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Athens
September 19, 2019
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RED LOANS

Greek Banks:Q2 19 Results Review/ALPHA FINANCE

Q2 19 results exhibited stabilization on NII, with lower
income from loans more than offset by higher income from GGBs/bonds holdings,
bottom line profitability uplift ( 32% qoq), negative NPEs formation along with
NPEs sales and Mgmt teams reiterating their 2019 P&L guidance.

Profitability.

The aggregate NII grew €17mn driven exclusively by NBG on
strong income from fixed income securities, while lending yields fell slightly
qoq. Operating income grew 6% on higher income from GGBs holdings, opex grew 6%
qoq, PPI grew 6% qoq, LLPs fell 3% qoq and bottom line profitability was shaped
at €0.26bn for the 4 banks ( 32% qoq).

Guidance.

 Mgmt teams generally
maintained their P&L guidance for the year along with their NPEs stock
reduction targets. Asset Quality. The total NPEs stock fell by €4.5bn qoq to
€79bn, on sales/write-offs and €1.4bn of negative net formation, with the NPEs
ratio at 42.9% from 44.5% by Q1 and cash coverage at 50%, about 1pps down qoq.
Capital.

CET 1 capital for the system was shaped at €27.4bn, with the
CET 1 ratio at 15.8%, up 80bps qoq on P&L net gains and a capital boost
from GGBs holdings’ gains, with RWAs at €174bn. Alpha enjoys CET 1 ratio about
200bps north of the average.

DTC accounts for 57% of CET 1 capital, down from 62% by
Q1-end. On a FL basis the ratios range between 11.3% and 14.8%, which indicate
the road ahead would be tough and would require healthy PPI generation to fully
offset extra likely provisioning on sales/liquidations.

 Investment Case.

Greek sovereign yields have staged notable declines and hover
at 1.6% for the 10yr. Greek banks trade on 0.4x P/BV on average and the “buy
the dips” call (July 8) has worked during the last month. We remain cautiously
optimistic, mainly on valuation grounds (rerating of P/BV multiples) and the
prospects for swift NPEs reduction and resurgence of new loan disbursement
activity. We retain our preference for NBG.

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