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Citigroup forecasts on banks

01/08/2007 14:23
In a report released on 30/7/2007, Citigroup evaluated positively the Greek and Cypriot banks, stressing that “the region is supported by healthy economic trends and strong volume growth”. Among the top picks of Citigroup are National Bank of Greece, Hellenic Bank and Bank of Cyprus. The same report also refers to the Turkish banks.

Citigroup believes that Cypriot banking stands out as business trends are good and accelerating. Loan growth accelerated to 24% while offshore deposit volumes grew by over 30%. “Mortgage growth is a key driver, with volumes up 30%”. Also, “Co-ops are ceding market share in retail lending and higher interest rates are helping deposit-rich banks”.

Citigroup also refers to the wider economic environment of the island, stressing that Real GDP remains strong (4%). It even expects that GDP will reach 3.5% in 2007 and 4% in 2008. Inflation will decline to 2.1% in the next two years. Citigroup also refers to the interest rates which remain stable. “The Repo Rate remained constant at 4.5% since September 06”, the report said.

Citigroup is positive on Bank of Cyprus (Buy €17 Target). For Hellenic Bank, the TP is €7.

“We are bullish on Bank of Cyprus and Hellenic Bank. Both give exposure to the strong offshore deposit and onshore banking trends seen in Cyprus, at attractive valuations”. “Hellenic Bank is a smaller, less liquid, lower valuation multiple version of Bank of Cyprus”, the report added.

Greece

According to the report, “total lending volume growth has been moderating since summer 2006, but the key mortgage market remains solid. Loan growth rates remain stable: Total loan growth c17% yoy and mortgage growth c25% yoy”.

“Volumes are supported by a healthy macro environment, with real GDP growth forecast to remain c4% over 2007 and 2008. In our recent Athens meetings with Greek banks, management were sanguine about margin pressure”, it added.

“Growth is forecast to continue, with Real GDP set to increase by 3.7% in 2007 and 3.4% in 2008”. Inflation will drop to 3.2% in the next two years and fiscal deficit to 2% of GDP.

As for the construction sector, it remains steady, with activity decreasing due to seasonality.

For Turkey, Citigroup supports that “in a recent meeting with Turkish banks, most managements expect a 2H07 volume recovery”.

According to the firm, interest rates in Turkey remain high (20%), The GDP growth will remain at 6% in 2007 – 2008 and inflation remains high at 10% “though is forecast to fall back to 4% over the coming years”.