The Grecian economy has been through a tumultuous period over the last three years, with the country reaching the brink of economic disaster. A government debt crisis and a wave of domestic loan defaults have crippled the Greek nation’s lenders, hitting the eponymous National Bank of Greece S.A. (NBG) especially hard. But according to a prominent Grecian analyst the worst of times for NBG are passing, and a recovery might be on the horizon for both the Greek economy and its namesake banking institution.
Piraeus Securities raised their rating of National Bank of Greece from neutral to outperform. This follows a similar upgrade from neutral to outperform from JP Morgan ($JP) Cazenove, one of the investment giant’s European markets wing. These votes of confidence might in themselves not be indicative of a positive for the macroeconomic situation in Greece, but the reasoning behind the upgrades for NBG do.
Capital Reserves Strengthened, Stress Test Passed
The Athens-based bank recently passed the "stress test" that as of June 2013 has been required of all major Greek banks. The fact that the bank has enough reserve capital to withstand an economic catastrophe is welcome news for a country rocked by the late 2000s global recession.
Greek bankers have been under immense pressure to shore up their reserves following the massive wave of loan defaults that rocked the country during the recession. In March the country's central banker George Provopoulos addressed the balancing act the Greek banking industry must maintain by capitalizing while not appearing "weak" to their depositors.
Trust is a major issue for NBG and its fellow big banks, as the country was hit uniquely hard by the recession. A previous macro stress test revealed the country's banks still needed at least $10 billion USD in capital to withstand another theoretical global economic meltdown.
International Help Looks to Finally Stabilize Greek Lenders
While the country’s economic position is improved, they are still not out of hot water just yet. Greece has been courting a third rescue package from international powers for some time, with speculation the aid total could come to as much as $11.4 billion USD. European Union officials are expected to make a decision on the matter in May or June 2014.
Concerning the Grecian economy at large, NBG may just have to wait and see. But for the near future, their prospects look improved. According to Piraeus, NBG’s upcoming earnings announcement on May 28 looks to include a small net profit of 4.0 million euros, or $5.4 million USD, which is welcome news for a lender in a country that has experienced 25 consecutive quarters of economic contraction.
However, it should be noted that that shrink is finally slowing. The country's GDP only contracted 2.3 percent in the fourth quarter of 2013, besting analyst estimates of 2.6 percent, and lowering 2013's total GDP contracion to 3.9 percent. This was a signifcant improvement over the 6.4 percent contraction Greece experienced in 2012.
The presumed profitability on NBG's part can likely be attributred to ongoing efforts to restructure the lender following plans to enact a “good bank/bad bank” scheme, wherein toxic loans are housed in a separate instituion. The plan is similar to what the country of Cyprus enacted after that country's economic crisis hit its apex in April 2013.
After hints of a turnaround in October 2013, NBG’s stock has faltered, with shares falling 43.16 percent in 2014. But investors seem bullish going into the earnings call, with shares rising 12.23 percent in the lead-up to the earnings report. A report which should shed light on whether NBG is truly ready to rise back up the charts and lead the Grecian economic recovery, or stay mired in the toxic muck of a nationwide debt crisis.
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