The new Morgan Stanley report on the domestic banking system is a negative surprise. This is because it lowers the target prices of bank stocks, downgrading the recommendation for Piraeus and National Bank. The analysts point out that, yes, bank stocks are attractive and undervalued, but lower interest rates from the European Central Bank are leading to a decline in size and revenues. This is the main reason for Morgan Stanley's target price cut. 

SUMMARY

Regarding the two downgrades of stocks, which had significant upside in previous reports, National Bank and Piraeus are now "equalweight" from "overweight" previously. This is because Morgan Stanley believes that net interest income will be affected.

For Piraeus, it cuts the target price to €4.96 from €5.339 previously, and for NBG, to €9.05 from €10.25 previously. As for NBG, analysts stress that it will be more affected as it "has a higher sensitivity to declines in terms of net interest income." For Eurobank, it slightly lowers the target price to €2.61 from €2.63 and for Alpha Bank to €2.11 from €2.38 previously. 

TOP PICKS

As far as Alpha Bank is concerned, it is the top pick for the sector, as it is less affected by the interest rate cut and is undervalued and therefore more attractive compared to the other systemic banks. As for Eurobank, it maintains its recommendation for outperformance, highlighting that it will benefit from the merger with Hellenic Bank while maintaining (according to analysts) a strong balance sheet. 

CAUTION AND ATTRACTIVENESS

As Morgan Stanley notes, "the Greek economy will continue to outperform compared to the Eurozone average, while valuations are cheap." However, the analysts point out that "in a period of rising interest rates, we have been singling out bank stocks as they have good prospects and revenue growth. However, now with the rate-cut environment, the story is blurring due to the sensitivity of the sector."

However, the analysts note that "domestic banking stocks remain attractive as they have an average ROTE of 13.8% in 2025 and P/E and P/B at 5.2 times and 0.7 times, respectively, according to our estimates. Moreover, our numbers suggest a cumulative dividend yield of around 30% over 2024-2026 on average for Greek banks."