Contents
Investment case 1
Valuation 4
Investment recommendations 11
Risks 13
Domestic market the reason to buy Greek banks 18
Cyprus banking market 24
The battle for deposits 30
Greek and Cypriot banks have a plan 33
The Greek economy 38
The Cypriot economy 42
Capital: the other advantage 44
Companies 45
Alpha Bank ..............................................................................................................47
Bank of Cyprus........................................................................................................57
EFG Eurobank.........................................................................................................71
Hellenic Postbank....................................................................................................81
Marfin Popular bank ................................................................................................91
National Bank of Greece .......................................................................................105
Piraeus Bank .........................................................................................................119
Disclosures Appendix 130

Investment case
Something different in Europe
We confirm our positive stance on Greek banks and initiate coverage on Cypriot banks
with a positive stance.
The following reasons support our positive stance on the Greek banking sector:
• Growth potential in Greece. Greek banks offer above-average volume growth due
to their potential in the domestic market. We believe that Greece will continue to
converge towards the Eurozone. Corporate lending will be the driver of growth, in
particular the low level of banking penetration for SMEs should provide significant
growth. We also see upside potential in household lending, although strong
competition in these markets could make it a less attractive business to be in. We
favour corporate lenders over retail lenders, and hence prefer Alpha Bank
and Piraeus Bank.
• Sound economic growth in Greece. The economic environment remains sound,
in our view. Greece is forecast to experience GDP growth of more than 3%, above
the average of EMU countries. SEE countries are expected to grow by between 5-
6% for the next three years.
• Sound capital position of Greek banks. Greek banks have a sound core capital,
the majority with a ratio above 7.5%, which for retail banking activities is more than
enough. We recognise that capital ratios could deteriorate on the back of strong
RWA growth forecasts; however, there is still plenty of room for growth before the
capital positions of the Greek banks fall below 6.5%, which we consider the
minimum level for the asset mix. Within our universe, EFG Eurobank, Hellenic
Postbank and Piraeus Bank have the strongest capital bases.
The following reasons support our positive stance on the Cypriot banking sector:
• Sound economic growth in Cyprus. A forecast GDP growth of close to 4%
should support growth in the traditional banking business, where the two Cypriot
banks on which we initiate coverage handle almost half the market in loans and
deposits.
• Impressive international banking business growth is expected by the Cypriot
banks given fiscal advantages, dependent substantially on the economic evolution
of Russia and other CIS countries.
• Strong liquidity and capital adequacy of both Cypriot banks.
Stock selection
Our top pick among Greek banks is Piraeus Bank (BUY), as its branch network is
starting to bear fruit, and corporate lending is catching up in terms of growth. We rate
Alpha Bank a BUY as we believe that the leadership in corporate lending should
translate into an acceleration of revenue growth. For EFG Eurobank we reiterate our
BUY rating on the stock as the ‘New Europe’ franchise should offset a weak
performance in domestic operations. We reiterate our HOLD recommendation on
National Bank of Greece as its capital position, together with the strong weight of
deposits in their net interest income, and the political instability in Turkey, could affect

the performance of the share price. We downgrade Hellenic Postbank from Buy to
HOLD as we see only a limited chance of a takeover at a significant premium,
following recent comments from the Ministry of Finance. Moreover, on a fundamentals
basis, we see reasons for the bank to underperform the other Greek banks.
In Cyprus, we prefer Bank of Cyprus to Marfin Popular Bank, although we believe both
will benefit from the expected growth in international banking business thanks to high
oil prices and fast growth in CIS countries. Although Bank of Cyprus disappointed in its
1Q08 results due to margin pressure because of the currency change to the euro and
because of pressure in Greece, we believe all players will suffer the same margin
pressure, and Marfin is no exception. Bank of Cyprus is the stronger player in the
international banking business and clear leader with over 44% market share and
should continue to benefit from the organic growth of that business. On valuation, both
banks trade at a discount to European banks despite stronger capital positions and
faster growth rates.
Differences with consensus
Our positive stance regarding Greek and Cypriot banks is consensual. Forecast EPS
growth of 20-25% for the next three years makes it difficult to be negative.
We differ from consensus mainly in our stock selection, where we favour corporate
banks, namely Alpha Bank and Piraeus, over banks more geared towards international
markets, such as National Bank of Greece and Eurobank EFG. Consequently, we
have higher EPS forecasts relative to consensus for Alpha and Piraeus, whereas for
National Bank of Greece and to a lesser extent EFG Eurobank, we are marginally
below consensus. Our estimates for Hellenic Postbank have been consistently below
consensus as we have long believed that trading income was unsustainably high.
In Cyprus, where we favour Bank of Cyprus over Marfin, we believe that growth
opportunities are similar for the two banks but think that consensus estimates for
Marfin have not yet been adjusted. Our forecasts for Bank of Cyprus are in line with
consensus, whereas for Marfin we are 6% below in 2008 and 15-18% below in 2009
and 2010.
Newsflow
The main newsflow expected over the coming months is:
• Negative on Turkey as political instability regarding a possible AKP ban continues.
This affects National Bank of Greece in particular, as it generates 30% of its profits
in the country.
• Strong real GDP and corporate lending growth in Greece which would favour
Piraeus and Alpha bank, our preferred players in the Greek banking sector.
• Negative earnings momentum in Cyprus as banks continue to suffer the squeeze in
spreads due to the reduction in central bank rates and the impact of US dollar
depreciation on foreign deposits. This should soften substantially in 2H08 as banks
carry out spread repricing, and in 2009 with a better base of comparison.
• We do not expect local consolidation to be a key theme in the short term although
there is a possibility, albeit low, that Hellenic Postbank and/or Millennium BCP
could become available for sale.

Risks priced in
In our view, risks are priced in. Greek and Cypriot banks are trading at 2008F PERs of
between 8.9x and 11.1x (excluding Hellenic Postbank), and 7.6x and 12.5x for 2009F
which in our view is undemanding. That said, we believe there are three risks to
highlight:
• In the unlikely event of an economic slowdown in the region, provisions would
experience significant growth, affecting our EPS forecasts.
• Economic imbalances in Bulgaria and Romania have triggered some questions
regarding economic growth of these countries. This risk would affect the growth
profile of Greek banks, however, there are offsetting factors such as foreign direct
investment or stability provided by the EU. Moreover, we favour Greek banks
because of their Greek operations and not their exposure to SEE.
• Spread compression. Greece offers significant growth opportunities as the market
is underpenetrated. However, we also believe spreads will converge with European
spreads, hence, the only way for spreads to go is down.