10.50 euros and Piraeus to 5.30 euros.

Euroxx maintains “overweight” recommendations giving a target price of 2.5 euros for Eurobank, 9.8 euros for Ethniki, 2.4 euros for Alpha Bank and 5.4 euros for Piraeus.

NBG Securities has raised its target prices on Greek banks, maintaining its outperformance recommendations. The new target prices are 2.50 euros for Alpha Bank , 2.85 euros for Eurobank and 5.30 euros for Piraeus.