The "success story" of Greek banks remains active, despite signs of fatigue in interest income, according to statements made by Andrea Costanzo, Vice President of European Financial Institutions at the credit rating agency Morningstar DBRS, in response to questions posed by Banking News (BN).
As he noted, Greek banks remain among those with the highest capital reserves in the EU, a fact that promises higher returns for shareholders. However, the diversification of their business models and subdued activity in mortgage loans remain key challenges, while the quality of capital, despite its improvement, continues to be a weakness, with the DTC ratio corresponding on average to 43% of CET1 capital.
Greek banks showed signs of fatigue in interest income during the first nine months of 2025. What does this indicate for their overall performance, and where should banks focus to improve their profitability?
Aggregate net interest income (NII) was down 9% year over year (YOY) in Q3 2025, and it was down 5% YOY in 9M 2025. However, we note that NII has been somewhat stabilising on a sequential basis in recent quarters and we expect this trend to continue, consistent with the slowdown in interest rate cuts, support from loan growth and fixed income securities, and lower funding costs as financial liabilities reprice at lower interest rates.
9M 2025 results are not fully comparable YOY mainly because of the acquisition of Hellenic Bank by Eurobank in Q3 2024. However, 9M 2025 results show a resilient performance of the large systemic banks, with aggregate net income declining by 1% YOY despite NII pressure, also helped by some positive one-off items. The sector’s average annualised return on equity stood at a good 12.5% in 9M 2025, down from around 14%, largely because of capital accumulation. Noninterest income, mainly including net fee and trading income, has compensated for lower NII, despite the government’s measures to reduce certain payment fees for retail customers. Operating costs increased, reflecting Eurobank’s higher perimeter as well as higher personnel remuneration, higher IT and digital investments, and higher expenses to support ongoing mergers and acquisition (M&A) initiatives. Credit costs were almost flat YOY as loan risks have stabilised and new nonperforming exposure formation has remained low.
Improving revenue diversification toward fee income-generating businesses, coupled with further cost optimisation and support to loan growth while preserving sound credit standards and risk profile, remain key to support profitability over the longer term.
The four Greek banks have a market capitalization of €40.5 billion and tangible equity of €33 billion, implying a 1.22x PBV. Do you consider this the fair value of Greek banks? Are they expensive or cheap compared to the rest of Europe?
European bank stocks have been outperforming their US peers in recent times. This reflects several considerations, including European banks’ stronger performance, helped by higher-than-expected resilience in NII, as well as good support from noninterest income. Higher uncertainty and volatility in the US, mostly associated with trade protectionism policies, have also led to higher capital flows being invested in Europe.
Banks operating in Southern Europe, including Greece, have outperformed their European peers recently as economies in these countries have been performing better and banks continue to show better profitability metrics on average. Southern European banks have ample capital buffers over their minimum supervisory requirements, and this contributes to boost expectations for higher shareholder remuneration as well as capital deployment through acquisitions which can significantly affect market valuations.
After a decade-long crisis, Greek banks are fully restructured and healthy. Nevertheless, they have become very predictable. What is needed to boost investment interest in their shares?
We are not equity analysts; therefore, we do not provide any suggestions to guide share performances.
Among the four major systemic banks, which would you consider the best in Greece, and based on which criteria?
We are credit rating analysts; our credit ratings provide indications of probability of defaults for banks’ liabilities. We tend not to rank banks by any criteria.
Stronger credit expansion, coupled with higher contribution from net fee and commission income, and benign asset quality trends, have led to a resilient performance of the Greek banking sector recently. Greek banks maintain a robust capital position, as also indicated by their better performance compared with the European average in the European Banking Authority 2025 stress test exercise.
Do you believe that consolidation, mergers, and acquisitions—like what we saw with Unicredit and Alpha Bank—will continue, or, due to the high concentration in the Greek banking sector, will there be no further deal activity?
Greek banks have been more active in M&A in recent times, including bolt-on acquisitions. In our view, this can remain a trend in the foreseeable future as Greek banks are still amongst banks in Europe with highest capital cushions over regulatory requirements. This typically ensures higher flexibility for future strategy, including increase in payout ratios and further acquisitions.
Given the high concentration in the Greek banking sector, we would more likely see further M&A initiatives to potentially come from adjacent segments, including wealth management and insurance businesses. While these deals do not necessarily prove to be transformational, they would contribute to enhancing business and revenue diversification in a lower interest rate environment. Improving geographical diversification in markets outside Greece also remains an option as we have seen with the acquisition of Hellenic Bank by Eurobank. In our view, higher scale, synergies, and more diversified business models remain key priorities for Greek banks to support future growth.
What do you consider the biggest weaknesses of Greek banks, given that NPEs have been almost eliminated and DTC is continuously improving due to high annual profitability exceeding €4.5 billion?
In our view, limited degree of diversification in banks’ business models as well as still subdued lending activity, particularly in the retail mortgage space, remain the main weaknesses for Greek banks. The quality of capital has improved in recent years; however, it remains somewhat weak with DTC still accounting for a significant 43% of banks’ CET1 capital at the end of September 2025, on average.
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