Goldman Visited Greek Banks And Believes Things Will Get Worse Before They Get Better

• Goldman Sachs recently visited Greece and met with members of the banking community to get an update on conditions within the sector.
• Although immediate liquidity is no longer a concern due to capital controls, bank sentiment remains low.
• Goldman predicts that the downturn in Greece will continue through the end of 2016.

Goldman Sachs analyst Pawel Dziedzic just returned from a trip to Greece to assess the current financial state of the troubled nation. In a new report, Dziedzic discussed what investors can expect from Greek banks in coming months.

Bank Recaps

According to Dziedzic, the recap strategy for Greek banks remains unclear. He writes that private participation will be encouraged but is not guaranteed. At this point, Dziedzic sees limited investor interest. He notes that a “bad bank” strategy has not been on the table up to this point.

Operating Trends

So far, Greek banks have remained resilient to weakening operating trends, but Dziedzic believes that the worst is yet to come. Goldman is calling for non-performing loan (NPL) levels to peak near the end of 2016 at the earliest. In addition, bailout provisions will likely push the economy into decline through the beginning of 2017.

Liquidity

Dziedzic reports stabilized deposit inflows thanks to the capital controls that have been in place in Greece. Despite peak cash circulation in the Greek economy, negative sentiment toward banks will continue to weigh on financial system inflows in coming months.

Outlook

For investors, the most important question is if and when it is safe to invest in Greek banks.

Goldman cut its price targets for Greece-listed Alpha Bank, Bank of Piraeus and Eurobank Ergasias SA, but maintains its Neutral ratings on the stocks.

U.S. investors looking to bet on further deterioration of the Greek economy might consider looking at U.S.-listed National Bank of Greece SA NBG or the Global X FTSE Greece 20 ETF GREK.

Disclosure: the author has no position in the stocks mentioned.