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Rating Action:

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

20 Mar 2020

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 At the same time, the rating agency has withdrawn the BCA of caa1 and all existing deposit ratings of Caa1/NP and other outstanding ratings of Eurobank Ergasias S.A., which has been renamed Eurobank Holding &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subsidiaries [including ERB Hellas (Cayman Islands) Limited, ERB Hellas Funding Limited and ERB Hellas PLC] were also withdrawn together with ratings linked to specific debt issuances that no longer exist or were redeemed.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

No Related Data.
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