Autonomous and analyst Gabor Kemeny held a conference call with its investors and executives discuss the Deferred Tax Credits (DTC) issues in the capital of Greek banks, including how they affect their dividends, as well as competition, acquisitions and mergers issues.
“The main conclusions of the discussion are that DTCs and dividends are issues that are not directly related, and the comments are quite supportive of the Greek banks’ investment case. This, of course, should be accompanied by the caveat that the SSM is not the competent authority for the supervision of large financial institutions, and that the final word on the dividends of Greek banks belongs to the SSM, which is the competent authority,” explains: Autonomous Kemeni.
“Overall, we found the discussion to be encouraging, particularly that dividend payouts are largely management decisions, that there is no direct relationship between DTC levels and dividends, and that the beta of the deposit is structurally low.”
Our recent work on DTCs has left us with an overview of Greek bank dividend forecasting. We see a compelling investment case for National Bank and Eurobank (outperform recommendations) given the range of margin-based earnings surprises and the upside from Eurobank’s acquisition of Hellenic Bank,” explains Kemeni.
Assessment of dividends, DTC and capital requirements
Regarding dividends, Mr. Tsikripis, director of financial supervision at the Bank of Greece, does not suggest a direct link between dividends and the availability of deferred tax credits (DTC) in the capital of Greek banks.
He mentioned that the Bank of Greece has strictly spoken about solving the issue of DTCs. The current arrangement calls for straight-line amortization of DTCs until around 2040, which it says is in line with the banks’ plans to increase their dividends to the industry average (around 50%). But it does mean that regulators will support faster consumption of DTCs, and that’s what the CRR allows.
It is not clear how much this will make it easier for the ECB to approve higher dividend payments, which Mr Tsikripis says is a business decision by bank management at the end of the day. Mr Tsikripis sees no significant differences between the risk profiles of the big four banks from a regulatory perspective, saying they should all be in a significant excess capital position by the end of their current planning horizon in 2026.
On the DTC transformation, Mr. Tsikripis confirmed that DTCs are fully credited in supervisory funds. He does not see DTCs’ convertibility issues affecting this regulatory assessment, although he noted that the ECB’s position is not entirely clear in the hypothetical scenario of a conversion bypass if banks become unprofitable again. But losses are highly unlikely, he said, given the sector’s strong profitability ahead of forecasts.
If the banks were to find themselves with losses again, the conversion would depend on whether new corporate structures like the previous “hives” would be used again.
Let’s remind that the systemic banks, except for the National Bank, transferred the banking activity to a new business entity and kept the doubtful assets in the holding company, as a result of which the losses suffered by the bank do not stimulate the conversion.
As an example of the conversion actually taking place, Attica Bank converted its DTCs into shares in recent years, raising the HFSF rate to 72.5%, while Mr. Tsikripis clarified that there was no question of state aid around the conversion and structure. certified by the European Commission’s Competition Department (DG Comp).
The Bank of Greece sees current capital requirements as adequate for banks, including a slightly differentiated O-SII buffer of 1.25% at Eurobank, due to its presence abroad, and 1% at others.
Following similar moves in Europe, the BoE could consider increasing the countercyclical buffer from zero today, possibly in 2026. Mr Tsikripis believes Greek banks are on track to meet MREL requirements, with the final targets due at the end of 2025.
What do they expect in the banking system in terms of competition, takeovers, mergers?
There is not much news in terms of capital and mergers and acquisitions. At the moment, the BoE supports the logical expansion of Greek banks abroad, such as Eurobank’s acquisition of Hellenic Bank in Cyprus, as it helps to diversify income sources. Conversely, it would not rule out that foreign banks would follow UniCredit Bank’s lead in acquiring stakes in Greek banks, given the sector’s attractive lending margins and steady growth prospects.
Regarding competition, the Deputy Director of the Financial Stability Directorate of the Bank of Greece, Nikolaos Stavrianou, stated that there are no signs of overheating in the Greek credit market. Growth is expected to come from business lending with VAT funds, while retail momentum may not improve much given the still-significant €2 billion in annual mortgage repayments, mostly from pre-crisis portfolios.
the merger of: and Pankritia Bank may increase competition somewhat in a highly concentrated market (four banks account for about 85% of loans). Speakers noted competition for some large business loans, but deposit transfers appear structurally low given the financial literacy of some depositors. They informally reported that, as a sign of risk aversion, Greeks generally prefer to keep at least six months’ worth of living expenses in their current accounts (a possible “legacy” of windfall losses during the Greek crisis).