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Rating Action:

Moody's downgrades five Greek banks due to weakened financial strength; outlook remains negative

31 Mar 2010

Remaining four Moody's-rated banks unaffected

Limassol, March 31, 2010 -- Moody's Investors Service has today downgraded the deposit and debt ratings of five of the nine Moody's-rated Greek banks due to a weakening in the banks' stand-alone financial strength and anticipated additional pressures stemming from the country's challenging economic prospects in the foreseeable future.

The affected banks are: National Bank of Greece (to A2 from A1), EFG Eurobank Ergasias SA (to A3/Prime-2 from A2/Prime-1), Alpha Bank AE (to A3/Prime-2 from A2/Prime-1), and Piraeus Bank (to Baa1/Prime-2 from A2/Prime-1). Moody's has also downgraded the deposit and debt ratings of Emporiki Bank of Greece SA (to A3/Prime-2 from A2/Prime-1), but as a result of a reassessment of the credit enhancement associated with systemic support for this institution. The outlook on all five banks' ratings remains negative. This action concludes the review of these banks initiated on 3 March 2010.

Today's rating actions were prompted by the country's weakening macroeconomic outlook and its expected impact on these banks' asset quality and earnings-generating capacity. Pressures on the macroeconomic fundamentals have been evident for the past year and are expected to intensify as the year unfolds, said Moody's.

Although additional measures taken to address fiscal imbalances at the national level may have a positive impact over the longer term, Greece's fiscal challenges will weigh negatively on economic growth over the short to medium term. As recently noted by the Bank of Greece, the magnitude of the economic contraction this year is likely to be more pronounced than was anticipated at the beginning of the year. Negative growth will give rise to unemployment, lower consumer disposable income and reduced profitability in the small- and medium-sized enterprise (SME) and corporate sectors. Moody's expects the upward trend in non-performing loans, which began in 2008, to continue in 2010 and, possibly, 2011. Combined, these factors will place additional pressure on the banking sector's already weakened asset quality and profitability.

Over the past year, Greek banks have increased their dependence on short-term market funding as access to the wholesale capital markets has been limited due to the global financial crisis. This, in turn, has led to a rise in maturity mismatches. In recent months, negative market sentiment towards Greece has further constrained the banks' access to the bond and interbank markets. As a result, Greek banks have had to increase their reliance on European Central Bank (ECB) funding by an estimated 50%. Going forward, we expect a rise in the average cost of funding as banks seek longer-term maturities, which in turn will pressure interest margins.

Moody's takes comfort in the fact that the ECB will remain a reliable source of funding for the banks until market confidence returns. Continued access to ECB funding has been part of Moody's mainstream scenario since the beginning of the crisis. Further clarity in this regard was provided by recent ECB statements effectively indicating that the central bank plans to maintain its relaxed minimum credit rating threshold for collateral beyond 2010. It should also be noted that funding stability is further supported by the primarily deposit-funded nature of the country's banking system.

As part of the review, Moody's also assessed the country's capacity to support its banking system and, in this regard, it has decided to maintain the country's systemic support anchor at A1. The systemic support anchor, which is currently one notch above the government debt rating, is used to dimension the systemic support incorporated in the deposit and debt ratings. Moody's notes however that the country's anchor rating could come under pressure if credit losses facing the banking sector were to grow significantly beyond what is currently anticipated (suggesting higher potential need for systemic support) and/or if the fiscal challenges faced by the national government were to grow beyond current expectations.

National Bank of Greece SA

Moody's downgrade of NBG's deposit and debt ratings to A2 and bank financial strength rating (BFSR) to C- (which maps to a Baseline Credit Assessment (BCA) of Baa1) reflect the deterioration in the bank's financial fundamentals, especially its asset quality, earnings and funding/liquidity indicators. Non-performing loans (NPLs) as a percentage of total loans have risen to 6.4% in December 2009 (2008: 4.0%); earnings fell by 40% in 2009 on the back of increased provision charges and slower revenue growth; while the bank has increased its reliance on short-term market funding, with "due to banks" (including ECB funding) increasing to 19% of total liabilities. For the current year, Moody's expects asset quality to deteriorate further, and access to the wholesale capital markets to remain limited, with the bank's revenue/earnings indicators unlikely to record any material improvement.

National Bank of Greece remains Moody's highest-rated Greek bank, benefiting from a solid deposit franchise (with a loans-to-deposits ratio of under 100%), and successful geographical diversification, as evidenced by the strong positive earnings contribution from its Turkish subsidiary, Finansbank AS.

EFG Eurobank Ergasias SA

Moody's downgrade of EFG Eurobank's deposit and debt ratings to A3 was triggered by the lowering of its BCA to Baa2 from Baa1 and reflects the deterioration in the bank's financial performance both in Greece and abroad. The bank's BFSR was confirmed at C-. For the year-ended December 2009, the bank's foreign operations reported post-tax losses of EUR44 million compared to profits of EUR135 million the previous year. Similar to its local competitors, EFG Eurobank's credit quality indicators have weakened, with NPLs rising to 6.7% of gross loans as of December 2009 and provision charges absorbing 75% of pre-provision earnings, while its reliance on short-term market funding has increased and accounts for 20% of total liabilities. All these issues will likely continue to adversely affect the bank's financial performance and funding profile for at least the remainder of 2010.

Alpha Bank AE

Moody's downgrade of Alpha Bank's deposit and debt ratings to A3 were triggered by the lowering of its BCA to Baa2 from Baa1, and reflects the deterioration in the bank's financial performance and its increased reliance on ECB funding. The bank's BFSR was confirmed at C-. For the year-ending December 2009, the bank has witnessed an increase in NPLs to 5.7% - likely to be accelerated further in 2010. Profitability also fell by 32%. Alpha Bank's ECB funding increased to 15% of the bank's total liabilities; this percentage is the highest among the Greek rated banks, with the current market conditions indicating that the reliance on ECB funding is unlikely to be substantially reduced during the course of the year.

Piraeus Bank SA

Moody's downgrade of Piraeus Bank's deposit and debt ratings to Baa1 and BFSR to D+ (mapping into a BCA of Baa3) reflects the bank's increased dependence on short-term market funding and its deteriorating financial performance. The bank's "due to banks" (primarily ECB and interbank repo funding) accounts for approximately 26% of total liabilities as of December 2009 -- the highest percentage among the big Greek banks -- while its liquid assets and investments account for 21% of total assets, down from 27% in 2007. Similarly, the bank's 2009 bottom-line profitability fell by 36%; for 2010 Moody's expects continued pressure on the bank's asset quality and profitability indicators as the weakening economy hits the SME sector, which accounts for nearly 50% of Piraeus Bank's loan portfolio.

Emporiki Bank of Greece SA

Moody's downgrade of Emporiki Bank's deposit and debt ratings to A3/Prime-2 reflects Moody's assignment of a lower systemic uplift given the relatively small size of the institution. Moody's notes however that Emporiki's deposit and debt ratings continue to benefit from a five notch uplift as a result of parental and systemic support. The institutions is 91% owned by Credit Agricole SA.

The ratings of the other four Greek banks rated by Moody's namely, Agricultural Bank of Greece ( Baa1/Prime-2), Attica Bank (Ba1/Not-Prime), General Bank of Greece (Baa1/Prime-2) and Marfin Egnatia Bank (Baa1/Prime-2), are not affected by today's announcement. These ratings were not part of the review announced on the 3rd of March. The weak stand-alone ratings (BFSRs) for these four banks capture the heightened level of risks under its main scenario. In the case of General Bank of Greece and Marfin Egnatia Bank, the deposit ratings also confer elements of stability as a result of our imbedded assumptions regarding the likelihood of extraordinary support from their foreign parents. Marfin Egnatia Bank's deposit ratings are expected to converge with those of its parent bank's -- Marfin Popular Bank Public Company Ltd -- once the absorption process, currently underway, is completed. Moody's notes however that a reassessment of the credit risk profiles of these four banks cannot be excluded as the year unfolds, if deterioration in asset quality and profitability are worse than currently anticipated.

The specific rating changes are as follows:

National Bank of Greece SA

- Deposit ratings downgraded to A2 from A1

- Short-term rating unchanged at Prime-1

- BFSR downgraded to C- (mapping to a BCA of Baa1) from C

- Backed (government-guaranteed) senior unsecured MTN downgraded to A2 from A1

- Preferred Stock downgraded to Ba1 from Baa3

NBG Finance plc:

- Backed senior unsecured debt ratings downgraded to A2 from A1

- Backed subordinated debt ratings downgraded to A3 from A2

National Bank of Greece Funding Limited:

- Backed Preferred Stock (Hybrid Tier 1) downgraded to Ba1 from Baa3

All ratings carry a negative outlook.

EFG Eurobank Ergasias SA

- Deposit ratings downgraded to A3 from A2

- Short-term ratings downgraded to Prime-2 from Prime-1

- BFSR confirmed at C-, mapping to a BCA of Baa2 (previously Baa1)

- Backed (government-guaranteed) senior unsecured MTN unchanged at A2

EFG Hellas plc:

- Backed senior unsecured debt ratings downgraded to A3 from A2

- Backed subordinated debt ratings downgraded to Baa1 from A3

- Backed Commercial Paper downgraded to Prime-2 from Prime-1

EFG Hellas (Cayman Islands) Limited:

- Backed senior unsecured debt ratings downgraded to A3 from A2

- Backed subordinated MTN downgraded to Baa1 from A3

EFG Hellas Funding Limited:

- Backed Preferred Stock (Hybrid Tier 1) downgraded to Ba2 from Ba1

All ratings carry a negative outlook.

Alpha Bank AE

- Deposit ratings downgraded to A3 from A2

- Short-term ratings downgraded to Prime-2 from Prime-1

- BFSR confirmed at C-, mapping to a BCA of Baa2 (previously Baa1)

- Senior Unsecured MTN downgraded to A3 from A2

- Subordinated MTN downgraded to Baa1 from A3

- Backed (government-guaranteed) senior unsecured MTN unchanged at A2

Alpha Credit Group plc:

- Backed senior unsecured debt ratings downgraded to A3 from A2

- Backed subordinated debt ratings downgraded to Baa1 from A3

- Backed Commercial Paper downgraded to Prime-2 from Prime-1

Alpha Group Jersey Limited:

- Backed senior unsecured MTN downgraded to A3 from A2

- Backed subordinated MTN downgraded to Baa1 from A3

- Backed Preferred Stock (Hybrid Tier 1) downgraded to Ba2 from Ba1

All ratings carry a negative outlook.

Piraeus Bank SA

- Deposit ratings downgraded to Baa1 from A2

- Short-term ratings downgraded to Prime-2 from Prime-1

- BFSR downgraded to D+ (mapping to a BCA of Baa3) from C-

- Senior Unsecured MTN downgraded to Baa1 from A2

- Subordinated MTN downgraded to Baa2 from A3

Piraeus Group Finance plc:

- Backed senior unsecured debt ratings downgraded to Baa1 from A2

- Backed subordinated debt ratings downgraded to Baa2 from A3

- Backed Commercial Paper downgraded to Prime-2 from Prime-1

Piraeus Group Capital Limited:

- Backed Preferred Stock (Hybrid Tier 1) downgraded to Ba3 from Ba1

All ratings carry a negative outlook.

Emporiki Bank of Greece SA

- Deposit ratings downgraded to A3 from A2

- Short-term ratings downgraded to Prime-2 from Prime-1

- BFSR unchanged at D

- Senior unsecured MTN downgraded to A3 from A2

- Subordinated MTN downgraded to Baa1 from A3

Emporiki Group Finance plc:

- Backed senior unsecured debt ratings downgraded to A3 from A2

- Backed subordinated debt ratings downgraded to Baa1 from A3

All ratings carry a negative outlook.

The last rating actions on National Bank of Greece, EFG Eurobank Ergasias, Alpha Bank, Piraeus Bank, and Emporiki Bank of Greece were implemented on 3 March 2010 when Moody's placed their ratings on review for possible downgrade.

The principal methodologies used in rating these issuers are Moody's "Bank Financial Strength Ratings: Global Methodology", published in February 2007, and "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology", published in March 2007, and "Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt", published in November 2009, which are available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Athens, Greece, National Bank of Greece SA reported total assets of EUR113.4 billion at the end of December 2009.

Headquartered in Athens, Greece, EFG Eurobank Ergasias reported total assets of EUR84.3 billion at the end of December 2009.

Headquartered in Athens, Greece, Alpha Bank SA reported total assets of EUR69.6 billion at the end of December 2009.

Headquartered in Athens, Greece, Piraeus Bank SA reported total assets of EUR54.3 billion at the end of December 2009.

Headquartered in Athens, Greece, Emporiki Bank of Greece SA reported total assets of EUR28.4 billion at the end of December 2009.

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 Kypreos
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 five Greek banks due to weakened financial strength; outlook remains negative
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