UBS has given a positive assessment of Greece’s banking sector, identifying it as one of Europe’s more attractive markets because of its combination of strong credit growth, profitability and valuations.

The assessment, the details of which were shared by Greek business outlet Newmoney, is particularly relevant to Cyprus through Eurobank and Alpha Bank, both of which operate in the local market.

Indeed, UBS is estimating that the sector could deliver around 15 per cent annual total returns without requiring further valuation re-rating.

European banks have already outperformed the wider European market by 11 per cent since the start of the year and by 130 per cent since 2021.

UBS has identified Greece as being at the centre of Europe’s credit recovery, particularly as corporate lending growth accelerates across the region.

Corporate lending in the eurozone has increased to 4.2 per cent, from 1.6 per cent a year earlier, while Greece has recorded significantly stronger annual growth of between 8 per cent and 10 per cent.

UBS attributed the strength of the Greek market to structural reforms and funding from the European Union’s Recovery and Resilience Facility.

Business lending is expected to grow by 8 per cent to 10 per cent annually through 2028, with demand coming from infrastructure, tourism, renewable energy, shipping and small and medium-sized enterprises.

Retail lending has remained weaker, however, with mortgages at the four systemic Greek banks declining by 1.3 per cent year-on-year during the second quarter.

UBS also considers Greece attractive in terms of both valuations and sensitivity to interest rates.

The main change to its portfolio of top European banking picks was the replacement of Eurobank with Piraeus, although Eurobank retained a Buy recommendation.

UBS now favours Piraeus because it sees greater potential for total returns.

It has set a €12 price target for Piraeus, implying 18 per cent upside, while forecasting a 5.6 per cent dividend yield for 2026 and total potential returns of about 24 per cent.

UBS sees Piraeus as a direct way to benefit from the recovery of the Greek economy and the corporate investment cycle.

It expects Piraeus to achieve a 16.2 per cent return on tangible equity in 2028, compared with a long-term management target of 17.5 per cent.

The bank also forecasts average annual earnings growth of 13.7 per cent for Piraeus between 2025 and 2028.

The second-quarter results also produced positive signals for the other systemic Greek banks.

UBS said adjusted pre-tax earnings exceeded its estimates by 6 per cent at Alpha Bank, 7 per cent at Eurobank, 2 per cent at National Bank of Greece and 6 per cent at Piraeus.

The four Greek banks are also trading at relatively lower earnings multiples than the European average.

For 2027, the European banking sector average stands at 10.2 times earnings, while National Bank of Greece, Eurobank, Alpha Bank and Piraeus all trade below that level.

UBS said Greek credit growth remained attractive despite distortions created by corporate transactions in reported lending growth, including in the case of Eurobank.

The Swiss bank concluded that Greece was not simply benefiting from the wider positive European banking cycle, but was one of the markets where credit expansion, profitability and valuations still left room for further re-rating.