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Rating Action:

Moody's downgrades EFG Eurobank Ergasias SA to A1/C; negative outlook

03 Feb 2009

Limassol, February 03, 2009 -- Moody's Investors Service today downgraded the long-term deposit and debt ratings of EFG Eurobank Ergasias SA (Eurobank) to A1 from Aa3 and the bank financial strength rating (BFSR) to C from C+. The C BFSR maps to a Baseline Credit Assessment of A3. The bank's subordinated debt and preferred stock ratings were also downgraded to A2 from A1 and to A3 from A2, respectively. The outlook on these ratings remains negative. The bank's short-term deposit and debt ratings were affirmed, with stable outlook.

The rating actions reflect Moody's expectations of a deterioration in the bank's key financial fundamentals resulting from: (i) accelerated weakening economic and operating conditions in Greece and in a number of South-Eastern European countries (mainly Romania and Bulgaria), where Eurobank has built sizeable operations in recent years; and (ii) pressure on the bank's profitability arising from slower business expansion, interest margin pressure and elevated credit costs.

Eurobank's asset quality metrics have weakened somewhat over the past two quarters but remain satisfactory. Nevertheless, Moody's expects these metrics to weaken further in the coming quarters as deteriorating economic conditions in the bank's primary markets take their toll on its credit quality. The Greek economy expanded faster than most Eurozone countries over the past decade (an average growth rate of 4.3%) but is expected to slow down sharply during 2009, with a number of economic sectors, and hence corporations, facing significant stress. The prospect of higher unemployment could also lead to a rise in default rates in retail lending, including consumer credit where Eurobank has built a sizeable credit portfolio in recent years. At the same time, lending portfolios in the bank's South-Eastern European operations are also expected to come under pressure as local economies are coming to a halt and unemployment rates are creeping up, while foreign exchange volatility could dent the repayment ability of non-hedged borrowers, especially in Romania.

Eurobank's earning power and profitability ratios are declining but remain relatively satisfactory. Nevertheless, Moody's expects the bank's earning power to be negatively affected by weaker business expansion, interest margin compression and reduced non-interest income. Credit expansion in Greece is decelerating, while business expansion in the overseas operations will also slow down due to weaker economic conditions, growing risk aversion and scarcity of funding to support such expansion. Interest margins remain under pressure from elevated funding costs, due to fierce competition for customer deposits. Moody's anticipates that weaker earning power will reduce Eurobank's ability to absorb elevated provisioning expenses at a time when credit costs are increasing sharply in light of weaker credit quality, suggesting that bottom-line profitability could come under pressure in the coming quarters.

Similar to other Greek peers, with the exception of National Bank of Greece, Eurobank has a relatively high though declining reliance on capital market funding (with a net loans to customer deposits ratio of 120% in September 2009). In light of the dysfunctional international capital markets and curtailed access to wholesale funding at reasonable costs, Eurobank has focusing on growing its deposit base to fund its loan growth. Also, -- in line with European peers -- it has undertaken a number of securitisation transactions, creating instruments eligible to access European Central Bank funding. At the same time, by participating in the Greek government plan that aims to provide liquidity to the domestic economy by supporting the banking sector, Eurobank will be able to issue government-guaranteed debt to refinance maturing debt. Nevertheless, the recent widening in the spreads for Greek government debt suggests that such funding could be expensive for those banks that to have resort to it.

The outlook on Eurobank's ratings remains negative reflecting Moody's concerns regarding: (i) the longevity and severity of the economic crisis both in Greece and in South-Eastern European countries to which the bank is exposed; and (ii) the potential for the impact of such economic downturn on the bank's financial fundamentals to be greater than currently assumed by its ratings.

The issuers and their ratings affected by the above actions are:

EFG Eurobank Ergasias SA

- BFSR downgraded from C+, negative outlook, to C, negative outlook

- Long-term deposit rating downgraded from Aa3, negative outlook, to A1, negative outlook

EFG Hellas Plc

- Senior unsecured debt rating downgraded from Aa3, negative outlook, to A1, negative outlook

- Subordinated debt rating downgraded from A1, negative outlook, to A2, negative outlook

EFG Hellas (Cayman Islands) Ltd

- Senior unsecured debt rating downgraded from Aa3, negative outlook, to A1, negative outlook

- Subordinated debt rating downgraded from A1, negative outlook, to A2, negative outlook

EFG Ora Funding Limited II

- Senior unsecured debt rating downgraded from Aa3, negative outlook, to A1, negative outlook

EFG Hellas Funding Ltd

- Preferred stock rating downgraded from A2, negative outlook, to A3, negative outlook

Moody's previous rating action on EFG Eurobank Ergasias was on 11 December 2008, when it changed the outlook on the bank's ratings to negative from stable.

The principal methodologies used in rating the issuers 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 issuers can also be found in the Credit Policy & Methodologies directory.

At the end of September 2008, EFG Eurobank Ergasias had total assets of EUR79.4 billion. The bank is 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

Moody's downgrades EFG Eurobank Ergasias SA to A1/C; negative outlook
No Related Data.
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