Banks with high resilience, the crisis does not derail the positive scenario

Strong credit expansion, rising interest rates and continued bank cost cutting are expected to drive profitability over the next 5 years. The ultimate goal is to distribute a dividend to shareholders.

The geopolitical crisis triggered by the Russian invasion of Ukrainewhich causes a dislocation of the world economy and in particular of the Europe due to soaring energy prices and high energy dependence Russiadoes not derail the positive outlook for domestic banks.

Led by strong credit expansion, as net new credit (new loans less repayments of old loans) is estimated to reach 35 billion euros above 5 year period and with the Stimulus fund making a decisive contribution in this direction, with improved interest income thanks to the gradual rise in interest rates but also significant scope for further cost reductions, bank managements are optimistic about the obtaining strong growth in profitability, a double-digit return on equity and a resumption of the dividend distribution over the next 5 years.

Of course, the banks’ return to growth would not have been possible if they had not addressed PNP over the previous two to three years. Already Eurobank and Ethniki are in single digit NPEs and the others will follow soon.

The crisis is certainly limiting the dynamics of the national economy and, by extension, of the banking system, creating risks and uncertainties even at the political level, with energy costs and the specter of inflation being the main drivers of pressure. , but it does not cancel the banks’ growth prospects.

The main reason is that it is an international crisis, not a domestic one, which limits but does not stop the upward momentum of the domestic economy: yesterday, the Governor of Bank of Greece, Yannis Stournarasspeaking at the bank’s annual meeting General assembly shareholders, estimated that the growth rate of the Greek economy in 2022 will be +3.8% and in the unfavorable scenario, if the Russian-Ukrainian crisis continues for a long time, +2.8%a performance clearly superior to that of the other European countries and slightly superior to the growth estimates for the euro zone.

Four key points continue to fuel optimism about the course of national banks in the face of the crisis:

  1. Credit Expansion – Recovery Fund. After a long period of credit contraction, banks have returned to an expansion trajectory which will “accelerate” from this year. Bank executives estimate that net credit expansion in 2022 will amount to around €5.5 billion, while over the five-year period 2022-2026, total net new credit is expected to exceed €35 ​​billion. . These are healthy new loans that will significantly increase bank revenues. The funds from the Recovery Fund, amounting to 30 billion, are a catalyst to accelerate investment and the implementation of major investment projects and will support the expansion of credit. It should be noted that the increase in loans is the result of the upward trend in the economy. As indicated, the international crisis limits but does not interrupt the growth dynamic. So, after the impressive +8.3% in 2021, which brought the economy back to levels close to pre-pandemic levels, growth in 2022 is estimated between 3% and 4% (against estimates of before the invasion of 4.5% to 5.5% ), while for 2023 to 2026, the average growth rate is estimated at nearly 3%. Tourism should give a significant boost to the economy as everything indicates that tourist traffic and income will remain at very high levels this year.
  2. Operating costs. Despite the sharp reduction in branch network and staff that banks have operated over the last decade (staff decreased by -43% and branch network by -53%), there is still a lot to do to reduce costs, due to the radical transformation of the banking operating model brought about by digitalisation. Speaking to the Delphi forum yesterday, Vassilis Psaltis, CEO of Alpha Bank highlighted the structural change taking place in the way banks provide services to their customers, adding that the way the banking platform will change, the way it works will be leaner. “The structural change of culture”, he said, ” will come when it starts to incorporate the revolutionary technological changes that are taking place. It is obvious that banks are not going to stop investing in the alternative and the digital so that we can offer remote services to customers. That is a one-way street.” Banks will further reduce their branch network and staff, leading to cost reductions while changing the way they operate. It is noted that Bank of Piraeus in its business plan presented last Wednesday aims to reduce operating costs by -22% by the end of 2025.
  3. Increase in interest rates. The gradual increase in interest rates by the ECB, which should begin at the end of the year, will put an end to the policy of negative rates and will gradually lead to a significant increase in banks’ interest income.
  4. Real estate. There are great benefits for banks from the strong upward trend in real estate. Rising real estate prices lead to higher lien values, higher recoveries on auctions, and even the “release” of previously made provisions when real estate prices were lower. At the same time, the rise in real estate prices strongly encourages borrowers encountering difficulties in repaying their loan to conclude and respect the device.

All this gives bank managers optimism that they will manage, despite the challenges posed by the new crisis, to achieve the profitability and efficiency objectives they have set themselves, with the ultimate goal of being able to distribute again dividends to their shareholders. Eurobank aspires to proceed with the distribution of dividends for the current financial year, as well as the National Bank. Alpha Bank’s plan aims to distribute a dividend for 2023 financial year and Bank of Piraeus for 2024.

YIANNIS PAPADOGIANNIS

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