The performance of the banking sector on the Athens stock exchange is reminiscent of the year 2014 with the total value of financial institutions near 20.5 billion euros, recording the highest level of the last 10 years.
More specifically, the four systemic banks have a market capitalization almost 550% higher than at their … low levels in 2015, when the sector’s shares were barely worth 3 billion euros. Bank capitalization has also doubled compared to 2021.
A lot needed to be done in order to reach the current record levels as well as several rounds of recapitalizations, with the last one taking place just three years ago, when Piraeus injected funds of 1.3 billion euros in March 2021.
Now, we can talk about a “turnaround story”. The once high percentages of “bad loans” have been limited to single digit levels, losses have “turned” into profits, capital indices are moving above European averages, analysts are successively upgrading price targets and investors are preparing to collect the first dividends after many years.
National Bank and Eurobank have a stock market value of 6.2 billion euros each, followed by Piraeus and Alpha Bank with 4.2 and 3.7 billion euros, respectively. In total, stock market value exceeds 20.4 billion euros. If we add the value of the non-systemic Attica Bank (590 million euros) and Optima (550 million euros), the final amount reaches 21.58 billion euros.
Comparisons with the past are highly revealing. In the “sinful” 2015, the market value of the banks barely exceeded 3 billion euros, while at the end of 2017 it reached 8 billion euros. In 2018, it declined again to 4.1 billion euros, while in 2021 it rose to almost 10 billion euros. In 2022 it amounted to 11.4 billion euros, i.e. almost 50% below current levels.
2023 proved to be a very good year, as the banks’ capitalization climbed to the target of 20 billion euros in July. The first days of 2024 provided an additional boost, with the value of the four institutions growing, as mentioned above, to 20.4 billion euros and the highest level since 2014.
Shortly before the painful and inevitable recapitalizations, the value of the banks totaled 33 billion euros. That means about 60% above current prices.
However, no one can exclude the possibility of approaching these levels, as all estimates show that there will be another strong banking rise in 2024. After all, the momentum for the entire European South is considered more than favorable. High interest margins will sustain high profitability, while satisfactory dividend yields will provide additional impetus to the shares.
This optimism is also shared by the officials, such as for example the Jefferies analyst, who – in a recent report he published – not only gave a “buy” recommendation and revised upwards the target prices for the four systemic banks of the country, but also predicted an average margin of increase of around 40% from current levels. This, if confirmed in practice, will enhance the stock market value of the banking sector by another 8 billion euros.
High banking capitalization can and should be attributed to estimates of strong profitability in 2024 as interest income will remain high over the next two years.
Interest income is expected to increase in 2024 despite the fact that there will be an increase in the cost of deposits (15%) lower than the corresponding European one (20%).
However, enhanced credit expansion is expected while banks have large portfolios of securities reaching 20% of their assets which can be reinvested with higher yields.
All this makes up a very encouraging scenario for the next day in terms of the credit institutions’ capitalization.
