The Bank of Cyprus is expected to deliver another strong quarter, with analysts forecasting robust profitability and the potential for generous shareholder distributions, as Greek and Cypriot banks continue to benefit from credit expansion, resilient interest income and rising fee revenue.

According to a report by Alpha Finance-AXIA, the findings of which were shared by Newmoney, investor attention has already shifted beyond second-quarter earnings towards the possibility of banks upgrading their full-year guidance and announcing interim distributions to shareholders.

The brokerage maintained a buy recommendation for the Bank of Cyprus, assigning a target price of €11.60 per share.

It also reiterated buy recommendations for Eurobank with a target price of €5.30, National Bank of Greece with a target price of €17.50, and Piraeus Bank with a target price of €10.60.

For Optima Bank, Alpha Finance-AXIA maintained a hold recommendation with a target price of €8.50.

No recommendation or target price was published for Alpha Bank because the stock remains under research restrictions, with the report’s forecasts instead based on the market consensus.

Across the sector, normalised net profit is forecast to reach €1.43 billion, representing an increase of 4.7 per cent year on year and 5 per cent compared with the first quarter.

The report also forecasts a normalised return on tangible equity of 15.4 per cent, underlining expectations that banking profitability will remain at elevated levels.

Net interest income for the sector is expected to increase by 6.5 per cent to €2.42bn, supported by stronger lending activity and interbank interest rates remaining higher than management teams had originally assumed.

According to the report, the full benefit of higher market interest rates is expected to become more apparent during the second half of the year, reflecting the time lag involved in repricing bank balance sheets.

The outlook for fee income is even stronger, with commissions forecast to rise by 20 per cent to €729 million.

The report said higher levels of new lending, increased inflows into asset management, insurance activities and contributions from recent acquisitions are broadening banks’ revenue streams and reducing their reliance on interest income.

Sector-wide net credit expansion is projected at approximately €3.8bn during the second quarter, compared with €3.5bn in the first quarter.

Total loans are expected to increase by 9.3 per cent year on year to €204.5bn, while deposits are forecast to approach €296bn.

The loan-to-deposit ratio is expected to remain at a comfortable 68 per cent.

Among the individual banks, Piraeus Bank is forecast to report normalised net profit of €340m, up 16 per cent year on year and 22 per cent compared with the first quarter.

Its net interest income is projected at €497m, while fee income is expected to reach €190m.

The report said the integration of Ethniki Asfalistiki is beginning to make a more meaningful contribution to revenues, creating scope for upgrades to the bank’s core income targets.

Eurobank is expected to post normalised profit of €380m and achieve a return on tangible equity of 16.6 per cent.

Its net interest income is forecast at €683m, with its diversified geographical presence, wealth management operations and bancassurance activities continuing to provide a competitive advantage.

For the National Bank of Greece, Alpha Finance-AXIA forecasts normalised profit of €304m, lower than in the first quarter because exceptionally strong financial trading gains have returned to more normal levels.

Even so, the bank’s underlying operating performance is expected to remain positive, with net interest income of €557m and net credit expansion of around €1bn.

The report said continued lending growth increases the likelihood that the bank will revise upwards its current annual net credit expansion target of €3bn.

For Alpha Bank, market consensus forecasts point to normalised profit of €235m, representing an increase of 6 per cent compared with the previous quarter.

The report highlighted an expected 34 per cent increase in fee income to €163m, alongside net credit expansion of around €900m.

Optima Bank is forecast to report profit of €51.5m and a return on equity of 27.3 per cent, maintaining its strong growth trajectory.

However, the report cautioned that rapid loan growth is consuming capital and increasing the bank’s need to attract additional deposits.

For the Bank of Cyprus, Alpha Finance-AXIA expects net profit of €121m and a return on tangible equity of 18.3 per cent, placing it among the strongest performers in the regional banking sector.

The report said the main investment case for the Bank of Cyprus centres on shareholder distributions, adding that a payout ratio of up to 90 per cent could translate into a dividend yield of close to 9 per cent.