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Rating Action:

Moody's assigns Caa1/NP deposit ratings to the new legal entity Alpha Bank S.A. in Greece; positive outlook

19 Apr 2021

The rating agency withdraws the BCA and deposit ratings assigned to the legacy entity, which became the holding company and will be renamed Alpha Services and Holdings S.A.

NOTE: On April 20, 2021, the press release was corrected as follows: In the LIST OF AFFECTED RATINGS, the first line was corrected to “..Issuer: Alpha Services and Holdings S.A” Revised release follows.

Limassol, April 19, 2021 -- Moody's Investors Service ("Moody's") has today assigned a Baseline Credit Assessment (BCA) of caa1 and bank deposit ratings of Caa1/NP to Alpha Bank S.A. (Alpha Bank), the newly-formed legal entity that was granted a new banking license and has taken over the core banking operations from its legacy entity in Greece (Alpha Bank AE), which was renamed Alpha Services and Holdings S.A. At the same time, the rating agency has withdrawn the BCA of caa1 and all existing deposit ratings of Caa1/NP and other outstanding ratings, with the exception of the Caa2 subordinated ratings assigned to the Tier 2 instruments issued by its legacy entity. These subordinated notes will remain under Alpha Services and Holdings S.A., which now acts as the holding company of the group and is listed on the Athens stock exchange. Moody's has also assigned a Caa2 long-term issuer rating to Alpha Services and Holdings S.A.

The new ratings assigned to Alpha Bank S.A. are positioned at the same level as those previously assigned to the legacy entity. Moody's says that this takes into consideration the successful implementation of the bank's transformation plan but also the still significant downside risks stemming from the negative effects of the coronavirus on the Greek economy and the residual non-performing exposures (NPEs) left on its balance sheet.

The positive outlook assigned to Alpha Bank S.A.'s long-term deposit ratings as well as to the holding company's issuer rating, reflects the bank's plans to further improve its asset quality in 2021-22, as well as the medium-term benefits generated by the transformation plan, mainly in profitability.

The list of ratings affected by today's rating action is at the end of this press release.

RATINGS RATIONALE

-- Alpha Bank S.A.

According to Moody's, the decision to position Alpha Bank's BCA at caa1, which is at the same level as the BCA of caa1 previously assigned to the legacy entity, despite the improvement in asset quality resulting from the transformation plan, is driven by the uncertainty surrounding the recovery of the Greek economy following the recession in 2020 due to the coronavirus. Such economic recovery, including the tourism sector that is one of the main pillars of the Greek economy, will largely depend on the roll-out pace of vaccination plans, the utilisation of the EU recovery funds as well as the willingness of foreign visitors to travel to the country in the second half of this year. Accordingly, there are still significant downside risks for all Greek banks, which could lead to delays in improving their underlying financial fundamentals, constraining for now their BCAs.

The transformation plan implemented by the bank, includes the de-risking of its balance sheet through the securitisation of approximately €10.8 billion of NPEs (project 'Galaxy') through the state-sponsored Hercules Asset Protection Scheme (HAPS). This scheme allows the bank to retain around €3.8 billion of the senior notes from the securitisation, guaranteed by the government, which will be classified as performing loans. This securitisation will reduce the bank's NPE stock in Greece to around €8.8 billion pro-forma as of December 2020 from around €18.3 billion reported in December 2020, decreasing its NPE to gross loans ratio to around 24% from 42.9 %. The bank plans to further reduce this ratio to less than 10% by the end of 2022 through a number of different actions, including more securitisations, potentially through HAPS, NPE sales, loan curings through restructurings, liquidations and write-offs. Moody's says that it believes that implementation of these further measures could be challenging over the short-to-medium term due to the uncertainty in the economy, but that if implemented they could improve further the bank's solvency exerting upward rating pressure.

The bank's BCA also reflects its still relatively weak bottom-line profitability in 2020 as all Greek banks' earnings have been affected by materially higher credit impairments, considering the anticipated impact mostly on businesses due to the coronavirus outbreak. Nonetheless, Alpha Bank has shown some resilience in its top-line recurring revenues, with its core pre-provision income (PPI) increasing marginally by 3.4% to €859 million, in addition to significant trading gains and lower operating expenses during 2020 that helped absorb impairment charges of approximately €1.3 billion. The bank's plan envisages the gradual improvement in its profitability from 2021 onwards, with lower impairments and increased lending growth on the back of a stronger economy. Alpha Bank aims to increase its return on equity (RoE) to around 9% by the end of 2023, from a low 1.3% in 2020, as the cost of risk (CoR) is expected to decline to less than 100 basis points from a high 330 basis in 2020 (including Covid-related impairments and front-loading impairments for NPE securitisations to take place in 2021).

Moody's assigned ratings also take into consideration the expected decline in the bank's capital adequacy that results from the loss sustained from the Galaxy securitisation, which mainly emanates from the more risky mezzanine and junior notes. The pro-forma capital adequacy ratio (CAR) on a Basel III phase-in basis of the new legal entity (Alpha Bank S.A.) is 16.9% as of December 2020 taking into account the Galaxy NPE securitisation as well as the €500 million Tier 2 the bank raised in March 2021, compared to the reported 18.4% in December 2020. The rating agency also notes that the bank's pro-forma common equity Tier 1 (CET1) ratio is 14.3% following the Galaxy securitisation, while the SREP (Supervisory Review and Evaluation Process) requirement for the bank is 11% until the end of 2022, which was reduced from 14% (CET1 requirement of 9.2% ) in early 2020 due to the ECB's measures related to the coronavirus. In addition, the bank's overall quality of capital and tangible common equity (TCE) will continue to be undermined by the sizeable volume of deferred tax credits (DTCs) and deferred tax assets (DTAs) of around €3.8 billion that it will retain on its balance sheet, from a total of €7.8 billion of CET1 capital.

Alpha Bank S.A.'s ratings also reflect the ongoing improvements in its funding and liquidity, with more customer deposits and increased low-cost ECB borrowing. The bank's consolidated deposits increased by 8.6% during 2020, improving its gross loans to deposits ratio to around 90% in December 2020 from 97% the year before. The bank was also able to utilise cheap funding through the ECB's TLTRO facilities by increasing its funding to around €11.9 billion in December 2020 from only €3.1 billion in December 2019, which helped reduce its inter-bank repos considerably to only €500 million as of December 2020.

Alpha Bank S.A.'s long-term deposit ratings of Caa1 are driven by the rating agency's Advanced Loss Given Failure (LGF) analysis of the bank's liability structure, assessing the potential loss absorbing buffer subordinated for each liability class. The bank's deposits are positioned at the same level as its BCA of caa1, given the relatively limited subordinated cushion available to absorb losses in a resolution scenario. The bank's long-term Counterparty Risk Assessment (CRA) is at B1(cr) and its long-term Counterparty Risk Rating (CRR) at B2, which are positioned one notch higher than the corresponding CRA and CRR previously assigned to the legacy entity. The higher positioning takes into account the bank's funding plans for 2021-23, which includes benchmark issuances of senior preferred debt as part of the bank's efforts to gradually meet its Minimum Requirement for own funds and Eligible Liabilities (MREL).

No rating uplift from government support is incorporated in Alpha Bank S.A.'s ratings. The rating agency's low government support assumption for all Greek banks, including Alpha Bank S.A., is mainly driven by the government's relatively low capacity to provide such support if needed without any external assistance, given its sizeable debt load.

-- Alpha Services and Holdings S.A. (legacy entity that was renamed from 'Alpha Bank AE')

Moody's has assigned a Caa2 long-term issuer rating to the holding company, which is positioned one notch lower than the operating company's BCA of caa1, because senior unsecured holding company obligations are likely to be junior to senior unsecured debt issued by the operating company. This reflects Moody's view that regulators will generally expect holding company senior debt to fund inter-company debt that is subordinated to the operating company's senior unsecured debt. The rating agency has also affirmed the subordinated debt rating of Caa2 assigned to its €1 billion outstanding Tier 2 notes issued by the legacy entity in two tranches in the past (€500 million in February 2020 and €500 million in March 2021).

Concurrently Moody's has withdrawn the BCA, deposit ratings, CRA, and CRR from the legacy entity, which had its banking license revoked by the Bank of Greece and subsequently granted to the new legal entity Alpha Bank S.A. The legacy entity was renamed 'Alpha Services and Holdings S.A.', and will act as the holding company of the group, without undertaking any banking operations as a stand-alone legal entity. Moody's notes that the bank's €15 billion EMTN programme expired in November 2020, and as a result any provisional senior and subordinated debt ratings linked to the EMTN programme have been withdrawn. This also applies to the outstanding provisional EMTN programme ratings of the bank's funding subsidiaries Alpha Credit Group plc and Alpha Group Jersey Limited, which have no rated senior or subordinated debt outstanding and have been inactive for some time now. Alpha Group Jersey Limited's preferred stock non-cumulative rating was affirmed at Ca (hyb) as this funding vehicle will remain a subsidiary of the holding company, Alpha Services and Holdings S.A.

No rating uplift from government support is incorporated in the holding company's ratings, which is consistent with the rating agency's approach with regards to the operating company's ratings.

RATINGS OUTLOOK

The positive outlook on the bank's deposit ratings and the holding company's issuer rating reflects Moody's view that the bank's BCA of caa1 has the potential to be upgraded over the next 12-18 months, based on Alpha Bank's plans to further improve its asset quality and enhance its profitability. The positive outlook also considers the rating agency's view that the bank's relatively low ratings already incorporate any relevant downside risks, which are more than offset by the potential benefits that this transformation plan will confer to the banks' creditors.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Over the next 12-18 months, upward pressure on the bank's deposit and senior debt rating could emerge following improvements in the country's macroeconomic environment, and once the bank implements its additional securitisation plans, resulting in better asset quality profitability combined with relatively stable capital metrics. The return of more deposits to the banking system and the potential of raising senior preferred debt would also increase the pool of unsecured obligations available to Alpha Bank, which could trigger a deposit and senior debt rating upgrade, in accordance with our Advanced LGF approach.

Although unlikely, Alpha Bank's deposit ratings could be downgraded in the event that the pandemic substantially affects domestic consumption and economic activity for an extended period, which could severely affect the bank's underlying financial fundamentals that have gradually been recovering from a very low base. In addition, the deposit ratings could be downgraded if the sovereign rating and Macro Profile for Greece is downgraded or in case the bank is unable to further reduce its stock of NPEs by 2022.

Alpha Bank S.A. and Alpha Services and Holdings S.A. are headquartered in Athens, Greece, with reported total consolidated assets of around €70.1 billion as of December 2020.

Moody's has decided to withdraw the ratings for its own business reasons. Please refer to the Moody's Investors Service Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.

LIST OF AFFECTED RATINGS

..Issuer: Alpha Services and Holdings S.A

Assignment:

....Long-term Issuer Ratings, Assigned Caa2, Outlook Assigned Positive

Affirmation:

....Subordinate Regular Bond/Debenture, Affirmed Caa2

Withdrawals:

....Adjusted Baseline Credit Assessment, Withdrawn, previously rated caa1

....Baseline Credit Assessment, Withdrawn, previously rated caa1

....Long-term Counterparty Risk Assessment, Withdrawn, previously rated B2(cr)

....Short-term Counterparty Risk Assessment, Withdrawn, previously rated NP(cr)

....Long-term Counterparty Risk Ratings, Withdrawn, previously rated B3

....Short-term Counterparty Risk Ratings, Withdrawn, previously rated NP

....Short-term Bank Deposit Ratings, Withdrawn, previously rated NP

....Senior Unsecured Medium-Term Note Program, Withdrawn, previously rated (P)Caa1

....Long-term Bank Deposit Ratings, Withdrawn, previously rated Caa1, Outlook Changed To Rating Withdrawn From Stable

....Subordinate Medium-Term Note Program, Withdrawn, previously rated (P)Caa2

Outlook Action:

....Outlook, Changed To Positive From Stable

..Issuer: Alpha Credit Group plc

Withdrawals:

....BACKED Subordinate Medium-Term Note Program, Withdrawn, previously rated (P)Caa2

....BACKED Senior Unsecured Medium-Term Note Program, Withdrawn, previously rated (P)Caa1

....BACKED Subordinate Regular Bond/Debenture, Withdrawn, previously rated Caa2

....BACKED Senior Unsecured Regular Bond/Debenture, Withdrawn, previously rated Caa1, Outlook Changed To Rating Withdrawn From Stable

Outlook Action:

....Outlook, Changed To Rating Withdrawn From No Outlook

..Issuer: Alpha Group Jersey Limited

Affirmation:

....BACKED Pref. Stock Non-cumulative Preferred Stock, Affirmed Ca (hyb)

Withdrawals:

....BACKED Subordinate Medium-Term Note Program, Withdrawn, previously rated (P)Caa2

....BACKED Senior unsecured Medium-Term Note Program, Withdrawn, previously rated (P)Caa1

Outlook Action:

....Outlook, No Outlook Assigned

..Issuer: Emporiki Group Finance Plc

Withdrawal:

....BACKED Senior Unsecured Regular Bond/Debenture, Withdrawn, previously rated Caa1, Outlook Changed To Rating Withdrawn From Stable

Outlook Action:

....Outlook, Changed To Rating Withdrawn From No Outlook

..Issuer: Alpha Bank S.A.

Assignments:

....Adjusted Baseline Credit Assessment, Assigned caa1

....Baseline Credit Assessment, Assigned caa1

....Long-term Counterparty Risk Assessment, Assigned B1(cr)

....Short-term Counterparty Risk Assessment, Assigned NP(cr)

....Long-term Counterparty Risk Ratings, Assigned B2

....Short-term Counterparty Risk Ratings, Assigned NP

....Short-term Bank Deposit Ratings, Assigned NP

....Long-term Bank Deposit Ratings, Assigned Caa1, Outlook Assigned Positive

Outlook Action:

....Outlook, Assigned Positive

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in March 2021 and available at https://www.moodys.com/research/Banks-Methodology--PBC_1261354. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Nondas Nicolaides
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Henry MacNevin
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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