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Banks' dividends: ECB probably to give the "green light" in June

Concerns about the possibility of a "haircut" of dividends. Management is not concerned and points to low distribution rates. They foresee a rapid reduction in deferred tax over the next three years.

In June, the ECB will take final decisions on the amount of the dividend that domestic banks will be allowed to distribute for the 2023 financial year, a distribution that comes after 16 years of complete drought. Banking sources express optimism in BD that there will be no surprises given the strong profitability and low profit rate to be distributed for 2023.

Last week, concerns were raised about the possibility of a "haircut" on Greek banks' dividends after a Bloomberg report noted that the final dividend amount may be lower than originally planned. The deferred tax is a source of concern, while the impact on banks' profitability of the planned interest rate cut is also a source of concern.

At the same time, the Governor of the BoG, Yannis Stournaras, in his public interventions, stressed the need to assess all aspects of the banks' capital base, including the deferred tax. The thorn in the side of deferred tax, which does not seem to be of particular concern to investors, was also mentioned by Moody's.

For their part, the managements of domestic banks point out that the deferred tax problem is being cured through profitability and has already declined significantly as a percentage of their capital, a decline that will continue apace in the three-year period 2024 - 2026.

What the banks are planning

Eurobank with net profit after tax attributable to shareholders of EUR 1.14 billion is expected to proceed with a distribution for 2023 of around EUR 300 million or 25% of profits. Eurobank's dividend is expected to be in the region of EUR 0.08 per share.

The National Bank with a net profit after tax of EUR 1,106 million will proceed with the distribution of an amount also close to EUR 300 million (around 25% of profits). The dividend of NBG is expected to be close to EUR 0.30 per share.

Alpha Bank, with a net profit after tax attributable to shareholders of EUR 611.3 million, will distribute 20%, i.e. around EUR 120 million. Alpha Bank's dividend is expected to amount to EUR 0.05 per share.

Finally, Piraeus Bank, with net profit after tax of EUR 788 million in 2023, will distribute a dividend corresponding to 10% of profits, i.e. approximately EUR 80 million. The dividend of Piraeus' dividend is expected to be EUR 0.064 per share.

In total, the 4 systemic banks will distribute to their shareholders a dividend of more than EUR 800 million for the financial year 2023. All of this is of course subject to the approval of the ECB with decisions to be taken next June. 

It should be noted that in 2023, Eurobank, National Bank, Piraeus Bank and Alpha Bank dynamically returned to a path of sustainable profitability benefiting from rising interest rates and the recovery of the economy. 

What the business plans predict for dividends

More "aggressive" is the banks' planning for dividend distribution in the 3 years 2025 - 2026, as shown in the business plans, but with significant variations from bank to bank. Analysts believe that the target for distributions equivalent to 50% of profitability may be too optimistic and to be realized, on the one hand, the domestic economy will have to move in the upper range of growth estimates in the coming years and banks will have to exceed the revenue and profitability targets they have set. 

Eurobank's business plan calls for the profit-sharing ratio to be 25% in 2024 and to rise to 50% by fiscal 2026. The bank is targeting organic profitability of 1.5 billion in 2024 and 1.6 billion in 2026. Based on this, it is estimated that the bank will proceed in the three-year period 2024 - 2026 to distribute total dividends significantly higher than EUR 1 billion.

A similar amount, significantly higher than EUR 1 billion, is expected to be distributed by the National Bank in the three-year period 2024-2026. The bank's business plan forecasts earnings per share of EUR 1,2 in 2024, which will rise to EUR 1,3 per share in 2026. The business plan does not include a distribution target but it is estimated to be close to 30% in 2024 with a target to approach 50% in 2026.

Piraeus Bank forecasts in the business plan that net profit after tax will be close to EUR 900 million in 2024, close to EUR 1 billion in 2025 and also at the level of EUR 1 billion in 2026. The bank aims to distribute as dividend 25% of the 2024 profits, 50% of the 2025 profits and also 50% of the 2026 profits. Target leading to a dividend distribution significantly higher than EUR 1 billion in 3 years

Alpha Bank's business plan forecasts earnings per share of EUR 0.31 in 2024, EUR 0.33 per share in 2025 and EUR 0.35 in 2026. The bank's management aims to distribute dividends also above EUR 1 billion in 3 years with the distribution rate also approaching 50% in 2026.

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