Athens, May 18, 2016/Independent Balkan News Agency
By Spiros Sideris
To the catalysts for Greek banks, the Swiss bank includes the completion of the first evaluation, a possible restoration of the ECB waiver for Greek bonds, the gradual lifting of capital controls, the deceleration of the formation of non-performing loans and the beginning of the selling of the “red” loans.
UBS’s analysts see signs of progress in Greece’s negotiations with its creditors, noting in their analysis that the banking industry could recover.
Therefore, the Swiss bank states that from now on it keeps a more positive attitude to the domestic financial system.
In detail, UBS notes on its relevant report, that it observes that it maintains a “more constructive” stance towards Greek banks, while proceeding with an upgrade of the recommendation for Alpha Bank to “buy”.
It also states that after months of delay for the first assessment, “now there is light at the end of the tunnel”, featuring in parallel “very pessimistic” the majority opinion in regard to the predictions for the impairment of requirements, while valuations take it for granted that the current difficulties are permanent.
The UBS believes that the Greek banks are approaching a turning point, while predicts that there will be multiple expansion when the first assessment is completed and that there will be a return within three years at high single digit RoTEs, unless there is some major macroeconomic or political turmoil.
In the catalysts for Greek banks, UBS includes the completion of the first evaluation, a possible restoration of the ECB waiver for Greek bonds, the gradual lifting of capital controls, the deceleration of the formation of non-performing loans and the beginning of the selling of the “red” loans.
The UBS expects significant improvements in four points: cheaper funding, additional cost savings, lower risk costs and restart of the new lending. “A change of the mixture towards deposit accounts, as well as a decline in new rates of new deposits will continue to drive deposit costs lower. The shift in funding from the ELA to interbank repos and the ECB will help to reduce the cost of financing from the Eurosystem. In regard to assets, yields on loans from previous years will converge to substantially higher yields of future loans”, the bank says.
UBS estimates that the net result of the compression of yields on assets and the unwinding of financing costs will lead to a widening of the net interest margin by more than 60 basis points (About 20%) over the next three years.
The decisive factor for the Greek banks, it says, will be the reduction of the stock of NPLs. UBS believes that the risk costs can be reduced to about 1% by 2018 and the stock of non-performing loans could be reduced by more than 30%. However, a faster decline would pressure the net profit in the next three years.
The bank estimates that a further reduction in operating costs through voluntary retirement programs and the optimization of the branch/sub-branch network, will help banks to achieve their goals for their costs, possibly surpassing estimates.
According to UBS, the banks traded with P/TNAV 0,2-0,3x, based on estimates for 2016. The majority opinion reflects the recovery of bank profitability, but valuations suggest that there is a significant discount compared to similar European banks with similar or lower profits.
This suggests an “inflated” cost of equity as the “visibility” is limited and the macroeconomic risks high. But when the first evaluation is completed, UBS estimates that there will be a reassessment of bank shares.
“The starting point is a big challenge and the risks abound, but we see a fundamental investment case and valuations suggest margin for increase”, UBS says.