Recent analysis by Morgan Stanley, following meetings with bank management teams, government officials, and industry stakeholders, sheds light on how Greece’s banking sector might be affected by upcoming interest rate cuts.

Despite the pressure on net interest income (NII) that these rate reductions are expected to bring, the financial services giant maintains a positive outlook on the sector. Greek banks, it notes, are focused on mitigating the impact through strategic efforts like loan growth, increased fee income, and lower-than-anticipated deposit betas for 2026.

Morgan Stanley highlights the banks’ strong commitment to returning capital to shareholders, which remains a priority despite the challenges ahead.

While loan growth across the sector slowed to +4.7% annually by the end of the second quarter in 2024, the firm expects a recovery in the months to come. Executives are confident in reaching a 5-7% compound annual growth rate (CAGR) in loans for the 2023-2026 period, primarily fueled by corporate lending tied to the Recovery and Resilience Facility (RRF).

Corporate loans are set to be the main engine of growth, with minor improvements in consumer lending, supported by a shift toward more data-driven and digital strategies.

A major positive for investors is the commitment of Greek banks to their dividend payout plans for 2026. Morgan Stanley sees no major obstacles to this, noting that deferred tax credits (DTCs) are not expected to hinder higher payments.

The firm forecasts an average total return of 8.9% for Greek banks between 2024 and 2026, with clearer dividend policies likely to act as a significant catalyst for stock performance.

Looking ahead, Morgan Stanley expects the European Central Bank (ECB) to reduce interest rates to 1.75% by the end of 2025 and further to 1.5% in 2026. Although NII could drop by an average of 2.6% over 2025-26, the firm points to improved revenue from fees and provisions, meaning a more modest overall earnings reduction of 2.4%.

In response to these factors, Morgan Stanley has adjusted its price targets for Greek banks, but continues to rate the sector as overweight, given its attractive valuations. The new price targets are:

• Alpha Bank: 2.28 euros,
• National Bank of Greece:10.25 euros,
• Piraeus Bank: 5.39 euros,
• Eurobank: 2.63 euros.