Moody's changes rating outlook on four Greek banks to negative
Limassol, December 11, 2008 -- Moody's Investors Service has today changed the outlook on the bank
financial strength ratings (BFSRs) and long-term deposit and debt
ratings of the following four Greek banks to negative from stable:
National Bank of Greece SA, EFG Eurobank Ergasias SA, Alpha
Bank AE and Piraeus Bank SA. See detailed list of the ratings affected.
At the same time, Moody's has affirmed the short-term
deposit and debt ratings assigned to these banks.
The outlook changes have been prompted by Moody's growing concerns
over the banks' intrinsic financial strength due to a number of
factors, including:
1) Increasingly challenging economic conditions, both within Greece
and in a number of South East European countries where the banks have
built sizeable operations in recent years. In Greece, economic
growth is expected to drop from an average growth rate of 4.3%
for the last decade to less than 2% for 2009, with growing
indications of an even more severe contraction, especially given
that the ability and flexibility of the Greek government to boost economic
activity and to mitigate the impact from the ongoing global financial
and economic crisis is limited by already high levels of government debt
and increasing borrowing costs.
2) Exposure to the shipping sector, which is experiencing significant
stress with freight rates dropping sharply due to the global economic
slowdown. With banks having increased their lending exposure to
shipping companies and their owners in recent years, Moody's
expects such credit portfolios to come under pressure.
3) The economic slowdown and challenging conditions for a number of economic
sectors in Greece, which suggest that unemployment levels could
rise, leading to increased default levels in household credit portfolios.
4) The pressure on banks' profitability from weaker business expansion,
interest margin pressures and a likely increase in credit costs.
Credit expansion in Greece is decelerating, while business expansion
in the banks' overseas operations will also slow down reflecting
weaker economic conditions, growing risk aversion and higher funding
costs needed to support such expansion. Interest margins are under
pressure from elevated funding costs, reflecting acute competition
to raise customer deposits and higher costs for wholesale funding.
At the same time, faced with a strong backlash from politicians
and the Greek public, banks are facing difficulties in re-pricing
their lending assets in order to reflect increased funding costs and the
potentially higher risk profile of their borrowers. Finally,
Moody's expects the weakening credit environment to lead to higher
default rates among borrowers, necessitating elevated provisioning
expenses.
Moody's adds that the Greek authorities are in the process of finalising
and implementing a plan to provide liquidity to the Greek economy by supporting
the banking sector. The plan comprises the following three broad
measures: (a) the government will guarantee up to EUR15 billion
of debt to be issued by banks to refinance maturing debt, (b) the
government will issue EUR8 billion in sovereign bonds to inject liquidity
into the banking system, with banks being obliged to use this facility
to extend mortgage and SME loans, and (c) the government will inject
up to EUR5 billion of capital in the form of preference shares.
Moody's anticipates that this plan will mitigate some concerns with
regard to the liquidity and funding position of those banks with a relatively
high reliance on capital markets funding and will ease any refinancing
risks over the next couple of years. In addition, capital
injections in the form of preference shares could help banks to sustain
adequate regulatory capital levels during the ongoing financial and economic
crisis.
The majority of Greek banks have announced that they will participate
in the plan. According to the plan, the government will appoint
a state representative on the board of directors of any banks that participate,
who will have a veto power on dividend payments and senior management
remuneration. An oversight council will be established --
comprising officials from the Ministry of Finance and the Bank of Greece
and state representatives on the board of directors of participating banks
-- that will oversee the implementation of the plan and
whether banks are adhering to the lending conditions imposed. Moody's
views these measures as generally beneficial for the banks but cautions
that some of them may constrain the banks' strategic and financial
flexibility.
Moody's will continue to monitor the ongoing economic crisis closely
and, depending on the severity and longevity of the crisis and on
the degree of potential problems in troubled sectors, may downgrade
ratings of banks that exhibit weakened financial strength, in particular
in terms of asset quality and profitability.
The change in outlook to negative from stable applies to the following
issuers and ratings:
Alpha Bank AE
- C BFSR
- A1 long-term deposit rating
Alpha Credit Group Plc
- A1 senior unsecured debt rating
- A2 subordinated debt rating
Alpha Group Jersey Ltd
- A1 senior unsecured debt rating
- A2 subordinated debt rating
- A3 preferred stock rating
EFG Eurobank Ergasias SA
- C+ BFSR
- Aa3 long-term deposit rating
EFG Hellas Plc
- Aa3 senior unsecured debt rating
- A1 subordinated debt rating
EFG Hellas (Cayman Islands) Ltd
- Aa3 senior unsecured debt rating
- A1 subordinated debt rating
EFG Ora Funding Limited II
- Aa3 senior unsecured debt rating
EFG Hellas Funding Ltd
- A2 preferred stock rating
National Bank of Greece SA
- C+ BFSR
- Aa3 long-term deposit rating
- A2 preference stock rating
NBG Finance plc
- Aa3 senior unsecured debt rating
- A1 subordinated debt rating
National Bank of Greece Funding Ltd
- A2 preferred stock rating
Piraeus Bank SA
- C BFSR
- A1 long-term deposit rating
Piraeus Group Finance plc
- A1 senior unsecured debt rating
- A2 subordinated debt rating
Piraeus Group Capital Ltd
- A3 preferred stock rating
Moody's previous rating action on Alpha Bank was on 24 April 2007,
when it upgraded its long-term deposit rating to A1 from A3.
Moody's previous rating action on EFG Eurobank Ergasias was on 7
October 2008, when it changed the outlook on the bank's ratings
to stable from positive. Moody's previous rating action on
Piraeus Bank was on 24 April 2007, when it upgraded its long-term
deposit rating to A1 from Baa1 and its bank financial strength rating
to C from C-. Moody's previous rating action on National
Bank of Greece was on 24 April 2007, when it upgraded its long-term
deposit rating to Aa3 from A2.
The principal methodologies used in rating the banks covered by this press
release are "Bank Financial Strength Ratings: Global Methodology"
and "Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Refined Methodology", which can be found on www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating these banks can also
be found in the Credit Policy & Methodologies directory.
At the end of September 2008, Alpha Bank had total assets of EUR64.3
billion; EFG Eurobank Ergasias had total assets of EUR79.4
billion; National Bank of Greece had total assets of EUR101.6
billion; and Piraeus Bank had total assets of EUR53.9 billion.
All banks are headquartered in Athens, Greece.
Limassol
Mardig Haladjian
General Manager
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Limassol
Constantinos Pittalis
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Limited
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
