Greek banking groups with operations in Cyprus delivered stronger-than-expected second-quarter results, with faster lending growth, resilient interest income and rising fee revenue prompting analysts to remain upbeat about the sector’s prospects for 2026 and 2027.

The performance of Eurobank and Alpha Bank, the two groups in the latest analysis with direct banking operations in Cyprus, was strong enough to support upgraded targets for the year despite heightened geopolitical uncertainty, according to NBG Securities.

The investment firm maintained an “Outperform” rating on both Eurobank and Alpha Bank, while its assessment of the other Greek systemic banks was not relevant to the Cyprus focus.

Across Greece’s four systemic banks, net interest income reached €2.185 billion in the second quarter, up 3.9 per cent from the first quarter, while fee income jumped 16.7 per cent to €778 million.

Together, these increases lifted core banking revenue by 7 per cent to €2.963 billion.

Recurring operating expenses rose by only 0.8 per cent, allowing core pre-provision profit to increase by 11.6 per cent to €1.922 billion.

Adjusted net profit across the four banks reached €1.357 billion, up 12.9 per cent quarter on quarter and 8.8 per cent above analysts’ expectations.

The figures point to a banking sector that is increasingly generating income from sources beyond traditional lending, while keeping costs under control and maintaining relatively strong asset quality.

The wider first-half picture was similarly positive, with Moody’s Ratings estimating that the four systemic Greek banks generated combined net profits of about €2.5 billion during the first six months of the year.

Moody’s attributed the performance to stronger lending, faster growth in fee income and contained credit costs, and expects profitability to remain high through 2026 and 2027.

For Cyprus, the most significant development is Eurobank’s continued performance across its geographically diversified business.

Eurobank’s net interest income increased by 3.2 per cent to €685 million in the second quarter, while adjusted net profit rose by 21.2 per cent to €425 million.

International operations generated about 46 per cent of Eurobank’s core pre-provision profit and 48 per cent of core profit before tax, underlining the importance of the group’s businesses outside Greece.

Greece accounted for about 55 per cent of the group’s core revenue, with Cyprus and Bulgaria providing additional growth momentum.

Eurobank’s operations in the two countries generated €361 million in adjusted net profit, accounting for 46.5 per cent of group profitability.

The Cyprus operation recorded adjusted net profit of €231 million, while Bulgaria’s adjusted net profit increased by 7.8 per cent to €119 million.

The strong first-half performance also led Eurobank to raise its targets for the full year.

Eurobank’s geographical diversification is particularly relevant to Cyprus following its expansion in the country’s banking market and the integration of its Cypriot operations into the wider group.

The group’s performance also reflects a broader shift among Greek banks towards fee-generating businesses, reducing their dependence on interest margins.

Across the four banks, net fee and commission income increased by about 25 per cent year on year to €1.45 billion in the first half, according to Moody’s.

Fees accounted for roughly 23 per cent of total revenue, compared with 20 per cent a year earlier.

Growth came from areas including asset management, bancassurance, payments, cards and investment services.

Moody’s said the return to growth in net interest income was another important feature of the first half.

Net interest income across the four banks increased by 4.6 per cent year on year to €4.3 billion, reversing the decline recorded during 2025.

The ratings agency attributed the improvement to strong credit growth, higher income from bond portfolios and higher policy interest rates during the second quarter, despite earlier pressure on margins.

The banks also continued to benefit from tight control of their cost base.

The average cost-to-income ratio stood at just 36 per cent at the end of June, compared with about 55 per cent for European banks, according to Moody’s.

The ratings agency linked the stronger efficiency to previous branch restructuring, digitalisation and voluntary departure schemes.

Liquidity also remained particularly strong. Across the four banks, deposits increased by 5.2 per cent quarter on quarter to €275.4 billion, while gross loans rose by 2.8 per cent to €193.5 billion, according to NBG Securities.

Deposits therefore grew at almost twice the rate of lending, bringing the net loan-to-deposit ratio down to 68.9 per cent and leaving the banks with substantial capacity to provide additional financing to the economy.

Moody’s reported that deposits increased by 9 per cent overall and accounted for about 74 per cent of total funding.

The average liquidity coverage ratio stood at 201 per cent, substantially above the 154 per cent recorded by large European banks.

Asset quality has also remained resilient despite the acceleration in lending. The combined non-performing exposure ratio of the four systemic banks stood at 2.7 per cent, slightly below the previous quarter according to NBG Securities, although Moody’s put the figure at 2.7 per cent compared with 2.6 per cent at the end of 2025.

Moody’s said the figure was approaching the European average of 2.2 per cent.

Credit-loss provisions fell by about 24 per cent, bringing the average cost of risk down to 44 basis points.

The ratings agency expects non-performing exposures to decline further, although at a slower pace than previously.

It identified the possibility of small inflows of older mortgage loans with variable interest rates, but said neither Swiss franc loans nor the recent decision by Greece’s Supreme Court concerning the calculation of interest on mortgages covered by the Katseli law were expected to have a material impact on asset quality.

Capital levels also remain comfortably above regulatory requirements. The average Common Equity Tier 1 ratio of the four banks was around 15 per cent, according to Moody’s, down from 15.5 per cent at the end of 2025 as a result of lending growth, acquisitions and higher shareholder distributions.

NBG Securities put the average CET1 ratio at 15.1 per cent, with the individual ratios ranging from 12.8 per cent to 17.3 per cent.

The quality of bank capital has also been improving, with deferred tax credits falling to €9.7 billion and accounting for 38 per cent of CET1, compared with 69 per cent at the end of 2022.

Moody’s expects that proportion to fall further following legislative changes that accelerate the write-off of the credits by around six to seven years.

Alpha Bank also recorded a strong quarter, with net interest income of €436 million and adjusted net profit rising 24.6 per cent to €275 million.

NBG Securities described 2026 as a transitional year for Alpha Bank as its recent acquisitions are progressively incorporated into the group.

The focus is increasingly shifting towards 2027, when the full contribution from Flexfin, Axia, Astrobank, Altius-Universal and Alpha Trust is expected to add more than 9 per cent to earnings per share, with a capital impact of less than 100 basis points.

For investors, however, the strong operational performance has made Greek bank shares more demanding after a substantial rally.

As of August 12, the four systemic banks had risen by an average of 31 per cent since the start of the year, according to NBG Securities.

Piraeus led the gains at 53 per cent, followed by Eurobank at 32 per cent, Alpha Bank at 31 per cent and National Bank of Greece at 25 per cent.

The sector was trading at 11.4 times expected 2026 earnings and 1.56 times tangible book value, representing a premium to the European banking index but a discount to banks in the wider European periphery.

For Eurobank and Alpha Bank, which have direct exposure to Cyprus, the combination of stronger lending, growing fee income, high liquidity and resilient asset quality provides a particularly important backdrop as their Cypriot operations become increasingly integrated into their wider groups.

The broader message from both NBG Securities and Moody’s is that the Greek banking story is moving away from the earlier focus on cleaning up balance sheets and towards organic growth and sustained profitability.

Continued credit expansion, more diversified fee income, low credit costs and disciplined spending are expected to support earnings through 2026 and 2027, even if banks face renewed pressure on interest margins.