The rating agency withdraws the BCA and deposit ratings assigned to Eurobank Ergasias S.A. and its funding subsidiaries
Limassol, March 20, 2020 -- Moody's Investors Service (Moody's) has today assigned a Baseline Credit
Assessment (BCA) of caa1 and deposit ratings of Caa1/NP to Eurobank S.A.,
the new legal entity that has taken over the core banking operations and
the banking license of Eurobank Ergasias S.A. in Greece.
At the same time, the rating agency has withdrawn the BCA of caa1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
of Eurobank Ergasias S.A., which has been renamed
Eurobank Holding & Services S.A. and which now acts
as the holding company of the group, listed on the Athens stock
exchange. Provisional ratings related to the bank's EMTN
programme under Eurobank Ergasias S.A. and its funding subsidiaries
[including ERB Hellas (Cayman Islands) Limited, ERB Hellas
Funding Limited and ERB Hellas PLC] were also withdrawn together with
ratings linked to specific debt issuances that no longer exist or were
redeemed.
The new ratings assigned to Eurobank S.A. are positioned
at the same level as those previously assigned to Eurobank Ergasias S.A.,
taking into consideration the successful implementation of the bank's
transformation plan counterbalanced by the downside risks stemming from
the negative effects of the Coronavirus on the Greek economy. Although
through this transaction the bank has managed to radically improve its
asset quality and its prospects for stronger earnings generation,
Moody's notes that this is occurring during a period of heightened
uncertainty when operating conditions will become significantly more challenging.
Moody's said the positive outlook nevertheless reflects the longer-term
prospects generated by the transformation plan.
The list of ratings affected by today's rating action is at the end of
this press release.
RATINGS RATIONALE
-- Eurobank S.A.
The primary driver of the BCA of caa1 assigned to Eurobank S.A.,
which is at the same level as the BCA of caa1 previously assigned to the
legacy entity Eurobank Ergasias S.A., is the impact
from the Coronavirus on the Greek economy, despite the significantly
improved asset quality of the new legal entity. Moody's said
that the improved prospects for the bank's future performance that
this transformation confers, currently remain dampened by the potential
negative effects on the Greek economy from the Coronavirus pandemic.
The rating agency expects the tourism sector, which is an important
element of the Greek economy, as well as consumption, to be
significantly hit, while unemployment will likely increase,
although the extent of the damage is still uncertain. Accordingly,
this may delay the bank's recovery plans and improvements in its
financial metrics, constraining its BCA for now.
The transformation plan implemented by the bank, included the de-risking
of its balance sheet through the securitisation of around €6.8
billion of NPEs through the state-sponsored Hercules Asset Protection
Scheme (HAPS). This scheme allows the bank the retain around €2.4
billion of the securitisation's senior notes, guaranteed by
the government, which will be classified as performing loans in
Eurobank S.A.'s books. This securitisation
has reduced the bank's consolidated NPEs stock to around €6.2
billion at the end of March 2020 from around €13 billion at December
2019, decreasing its NPEs to gross loans ratio by almost half to
around 15.9% from 29.2%. The bank's
BCA also takes into account the bank's plan to further reduce this
ratio to single digit (7%) by the end of 2021 through a number
of different actions, including more securitisations, potentially
through HAPS, loan curing through restructurings, liquidations
and write-offs. Moody's says that it believes that
implementation of these further measures could be delayed as a result
of the Coronavirus, but that if implemented they could improve further
the bank's solvency leading to its asset quality becoming more aligned
with the weighted-average NPE ratio of 2.9% among
EU banks as of September 2019.
The bank's BCA also reflects Moody's expectation of potential
pressure on the bank's profitability this year as all Greek banks'
earnings will be affected by the business closures caused by the Coronavirus.
The bank's plan envisages gradually improving recurring profitability
in the period to the end of 2021, with higher contribution from
fees and commissions, and increased lending growth on the back of
a stronger economy despite pressure on lending margins. The bank
aims to increase its return on tangible equity to around 10% by
the end of 2022 from 4.6% at the end of 2019, as the
cost of risk (CoR) is expected to decline to around 75 basis points from
170 basis points in December 2019. The rating agency notes that
this plan will be challenging to achieve in a timely manner, in
view of the likely setback on profitability in 2020.
Moody's assigned ratings also take into consideration the decline
in the bank's capital adequacy that results from this transaction,
and that it will take some time to bring this back to its 2019 levels.
The common equity Tier 1 (CET1) ratio on a Basel III fully-loaded
basis of the new legal entity (Eurobank S.A.) will likely
reduce to around 12% and its capital adequacy ratio (CAR) to around
15.8% by year-end 2020, from 14.6%
and 19.2% respectively reported by Eurobank Ergasias S.A.
as of December 2019. The rating agency notes that the CAR of the
new legal entity will still be above its (SREP) requirement of 11.6%
for 2020 (reduced from 14.1% by the ECB as part of the measures
related to the Coronavirus), although 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) of around €3.8
billion that it will retain on its balance sheet.
Eurobank S.A.'s ratings also reflect the improvements in
funding and liquidity achieved through its legacy entity, with more
customer deposits and increasingly reducing dependence on market funding,
mainly inter-bank repos and ECB borrowing. The bank's
consolidated deposits increased by a high 14.6% during 2019,
improving its net loans to deposits ratio to around 83% in 2019
from 93% the year before. The bank was also able to reduce
its secured funding, and also its asset encumbrance, by decreasing
its repos with international banks to around €4.3 billion
in 2019 from €5.7 billion in 2018, and its borrowing
from the ECB to €1.9 billion in 2019 from €2 billion
in 2018. However, Moody's believes that some of the
bank's funding plans for 2020-22 will likely be affected
by the fast evolving implications of the Coronavirus, which will
likely increase all Greek banks' capital markets funding costs.
Eurobank's S.A. 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, mainly in the form of
its Tier 2 notes of €950 million. The bank's long-term
Counterparty Risk Assessment (CRA) is positioned at B1(cr), three
notches higher than its BCA, while its long-term Counterpart
Risk Ratings (CRRs) is positioned at B2.
-- Eurobank Ergasias S.A.
Moody's has also withdrawn the BCA and deposit ratings from the
legal entity Eurobank Ergasias S.A., which had its
banking license revoked by the Bank of Greece and subsequently granted
to the new legal entity Eurobank S.A.. The legacy
entity Eurobank Ergasias S.A. will be renamed to "Eurobank
Holding & Services S.A.", and will act as
the holding company of the group, without undertaking any banking
operations as a stand-alone legal entity.
Accordingly, all relevant deposit ratings, the BCA and other
outstanding ratings are withdrawn by the rating agency, while any
provisional debt ratings linked to the bank's EMTN programme were
also withdrawn. This also applies to the outstanding ratings of
the bank's three funding subsidiaries [including ERB Hellas
(Cayman Islands) Limited, ERB Hellas Funding Limited and ERB Hellas
PLC], which have no real debt outstanding and have been inactive
for some time now. Small amounts of debt that were outstanding
in the last few years have either repaid or redeemed by the bank.
Moody's has decided to withdraw Bank Deposit Ratings, CRRs,
CRAs, Adjusted BCA, BCA, Senior Unsecured MTN,
Backed Senior Unsecured MTN, Subordinate MTN, Backed Subordinate
MTN, Backed Other Short Term and Other Short Term 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.
RATINGS OUTLOOK
The positive outlook on the bank's deposit ratings reflects Moody's
view that the bank's BCA will likely be upgraded once the economic
prospects for Greece improve again and provided that any negative impact
on the bank's asset quality and profitability from the Coronavirus
is manageable. It also considers the rating agency's opinion
that the bank's low ratings incorporate the relevant downside risks,
limiting the potential of any rating pressure at the Caa1 deposit rating
level.
WHAT COULD MOVE THE RATINGS UP/DOWN
Upward pressure on the bank's ratings could arise once economic conditions
normalise and there is evidence that the improvement in the bank's
financial fundamentals delivered by the current reorganisation and securitisation
are sustainable. Also, tangible improvements in the bank's
core profitability and capital will positively affect its BCA, while
any material change in the bank's liability structure through the
raising of senior or subordinated debt, could also trigger rating
upgrades through our Advanced LGF analysis.
Eurobank's deposit and senior debt ratings could be downgraded in the
event of significant negative impact on the domestic consumption and economic
activity from the Coronavirus, to the extent that it will materially
delay the bank's recovery plan or cause a deterioration in its underlying
financial fundamentals. 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 2021-22.
Eurobank S.A. is headquartered in Athens, Greece,
with pro-forma total consolidated assets of €64.8 billion
in March 2020.
LIST OF AFFECTED RATINGS
Issuer: Eurobank Ergasias S.A.
..Withdrawals:
.... Adjusted Baseline Credit Assessment,
previously rated caa1
.... Baseline Credit Assessment, previously
rated caa1
.... Long-term Counterparty Risk Assessment,
previously rated B1(cr)
.... Short-term Counterparty Risk Assessment,
previously rated NP(cr)
.... Long-term Counterparty Risk Ratings,
previously rated B2
.... Short-term Counterparty Risk Ratings,
previously rated NP
.... Long-term Bank Deposit Ratings,
previously rated Caa1, Outlook Changed to Rating Withdrawn from
Positive
.... Short-term Bank Deposit Ratings,
previously rated NP
.... Other Short-term, previously
rated (P)NP
.... Subordinate MTN Program, previously
rated (P)Caa2
.... Senior Unsecured MTN Program, previously
rated (P)Caa1
.... Backed Senior Unsecured MTN Program,
previously rated (P)B1
.... Backed Other Short-term,
previously rated (P)NP
..Outlook Action:
....Outlook Changed To Rating Withdrawn from
Positive
Issuer: ERB Hellas (Cayman Islands) Limited
..Withdrawals:
.... Backed Other Short-term,
previously rated (P)NP
.... Backed Subordinate MTN Program,
previously rated (P)Caa2
.... Backed Senior Unsecured MTN Program,
previously rated (P)Caa1
..No Outlook assigned
Issuer: ERB Hellas Funding Limited
..Withdrawals:
....Backed Preferred Stock Non-cumulative,
previously rated Ca(hyb)
..No Outlook assigned
Issuer: ERB Hellas PLC
..Withdrawals:
.... Backed Other Short-term,
previously rated (P)NP
.... Backed Commercial Paper, previously
rated NP
.... Backed Subordinate MTN Program,
previously rated (P)Caa2
.... Backed Senior Unsecured MTN Program,
previously rated (P)Caa1
.... Backed Subordinate Regular Bond/Debenture,
previously rated Caa2
.... Backed Senior Unsecured Regular Bond/Debenture,
previously rated Caa1, Outlook Changed to Rating Withdrawn from
Positive
..No Outlook assigned
Issuer: Eurobank 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
.... Long-term Bank Deposit Ratings,
Assigned Caa1, Outlook Assigned Positive
.... Short-term Bank Deposit Ratings,
Assigned NP
..Outlook Action:
....Outlook Assigned Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in November 2019. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
With reference to the withdrawal of the Backed Preferred Stock Non-cumulative,
Backed Senior Unsecured, Backed Subordinate and Backed Commercial
Paper ratings of ERB Hellas Funding Limited and ERB Hellas PLC:
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
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.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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
Sean Marion
MD - Financial Institutions
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
