Limassol, July 16, 2019 -- Moody's Investors Service (Moody's) has today changed the outlook to positive
from stable on the Caa1 long-term deposit ratings of Alpha Bank
AE, Eurobank Ergasias S.A. (Eurobank) and National
Bank of Greece S.A. (NBG).
The long-term counterparty risk assessments (CRA) of Eurobank Ergasias
S.A. and National Bank of Greece S.A. have
also been upgraded to B1(cr) from B2(cr), while all other ratings
of the three banks have been affirmed including their baseline credit
assessments (BCA) of caa1. A full list of affected ratings is provided
at the end of this press release.
RATINGS RATIONALE
"Today's rating action on Greek banks is primarily driven by our
expectation of further improvements in asset quality, funding and
profitability in 2019-20, benefiting from a more supportive
operating environment," said Nondas Nicolaides, Vice
President - Senior Credit Officer at Moody's. The
recent change in government in Greece is likely to accelerate growth-friendly
economic policies, which will make it more conducive for banks to
implement their strategic plans for improving their financial performance.
With regard to asset quality, stronger economic growth than 2%
in the coming years, would provide important support to banks'
efforts to reduce the still large stock of nonperforming exposures (NPEs)
that comprised 45.2% of gross loans for the system at the
end of March 2019 (down from 48.6% at March 2018).
Based on the banks' operational NPE reduction targets committed
to the regulatory authorities, the banking system's problem
loans are likely to decrease to around €34 billion (or around 21.2%
of gross loans) by the end of 2021 from around €82 billion (or around
45.4% of gross loans) in December 2018.
NPE reduction is likely to be assisted by an asset protection scheme (APS)
proposed by the state-owned Hellenic Financial Stability Fund (HFSF),
which involves setting up special purpose vehicles (SPVs) that would issue
bonds with a government guarantee for senior tranches, similar to
Italy's GACS model. In addition, there is also the
Bank of Greece proposal for transferring a significant part of banks'
NPEs (approximately €40 billion) along with part of their deferred
tax credits to an SPV. These proposals have been submitted to the
European Union's Directorate-General for Competition (DG
Comp) for approval, and are among the new government's top
priorities. In the meantime, banks are also pursuing their
own initiatives to improve their asset quality, mainly through sales
and securitisations of NPEs. In Moody's view such transactions
are looking increasingly certain as preparations gather pace through agreements
with external parties.
The positive rating outlook also reflects Moody's anticipation of improved
funding conditions for Greek banks, with increasing customer deposits
(around 6% year-on-year growth for the system in
May 2019) and access to the unsecured international capital markets,
which will help them to further diversify their funding sources and support
their core liquidity. Following the recent elections, the
rating agency expects the full abolition of capital controls in the country,
which is likely to further enhance depositors' and investors'
confidence towards the banking system.
Moody's also expects banks' core profitability to improve
in the next 12-18 months from the currently weak levels through
lower provisioning costs, reduction of operating expenses,
and higher net interest income (net interest income that comprises around
75% of core income for the system declined by around 4.2%
year-on-year in the first quarter 2019) as they gradually
increase loan disbursements. Banks' earnings will also likely
benefit from financial operations and investment gains in 2019,
in view of the lowering of spreads for Greek Government Bonds (GGBs) that
they hold in their books.
The rating agency expects that the gradual improvements in banks' underlying
financial fundamentals through lower levels of problem loans, increasing
customer deposits and access to unsecured market funding, combined
with a gradual enhancement of their weak profitability and liquidity,
may translate into higher ratings over the next 12-18 months.
The upgrade of the CRA for Eurobank and NBG reflects the lower risk of
default on these banks' counterparty obligations and other contractual
commitments. This is mainly due to the proportional increase of
both banks' more junior obligations available to absorb losses first
in a potential resolution scenario, which in effect reduces the
likelihood that counterparty obligations will bear losses or other contractual
commitments will not be honored in a timely manner.
RATINGS RATIONALE FOR INDIVIDUAL BANKS
--- ALPHA BANK AE
Alpha Bank AE's deposit ratings were affirmed at Caa1/NP, and its
outlook was changed to positive from stable, signaling the potential
for an upgrade during the period up to the end of 2020. The positive
outlook takes into account the bank's main focus, as part
of its new strategic planning that will be fully communicated by the end
of this year, to accelerate its NPE reduction by leveraging the
flexibility derived from its relatively strong capital base compared to
its local peers. Alpha Bank had the highest regulatory phased-in
common equity Tier 1 (CET1) ratio of 17% in March 2019 (fully loaded
at 14%), while its tangible common equity (TCE) over risk-weighted
assets ratio as adjusted by the rating agency was at approximately 10%.
The bank plans to reduce its high NPEs in Greece (€21.7 billion
in March 2019) by at least €5 billion by the end of 2019, mainly
through the sale of NPEs, with two transactions in the pipeline
involving individual corporate loans and secured SME loans as well as
a securitisation of retail loans with residential real estate as collateral.
Moody's notes that the bank was able to successfully execute three
NPE disposals during 2018, having an on-balance sheet gross
book value of around €3 billion. In addition, the bank's
efforts through longer-term restructurings and solutions to its
problematic exposures, will help it reduce its NPEs to its operational
target of around €7.4 billion by the end of 2021, implying
an NPE ratio of around 20% from 48.9% as of March
2019.
The bank's improving funding profile is also a driving factor of the positive
outlook, with no emergency liquidity assistance (ELA) in March 2019
and customer deposits growing by around 8.5% year-on-year,
or approximately €3 billion. The rating agency expects the
bank to further diversify its market funding. This has expanded
significantly over the last few quarters with inter-bank repos
(on a secured basis) increasing to €6.7 billion in March 2019,
and at a lower cost, from €2.7 billion in March 2018.
Additionally a potential issuance of an unsecured debt instrument in the
international capital markets over the next 12 months that will also support
its core liquidity is being considered.
The positive outlook also takes into account the bank's potential
for improving its core pre-provision income (PPI), which
declined by 21% year-on-year as of March 2019,
through new loan disbursements that amounted to around €3 billion
in 2018. The bank's positive net profitability in the first
quarter of 2019 (€27 million) was supported by significant gains
on its GGBs portfolio on the back of declining spreads. Earnings
in 2019 are also expected to be supported by increased fees and commissions
in the second half of the year through higher card transaction volumes
and enhanced asset management and bancassurance fees.
--- EUROBANK ERGASIAS S.A.
Eurobank's positive deposit rating outlook is mainly driven by its
transformation plan, which is gaining momentum and has an increasing
chance of being completed by the end of 2019. Through this plan
the bank expects to reduce its NPE ratio to around 16% by the end
of 2019 and to below 10% by 2021, from 36.7%
in March 2019, which is already the lowest among its local peers.
The bank aims to achieve this significant de-risking through the
securitisation of two tranches of NPEs:
1) involving residential mortgage loans of around €2 billion classified
as NPEs (Project Pillar), for which an agreement has been reached
with PIMCO for the acquisition of 95% of the mezzanine and junior
notes, while the senior notes will be retained by the bank and will
be classified as performing loans following approval by the regulatory
authorities of the SSM; and
2) involving €7.4 billion of NPEs comprising 35% corporate
loans and 65% retail loans (Project Cairo), for which the
bank has entered into exclusive negotiations with PIMCO until the end
of September 2019 for the sale of 20% of the mezzanine and junior
notes, as well as the sale of a majority stake in the bank's
servicer subsidiary Financial Planning Services (FPS) that will be servicing
these securitised NPEs as well as all the bank's remaining NPEs.
Eurobank will also retain the senior notes of this securitisation,
which will be classified as performing loans pending approval from the
SSM.
The transformation plan also involves the set-up of a new banking
subsidiary, to which all core banking operations (including the
bank's deferred tax credits) will be hived down at book value,
while the existing legal entity Eurobank Ergasias S.A. will
act as the holding company and listed entity of the group. The
shareholders of the holding company will be distributed the balance (80%)
of the mezzanine and junior notes of Project Cairo. The rating
agency believes that this plan, if successfully executed,
would allow the bank to achieve a significant reduction of its NPEs earlier
than its local peers, without compromising its capital base.
Moody's notes that the CET1 impact expected from the derecognition
of these NPEs (in the region of €1.2-1.4 billion)
will be counterbalanced by the capital enhancement achieved through the
merger of the bank with the property company Grivalia in May 2019 and
the upcoming sale of FPS. Should the transactions of Project Cairo
and the sale of FPS be concluded in 2019, the bank's phased-in
CET1 ratio is likely to be around 13% by year-end,
compared to a pro-forma (incorporating the Grivalia merger) of
15.7% reported for March 2019.
Moody's said that Eurobank's positive deposit rating outlook also considers
its expectation that the bank's core profitability will gradually
be enhanced mainly due to lower cost of risk, an expanding loan
book and the earnings generated from Grivalia's properties.
Moody's believes that the bank's funding profile will improve further
over time, especially following the completion of its transformation
plan, with a potential issuance of unsecured Tier 2 note to partly
replace its outstanding €950 million government-subscribed
Tier 2 debt. The bank fully repaid its ELA during the first quarter
2019 and increased group customer deposits by 11.8% year-on-year
as at March 2019.
The upgrade of the Eurobank's CRA mainly reflects the significant
increase of its customer deposits in Greece (approximately 12%
year-on-year in March 2019), which lowers the risk
of default on its counterparty obligations and other contractual commitments.
The higher CRA essentially signals the reduced likelihood that counterparty
obligations will bear losses or other contractual commitments will not
be honored in a timely manner, in a potential resolution scenario
of the bank.
--- NATIONAL BANK OF GREECE S.A.
NBG's positive rating outlook reflects Moody's expectation
that the bank will make significant improvements to its asset quality
over the outlook period. NBG has an ambitious target to reduce
group NPEs to €4.7 billion by the end of 2021 (implying an
NPE ratio in the low teens level) and to €1.7 billion in 2022
from €16.3 billion reported at the end of 2018. The
bank has already made good progress so far in reducing its NPEs in Greece
(€14.3 billion in March 2019 down from €16.5 billion
in March 2018), and its group NPE ratio was the second lowest among
its local peers at 38.9% at March 2019, and with the
highest NPE provisioning coverage ratio of 58.6%.
Moody's believes that the higher provisioning levels gives NBG more
flexibility in managing its NPEs, including potential sales (around
€2.8 billion in total in the pipeline for 2019), securitisations
and write-offs.
In addition, the positive outlook is underpinned by the rating agency's
view that the bank will be in a position to further gradually enhance
its relatively weak core pre-provision income (PPI), which
increased by 17% year-on-year in the first three-months
of 2019, combined with further reduction in its operating expenses.
NBG's earnings are expected to benefit from the replacement of a
state structured instrument (Titlos) with a nominal value of €5.5
billion with GGBs worth €3.3 billion in February 2019,
estimated to benefit the bank's net interest income by around €110
million per annum. However, this benefit will be reduced
by a recent ministerial decision that the bank will have to support its
auxiliary pension plan (LEPETE) over the next five years with a total
cost of around €40 million per year. Moody's understands
that NBG filed to the state council against this legislative amendment
the Greek government voted last month. The bank reported a common
equity Tier 1 (CET1) ratio of 15.7% in March 2019,
which is comfortably above the SREP requirements of 10.25%
for the CET1 ratio and 13.75% for the overall capital adequacy
ratio (OCR).
NBG's positive outlook also takes into account its stronger than
peers deposit savings franchise in Greece, which enables it to continue
to improve its funding and liquidity with increasing customer deposits.
The bank repaid its ELA back in December 2017, while it has the
lowest loans-to-deposits ratio among its local peers at
71% in March 2019 and is the only Greek bank that meets both the
liquidity coverage ratio (LCR) at 151% and net stable funding ratio
(NSFR) at 113%. Moody's notes that NBG has recently
raised an unsecured subordinated (Tier 2) bond of €400 million in
the international capital markets, which will improve the bank's
funding diversification profile and OCR by around 115 basis points (15.8%
as of March 2019).
The growth in NBG's customer deposits in Greece (7.2%
year-on-year as of March 2019) combined with the new Tier
2 bond, are the main drivers behind the upgrade of its CRA.
The proportional increase in the bank's more junior obligations
available to absorb losses first in a potential resolution scenario,
effectively reduces the likelihood that counterparty obligations will
bear losses or other contractual commitments will not be honored in a
timely manner.
WHAT COULD MOVE THE RATINGS UP/DOWN
Over time, upward deposit and senior debt rating pressure could
arise following further improvements in the country's macro-economic
environment, combined with better asset quality, profitability
and funding. The return of more deposits back to the banking system
would also increase the pool of unsecured obligations available to banks,
which could trigger a deposit and senior debt rating upgrade driven by
the rating agency's loss given failure (LGF) approach.
Greek banks' deposit and senior debt ratings could be downgraded in the
event of political turmoil in the country for an extended period of time
that substantially affects domestic consumption and economic activity,
which have gradually been recovering from a very low base.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published in
August 2018. Please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
FULL LIST OF ALL AFFECTED RATINGS
Issuer: Alpha Bank AE
..Affirmations:
.... Adjusted Baseline Credit Assessment,
Affirmed caa1
.... Baseline Credit Assessment, Affirmed
caa1
.... Long-term Counterparty Risk Assessment,
Affirmed B2(cr)
.... Short-term Counterparty Risk Assessment,
Affirmed NP(cr)
.... Long-term Counterparty Risk Rating,
Affirmed B3
.... Short-term Counterparty Risk Rating,
Affirmed NP
.... Senior Unsecured MTN Program, Affirmed
(P)Caa1
....Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)B1
....Subordinate Medium-Term Note Program,
Affirmed (P)Caa2
....Other Short-term, Affirmed
(P)NP
....Long-term Bank Deposits,
Affirmed Caa1, Outlook Changed To Positive From Stable
....Short-term Bank Deposits,
Affirmed NP
..Outlook Action:
....Outlook Changed To Positive From Stable
Issuer: Alpha Credit Group plc
..Affirmations:
.... Backed Commercial Paper, Affirmed
NP
....Backed Senior Unsecured MTN Program,
Affirmed (P)Caa1
.... Backed Subordinate MTN Program,
Affirmed (P)Caa2
....Backed Other Short-term,
Affirmed (P)NP
....Backed Senior Unsecured Regular Bond/Debenture,
Affirmed Caa1, Outlook Changed To Positive From Stable
.... Backed Subordinate Regular Bond/Debenture,
Affirmed Caa2
..Outlook Action:
....No Outlook Assigned
Issuer: Emporiki Group Finance Plc
..Affirmations:
....Backed Senior Unsecured Regular Bond/Debenture,
Affirmed Caa1, Outlook Changed To Positive From Stable
..Outlook Action:
....No Outlook Assigned
Issuer: Alpha Group Jersey Limited
..Affirmations:
....Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)Caa1
.... Backed Subordinate Medium-Term
Note Program, Affirmed (P)Caa2
....Backed Pref. Stock Non-cumulative,
Affirmed Ca (hyb)
..Outlook Action:
....No Outlook Assigned
Issuer: Eurobank Ergasias S.A.
..Upgrades:
.... Long-term Counterparty Risk Assessment,
Upgraded to B1(cr) from B2(cr)
..Affirmations:
.... Adjusted Baseline Credit Assessment,
Affirmed caa1
.... Baseline Credit Assessment, Affirmed
caa1
.... Short-term Counterparty Risk Assessment,
Affirmed NP(cr)
.... Long-term Counterparty Risk Rating,
Affirmed B2
.... Short-term Counterparty Risk Rating,
Affirmed NP
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Caa1
....Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)B1
....Subordinate Medium-Term Note Program,
Affirmed (P)Caa2
....Other Short-term, Affirmed
(P)NP
....Backed Other Short-term,
Affirmed (P)NP
....Long-term Bank Deposits,
Affirmed Caa1, Outlook Changed To Positive From Stable
.... Short-term Bank Deposits,
Affirmed NP
..Outlook Action:
....Outlook Changed To Positive From Stable
Issuer: ERB Hellas (Cayman Islands) Limited
..Affirmations:
....Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)Caa1
....Backed Subordinate Medium-Term
Note Program, Affirmed (P)Caa2
....Backed Other Short-term,
Affirmed (P)NP
..Outlook Action:
....No Outlook Assigned
Issuer: ERB Hellas Funding Limited
..Affirmations:
....Backed Pref. Stock Non-cumulative,
Affirmed Ca (hyb)
..Outlook Action:
....No Outlook Assigned
Issuer: ERB Hellas PLC
..Affirmations:
.... Backed Commercial Paper, Affirmed
NP
.... Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)Caa1
.... Backed Subordinate Medium-Term
Note Program, Affirmed (P)Caa2
.... Backed Other Short-term,
Affirmed (P)NP
.... Backed Senior Unsecured Regular Bond/Debenture,
Affirmed Caa1, Outlook Changed To Positive From Stable
.... Backed Subordinate Regular Bond/Debenture,
Affirmed Caa2
..Outlook Action:
....No Outlook Assigned
Issuer: National Bank of Greece S.A.
..Upgrades:
.... Long-term Counterparty Risk Assessment,
Upgraded to B1(cr) from B2(cr)
..Affirmations:
.... Adjusted Baseline Credit Assessment,
Affirmed caa1
.... Baseline Credit Assessment, Affirmed
caa1
.... Short-term Counterparty Risk Assessment,
Affirmed NP(cr)
.... Long-term Counterparty Risk Rating,
Affirmed B2
.... Short-term Counterparty Risk Rating,
Affirmed NP
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Caa1
....Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)B1
....Subordinate Medium-Term Note Program,
Affirmed (P)Caa2
....Backed Other Short-term,
Affirmed (P)NP
....Long-term Bank Deposits,
Affirmed Caa1, Outlook Changed To Positive From Stable
.... Short-term Bank Deposits,
Affirmed NP
..Outlook Action:
....Outlook Changed To Positive From Stable
Issuer: NBG Finance plc
..Affirmations:
....Backed Senior Unsecured Medium-Term
Note Program, Affirmed (P)Caa1
.... Backed Subordinate Medium-Term
Note Program, Affirmed (P)Caa2
..Outlook Action:
....No Outlook Assigned
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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
