National Bank of Greece: A Resilient Credit Risk Profile Positions It as a Standout Recovery Play in European Banking

The European banking sector continues to navigate a complex landscape of macroeconomic uncertainty, regulatory pressures, and the lingering effects of the ECB's monetary policy normalization. Yet, one institution stands out as a beacon of prudence and resilience: National Bank of Greece (NBG). The bank's first-half 2025 results reveal a credit risk profile that not only outperforms its peers but also signals its potential as a compelling recovery play in a sector struggling to balance profitability with risk management.

A Credit Risk Profile That Defies the Trend

NBG's 1H2025 report card is a masterclass in asset quality management. The bank's non-performing exposure (NPE) ratio fell to 2.5%, aligning with its full-year target and placing it among the lowest in the European banking sector. This is no small feat in an environment where euro area banks, as per the ECB's lending survey, reported a net tightening of credit standards for corporate and consumer loans due to rising NPL pressures.

What's even more impressive is NBG's NPE coverage ratio of 100%, ensuring full protection against potential losses from non-performing assets. For the most severely impaired loans (Stage 3), coverage stands at 54.8%, a level that rivals the best in Europe. These metrics are underpinned by robust collateral coverage—66% at the bank level—adding an extra layer of security against volatility.

The cost of risk (CoR) further underscores NBG's disciplined approach. At 43 basis points in 1H2025, this represents a 12-basis-point decline year-on-year, a rare improvement in a sector where rising provisions are eroding margins. This reduction in provisioning requirements has directly supported NBG's profitability, even as European peers grapple with margin compression from ECB rate hikes and tighter lending standards.

Contrasting With a Challenged Sector

The broader European banking sector is facing headwinds. ECB rate hikes have squeezed net interest margins, while regulatory pressures and macroeconomic uncertainties have forced banks to adopt a risk-averse stance. The ECB's recent reduction in its monetary policy asset portfolio has further strained liquidity, pushing banks to increase sovereign bond holdings—a strategy that offers limited returns in a low-yield environment.

Euro area banks reported a net tightening of credit standards for corporate and consumer loans in Q1 2025, with NPL ratios and risk perceptions driving the trend. For example, the average NPE ratio for European banks remains elevated, though exact figures for 2Q2025 are unavailable. What is clear is that banks are increasingly cautious, with stricter collateral requirements and longer loan maturities becoming the norm. In contrast, NBG has managed to grow its performing loan portfolio by €1.5 billion year-to-date, upgrading its full-year guidance to €2.5 billion—a vote of confidence in its credit strategy and the Greek economy.

Why NBG Deserves a Closer Look

NBG's strength lies in its proactive credit risk management. The bank has implemented rigorous underwriting standards and early intervention mechanisms, which have kept new NPE inflows minimal. This is critical in a sector where the ECB forecasts continued tightening of credit standards. Moreover, NBG's balance sheet is fortified by high capital adequacy and liquidity levels, providing a buffer against potential shocks.

Investors should also consider the valuation dynamics. With a price-to-book (P/B) ratio of 0.8x, NBG trades at a significant discount to peers like Alpha Bank (1.1x) and Bank of Cyprus (0.9x). This discount reflects lingering concerns about the Greek banking sector, but NBG's results suggest those fears are overblown. The bank's ability to grow performing loans while shrinking NPEs positions it as a prime candidate for a sector rotation toward “safe havens.”

Risks and Cautions

No investment is without risks. While NBG's credit metrics are stellar, the broader Greek economy remains vulnerable to external shocks, such as energy price volatility or political instability. Additionally, the ECB's forward guidance hints at prolonged high rates, which could pressure margins if passed on to borrowers. However, NBG's strong cost control and diversified funding sources mitigate these risks.

Investment Thesis: A Buy for the Long-Term

For investors seeking a recovery play in European banking, NBG offers a compelling case. Its low NPE ratio, high coverage levels, and improved CoR position it to outperform peers in a normalization cycle. The bank's upgraded loan growth guidance and disciplined cost management further reinforce its attractiveness.

A long-term investor could consider entry points near current levels, with a target price based on a 1.1x P/B multiple (in line with its peers) and a 12% return on equity (ROE) assumption. This would imply a 30-40% upside from current levels, assuming continued improvement in asset quality and a gradual easing of ECB rates by 2026.

Conclusion

In a sector defined by caution and conservatism, National Bank of Greece is a rare standout. Its credit risk metrics not only meet but exceed industry benchmarks, and its asset quality trends suggest a bank that is both resilient and adaptive. For those willing to look beyond the headlines, NBG represents a high-conviction opportunity to capitalize on the European banking sector's gradual recovery.