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HSBC: Greek banks are defensive stories

30/01/2008 12:28
According to an HSBC report released on Tuesday, certain Greek banks and two Cypriot banks have good prospects of growth, strong capital base and small exposure to credit risks. The report, which is based on the general conclusions of the presentations carried out by S. European banks at a conference held on January 17, refers to the challenges that the Greek and Cypriot banks will face this year, giving special emphasis to the compressions of the rate margins in Greece from the competition in attracting deposits and the anticipated slowdown of the growth rate and the credit growth in SEE.

The South European Banks Conference was held within the framework of a deterioration of the conditions in the money markets and the concerns for the prospects of growth in SEE (especially in Romania), given that Greek banks have placed too much emphasis on SEE as a major driver of their growth and business plan targets moving forward.

Margin compressions

Banks are increasingly chasing retail deposits, which is putting pressure in
spreads. Regarding the funding issue, most banks appeared relatively relaxed as they are
more liquid compared to other European major banks. National Bank and Bank of Cyprus are in the most advantageous position with loans to deposits ratios of 83% and 77% respectively.

Relaxation in loan pricing competition

According to the report, all banks are expecting some relaxation in loan pricing competition. Already the most aggressively priced offerings have disappeared from the market. All banks said that they want to raise rates, but what is preventing them is that they don’t know if competition will follow. Marfin said it has started re-pricing some products.

Romania

According to HSBC, most banks argued that a hard-landing scenario is highly unlikely for many reasons:
First, it is a country with low unemployment (about 2%) and they have pressure from the EU to keep their budgets balanced. A slowdown in GDP growth is expected from 6-7% down to 5-6%, but nothing dramatic. Credit expansion is also expected to come down to more sustainable levels, but we should still be expecting strong lending growth.

Bank of Cyprus

HSBC appears positive for Bank of Cyprus, National Bank and Piraeus Bank with an overweight recommendation. According to Group Chief General Manager Mr Kypri, they will present their three year business plan towards the end of February. They expect spreads in Greek loans to increase a bit, but they see pressure on deposit spreads. “We expect a slowdown in lending growth both in Greece and Cyprus, towards 20% (versus 30% over the past few years). We also expect their loan to deposit ratio to increase to over 100% over the next three years”, Mr. Kypri said.

Marfin Popular Bank

HSBC recommends neutral for Alpha Bank, Emporiki Bank and Marfin.

“Overall management gave a confusing message as far as its strategy is concerned. . A month ago, upon the presentation of its new business plan, management argued that it would need to proceed with a share capital increase of about EUR1b towards the end of 2008-beginning of 2009 in order to fund their new much more aggressive organic expansion targets. During the HSBC conference management said that the business plan is self-funded and that the capital increase is optional and subject to a potential acquisition opportunity”, the report said. MPB also seems to have a very different view for the outlook of the Cypriot market compared to BOC’s management. For instance it expects lending growth of 30% in Cyprus vs 20% guided by BOC.”, it concluded.