JP Morgan: What the increase in interest rates means for Greek banks

The ECB’s aggressive shift has pushed Greek bond yields to their highest levels since April 2020, shifting the focus to bank capital and net interest income (NII), JP Morgan said in a report on Greek banks.

It also estimates that with the 10-year bond yield now hovering around 2.5% (from 0.9% in September 2021), the negative impact on banks’ CET1 indices will be 40 basis points from the 3rd quarter of 21 until today.

Nevertheless, according to the authors of the report, Greek banks maintain a relatively high orientation in raising interest rates, and taking into account the forecast for four interest rate hikes of the ECB by the end of 2023 estimates an increase of 10% in earnings per share by 2024, of the additional NII.

This is enough to offset the continuing return on equity pressure, with the potential for additional benefits from further interest rate increases in 2024.

In this context, JP Morgan states that “we continue to like Greek banks” as single-digit NPE ratios are now stable in the future and the prospects for increasing lending and ROTE equity have significantly improved.

After a yield of + 27% per annum, the shares are now trading at 0.56x against 0.90x of the Eurozone average and could be further upgraded as the market confidence in ROTEs increases to 8-10%.