Greek banks seen as undervalued despite strong profitability

Investment broker Eurobank Equities has said that the Greek banking sector, which includes financial institutions also operating in Cyprus, continues to be undervalued by the market, maintaining a “buy” recommendation for all banks and pointing to further upside potential.

The brokerage also announced higher target prices for Greek banks, setting them at 4.50 euros for Alpha Bank, 17.45 euros for National Bank of Greece, 10.30 euros for Piraeus Bank, 11.20 euros for Optima Bank and 11.10 euros for the Bank of Cyprus, reflecting upgraded profitability forecasts.

In terms of stock selection, Piraeus Bank emerges as the most attractive option, driven by a combination of low valuation and strong earnings growth.

At the same time, the Bank of Cyprus stands out for its high distribution profile and resilience in adverse scenarios, reinforcing its investment appeal.

The brokerage also pointed to the upgrade to a “buy” recommendation for Alpha Bank and Optima Bank, citing improved outlooks and a stronger risk-return balance.

Despite strong profitability, valuations remain subdued across the sector, indicating a potential disconnect between fundamentals and market pricing.

The sector is currently trading at around 9 times its 2026 earnings and approximately 1.4 times tangible book value, levels which do not fully reflect returns.

At the same time, shareholder returns are estimated at between 7 per cent and 10 per cent, while the discount versus European banks remains above 20 per cent, despite convergence in profitability and capital adequacy.

According to Eurobank Equities, this valuation gap represents the key investment opportunity, as the market has yet to fully adjust to the new fundamentals.

The analysis noted that recent volatility driven by geopolitical tensions and rising energy prices has had limited impact on the core fundamentals of Greek banks.

Higher oil prices are influencing inflation and growth expectations, potentially leading to tighter monetary policy conditions.

However, the report highlighted that the Greek economy remains resilient, with growth forecasts of around 2 per cent to 2.4 per cent for 2026, even in a higher energy price environment.

Crucially, the impact of a downside scenario on banks remains contained, even under conditions of zero credit growth and increased cost of risk.

This underscores what the brokerage described as the structural resilience of the sector, marking a key shift from previous cycles.

A major differentiating factor compared to the past is that net interest income has now stabilised, providing greater visibility for future performance.

The fourth quarter of 2025 confirmed that the lowest point had already been reached, with revenues showing a slight quarter-on-quarter increase.

This trend is supported by strong credit expansion exceeding 10 per cent year-on-year, primarily driven by corporate lending, alongside a gradual recovery in retail credit.

At the same time, the repricing of deposits is helping to limit pressure on margins, supporting overall profitability.

The broader profitability picture remains strong, with return on equity for systemic banks close to 15 per cent, and even higher levels for Optima Bank and the Bank of Cyprus.

In parallel, fee income continues to grow at a double-digit rate, emerging as a key driver of revenue diversification.

Its contribution has risen to around 24 per cent of total income, up from 20 per cent a year earlier, reflecting a shift towards higher value-added activities such as asset management and bancassurance.

The improvement in asset quality is ongoing, with non-performing exposures declining to around 2.5 per cent, while the cost of risk remains under control.

At the same time, operating cost discipline keeps the cost-to-income ratio at approximately 36 per cent, a level that compares favourably with the European average.

This combined performance results in positive operating leverage, enhancing the sustainability of profitability and reducing dependence on interest rate cycles.

Looking ahead, visibility on financial performance extends to 2028, supported by bank business plans and stable macroeconomic conditions.

Eurobank Equities expects credit expansion to average around 7 per cent annually, while net interest income is projected to grow by approximately 6 per cent per year over the next three years.

Meanwhile, fee income is forecast to continue expanding at a mid to high single-digit pace, reinforcing its role in revenue generation.

The cost of risk is expected to remain near 45 basis points, supporting stable earnings trajectories.

Earnings per share are projected to increase by around 7 per cent annually, with return on equity converging to mid-teen levels by 2028.

Finally, the brokerage underlined that the structure of the Greek economy plays a decisive role, as credit expansion is largely linked to investment projects and Recovery Fund resources, making demand less sensitive to short-term fluctuations.