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August 11, 2020
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BANKS-EUROXX:Q1’20 Results Review

 In Q1’20, Alpha Bank posted net losses from continued operations at €11.0m against profit of €6.0m in Q4’19, with results mainly reflecting lower Core Banking Income, trading income and higher impairments offsetting lower OpEx.

Eurobank reported Q1’20 profit of €57m compared to €45m in Q4’19, reflecting lower Core Banking Income and trading & other income which were offset by the lower total Impairments (on the absence of €62m Grivalia goodwill impairment posted in Q4’19) and lower OpEx.

Results were in line with our call at NII and PPI level while Bottom line was above our estimate due to lower than expected impairments. NBG reported profits after tax from continued ops of €409m vs. profit of €18m in Q4’19, reflecting broadly stable core PPI q-o-q and a strong trading line, absorbing the total anticipated loan impairments related to Covid-19.

Should we account for LEPETE, minorities, VES & one-offs and discontinued ops, NBG reported bottom-line profit of €304m vs. losses of €633m in Q4’19. Results were in line with our call in PPI level while we missed bottom line due to higher-than-expected impairments. Piraeus reported losses of €232m vs. profit of €190m in Q4’19 negatively impacted by €324m Covid-19 impairments, €46m trading losses (vs. €359m gains in Q4’19 mainly from the NPE servicing platform carve out) and lower fees despite the resilient NII and lower OpEx.

NII slightly above our call while PPI was below Exx on lower-than-expected trading income. Finally, bottom line (below our call) was negatively impacted by higher-than-expected impairments on loans. Overall, Q1’20 results reflected (a) broadly decreasing underlying NII trends, on the back of bonds sales, deleveraging and calendar effect, (b) weaker q-o-q fee income generation for all banks due to lower transaction volumes (c) seasonally lower OpEx levels, driven by G&As and staff costs, and (d) higher Impairments on loans (except from Eurobank) in order to incorporate the negative impact of Covid-19.

On the liquidity front, all core banks recorded deposit inflows (except from Piraeus Bank) of €0.4-1.7bn in Greece and Eurosystem funding reached €25.6bn in May’20 benefited by the ECB’s TLTRO facility and ECB’s waiver to accept GGBs as collateral in Eurosystem credit operations. Moreover, all banks managed to reduce the stock of NPEs/NPLs q-o-q on organic negative formation, benefited also by the EBA Guidelines on loan moratoria that clarify that generalised payment delays due to public or industry-wide moratoria do not lead to an automatic classification of exposures as defaulted, forborne or unlikely to pay. Finally, CET1 settled at 13.1-16.5% in Q1’20 while on B3FL basis, CET1 ratio settled at 10.8-14.0%, well above the CET1 requirements which were lowered following EBA’s recommendations to release the countercyclical buffers (CCyB) and allow flexibility for banks to operate below their P2G as well as to meet part of P2R with non-CET1 capital instruments. On key Q1’20 P&L and B/S metrics:

· NII dropped by 0.8-3.9% q-o-q for all banks, negatively affected by bond sales, deleveraging and calendar effect. Fee & Commission Income dropped by c4-22% q-o-q for all banks. OpEx decreased by c4-26% q-o-q for all banks. Core PPI increased q-o-q for Alpha Bank and Piraeus Bank by 13.6% and 7.7%, respectively, on lower OpEx. Conversely, NBG/Piraeus recorded deteriorating Core PPI by 5%/1% q-o-q. Loan impairments were sharply up for NBG (>100% q-o-q), Piraeus Bank (98% q-o-q) and Alpha Bank (25.6% q-o-q) affected by additional impairments for Covid-19, while Eurobank posted decreased impairments by c4% q-o-q. CoR (over average net loans) shaped at 1.3-6.7% (NBG at the high-end) with Underlying CoR (excl. Covid-19 impact) at 0.96-1.9%.

Group NPE ratio settled at 28.9-49.6% (29.2-48.8% in Q4’19). In terms of domestic NPE formation, all banks reported negative figures (€167-380m) except from Eurobank. NPE coverage is now at 44.1-56.2% at a group level (NBG at the high-end, Alpha at the low-end). Gross Loans expanded by c0.2-1.2% q-o-q for all Greek banks except NBG (-0.2% q-o-q). Deposits increased for all banks by c1.0-3.9% except Piraeus Bank (-1.4% q-o-q), driving (net) L/D ratio to 63.7-94.9% (NBG at the low-end, Alpha at the high-end).

Eurosystem funding (latest available data) increased to €25.6bn (c10.0% of assets) from €7.6bn in Q4’19 (c3.0% of assets). During their conference calls, the banks guided for a flattish NII y-o-y for 2020e supported by new lending, lower funding costs and the method of accruing throughout the year with lower fees and lower OpEx leading to a flattish or slightly lower Core PPI. Regarding FY’20e CoR, Eurobank guided for a CoR of 140 -160 bps, Alpha Bank for 180-190bps, NBG for 100bps for the next quarters of 2020e, while Piraeus Bank guided for an underlying CoR of 180-190bps for 2020e.

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