**UBS Highlights Strong Potential in Greek Banking Sector with Implications for Cyprus Operations**
UBS has released a favorable analysis of Greece's banking sector, positioning it as one of the most promising markets in Europe. This assessment is particularly relevant for Cyprus, where two significant Greek banks, Eurobank and Alpha Bank, maintain operations. The insights were shared by the Greek business outlet Newmoney and underscore the robust credit growth, profitability, and attractive valuations within the Greek banking landscape.
According to UBS, the Greek banking sector is projected to deliver approximately 15% annual total returns without necessitating further valuation adjustments. This outlook comes in the context of European banks outperforming the broader European market by 11% since the beginning of the year and achieving a remarkable 130% increase since 2021.
UBS has identified Greece as a focal point in Europe’s credit recovery, particularly as corporate lending is accelerating throughout the region. In the eurozone, corporate lending has risen to 4.2%, up from just 1.6% a year prior. In contrast, Greece has experienced even more substantial growth, with annual corporate lending increasing between 8% and 10%. UBS attributes this robust performance to structural reforms and financial support from the European Union’s Recovery and Resilience Facility.
Looking ahead, business lending in Greece is expected to maintain an annual growth rate of 8% to 10% through 2028. This growth is anticipated to be driven by demand in various sectors, including infrastructure, tourism, renewable energy, shipping, and small and medium-sized enterprises. However, retail lending has shown signs of weakness, with mortgage lending at the four systemic Greek banks declining by 1.3% year-on-year in the second quarter.
In terms of investment strategy, UBS has made adjustments to its portfolio of top European banking picks. Notably, Eurobank has been replaced by Piraeus Bank, although it retains a "Buy" recommendation. UBS favors Piraeus due to its perceived greater potential for total returns, setting a price target of €12 for the bank, which implies an 18% upside. The bank is also forecasted to yield a 5.6% dividend by 2026, with total potential returns estimated at around 24%.
UBS sees Piraeus as a direct beneficiary of the Greek economic recovery and the corporate investment cycle. The bank is expected to achieve a 16.2% return on tangible equity by 2028, which is slightly below the long-term management target of 17.5%. Additionally, UBS forecasts an average annual earnings growth of 13.7% for Piraeus between 2025 and 2028.
The second-quarter results from the systemic Greek banks have also shown promising indicators. UBS reported that adjusted pre-tax earnings exceeded its forecasts by 6% at Alpha Bank, 7% at Eurobank, 2% at the National Bank of Greece, and 6% at Piraeus. Moreover, these banks are currently trading at earnings multiples that are relatively lower than the European average. For 2027, the average earnings multiple for the European banking sector stands at 10.2 times, while the four Greek banks—National Bank of Greece, Eurobank, Alpha Bank, and Piraeus—are all trading below that benchmark.
Despite some distortions in reported lending growth due to corporate transactions, UBS maintains that Greek credit growth remains attractive. The Swiss bank concluded that Greece is not merely benefiting from the broader positive trends in the European banking sector; rather, it is one of the markets where credit expansion, profitability, and valuations still have room for further improvement.
In summary, UBS's positive assessment of the Greek banking sector highlights significant growth potential, particularly for banks operating in Cyprus. The insights provided by UBS suggest a favorable outlook for both corporate and retail lending in Greece, with implications for the local market through Greek banks like Eurobank and Alpha Bank. As the sector continues to evolve, stakeholders in both Greece and Cyprus will be closely monitoring these developments.