Limassol, November 07, 2022 -- Moody's Investors Service (Moody's) has today upgraded the long-term deposit ratings of six Greek banks that it rates, by either one or two notches, as well as the standalone Baseline Credit Assessment (BCA) of three of those banks.
The outlook for the long-term deposit ratings for two banks was changed to stable from positive following their upgrades, while the outlooks for the long-term deposit ratings for the remaining four banks remain positive.
A full list of affected ratings is provided at the end of this press release.
RATINGS RATIONALE
The rating action was driven by structural improvements in the Greek economy, significant enhancements in banks' asset quality, improved core earnings, and in the case of Pancreta Bank S.A. its recent capital increase. It also captures the rating agency's view of better recovery rates in a bank resolution scenario analysis.
The principal rating driver is the improved economic standing of Greece, with better operating and credit conditions that provide a more supportive operating environment for the country's banks. Structural improvements and reforms have improved the economy's resilience to shocks. As a result, Moody's has raised the Macro Profile it assigns to Greece to 'Moderate-' from 'Weak+' and has also raised its recovery value assumptions in a resolution scenario for Greek banks, which is the main driver for the deposit rating upgrades for all six banks. These positive developments in the operating environment signal also lower risks to Greek banks' solvency profiles.
A strong tourism sector, domestic consumption and investment will drive a healthy real GDP growth of around 5.3% in 2022 based on the rating agency's expectation, which would be higher than the euro area average at 2.2%. The Greek economy has recovered well from the pandemic shock, indicating no permanent damage, as the revitalised tourism sector and authorities' support measures mitigated the impact of the economic shock. Although growth will slow sharply to 1.8% in 2023, as high energy prices feed through to broader price pressures and weaken household purchasing power, while rising interest rates will weigh on investment, Greece's economy will continue to grow at a higher rate than other EU countries.
Credit conditions in the country have improved in recent years, with a significant drop in system nonperforming exposures (NPEs) to 9.5% of total loans and advances in June 2022 from around 40% as of December 2019 and a peak of almost 50% in 2015, according to Bank of Greece data. This has also improved banks' lending capacity to the real economy and borrowers' repayment ability. The significant reduction of problem loans in the banking system was mainly driven by the sizeable NPE securitisations that banks carried out through the state-sponsored asset protection scheme under the name of 'Hercules'. Accordingly, Greek banks are now better prepared to face new headwinds and challenges, resulting from inflationary pressures and increasing interest rates that will likely impact vulnerable borrowers' debt affordability and repayment capacity.
Given the above improvements in the economy, Moody's has revised its recovery value assumptions in a resolution scenario for Greek banks, benefiting their overall credit profiles and deposit ratings. This leads the rating agency to expect a lower severity of post-failure losses for Greek banks (to an average of 8% of tangible banking assets, from 13% before), which means that potentially a lower portion of deposits and other liabilities could be at a risk of loss in a resolution scenario. The immediate impact of these revised assumptions has been an upgrade of Greek banks' long-term deposit ratings by one notch, based on the rating agency's loss given failure (LGF) analysis.
BANK-SPECIFIC DETAILS
ALPHA BANK S.A. (Alpha Bank)
The BCA of Alpha Bank was upgraded to b1 from b2, its long-term deposit ratings were upgraded to Ba2 from B1 and its senior unsecured debt rating was upgraded to Ba3 from B2. A full list of the bank's affected ratings is given at the end of this press release. Alpha Bank's two notches long-term deposit and senior unsecured debt rating upgrade is driven by its BCA upgrade to b1 from b2 and also by the lower loss assumptions mentioned in the section above.
The upgrade of the BCA reflects the bank's substantial progress in tackling its problem loans, achieving a single-digit NPE ratio of 8.2% in June 2022 down from 42.5% in December 2020, mainly due to NPE securitisations and sales but also from organic reduction efforts. The bank has plans to further improve its asset quality by decreasing its NPE balance to around €1.1 billion by the end of 2024 (from €3.2 billion in June 2022), although this could prove challenging in the current inflationary context. The bank's NPE provisioning coverage was at 40% in June 2022 with almost half of its NPE book in the form of retail mortgages with good collateral value, although this ratio is significantly lower than some of its local peers.
Concurrently, the bank's BCA upgrade also captures its gradually improving earnings profile that is also a driving factor of the rating action, with a reported profit after tax at the holding company level of €243 million in the first half of 2022 (€2.3 billion loss in H1 2021). New loan disbursements, resilient net fee and commission income, savings from lower recurring operating expenses and normalisation of the bank's cost of risk were the main factors that somewhat mitigated the impact on its net interest income from the lower loan balances, following the NPE reductions. The bank aims to achieve a return on tangible equity of around 10% by the end of 2024, which the rating agency believes is within reach given the 8.6% achieved in June 2022, with its core income set to benefit further from the currently rising interest rates.
The rating agency's revised LGF analysis is also a driver in today's rating action for Alpha Bank. The lower loss assumptions, combined with the forward looking liability structure of the bank based on its funding plans, which incorporate its minimum requirement for own funds and eligible liabilities (MREL) requirements, result in greater protection for creditors.
The change in the outlook to stable from positive for the bank's long-term deposit ratings, balances its improved credit profile with the challenges that lie ahead in terms of further reducing its problem loans and achieving financial metrics that would be commensurate to its similarly rated local peers that have a positive rating outlook. Moody's believes that the bank's BCA is currently well positioned at b1, and that more upward pressure on its BCA will be driven by its available capital buffers and track record of stronger recurring profitability with reduced NPEs.
PIRAEUS BANK S.A. (Piraeus Bank)
The BCA of Piraeus Bank was upgraded to b2 from b3, its long-term deposit ratings were upgraded to Ba3 from B2 and its senior unsecured debt rating was upgraded to B1 from B3. A full list of the bank's affected ratings is given at the end of this press release. Piraeus Bank's two notches long-term deposit and senior unsecured debt rating upgrade is underpinned by the bank's BCA upgrade to b2 from b3, and from the more favourable loss rate assumptions used in Moody's LGF analysis.
The bank's higher BCA takes into consideration the NPE derisking of its balance sheet combined with strong core operating profitability. The bank has reduced its absolute level of NPEs to €3.4 billion in June 2022 from €22.5 billion in December 2020, which translates into an NPE ratio reduction to 9% from 45%. The bank's provisioning coverage was 46% as of June 2022 from 39% in June 2021. The BCA upgrade also considers the negative organic NPE formation in the second quarter 2022, which suggests that the bank has been able to contain the NPE inflows. According to Moody's, the bank's higher BCA recognises its successful track record so far in executing its transformation plan.
Another factor driving Piraeus Bank's rating upgrade is the favourable prospects for its underlying core profitability. The holding company (Piraeus Financial Holdings S.A.) has strengthened its core operating income in the first half 2022 by 14.4% year-on-year, and was able to report a net profit of €614 million, compared to €2.4 billion net loss in H1 2021. Although the bottom line was aided by some one-off gains (merchant acquiring business and trading gains), the bank's increasing performing loans growth, higher run rate in net fees and commissions growth, strict cost management and deceleration of the underlying cost of risk are supportive to its favourable core income trend.
The rating agency's revised LGF analysis is also a driver in today's rating action for Piraeus Bank. The lower loss assumptions, combined with the forward looking liability structure of the bank based on its funding plans, which incorporate its MREL requirements, result in greater protection for creditors.
The change in the bank's rating outlook for the long-term deposit ratings to stable from positive, captures the rating agency's view that the bank's BCA is well positioned at b2, balancing its improved asset quality and operating profitability with the still lower than local peers tangible capital metrics that weigh on its credit profile. Although the bank reported a fully loaded Common Equity Tier 1 (CET1) capital ratio of 10.2% as of June 2022, its sizeable deferred tax credits (DTCs) recognised as CET1 capital compromise the quality of its capital, resulting in a Moody's adjusted tangible common equity (TCE) ratio that is significantly weaker than its local peers.
PANCRETA BANK S.A. (Pancreta Bank)
The BCA of Pancreta Bank was upgraded to caa2 from caa3, and its long-term deposit ratings were upgraded to B3 from Caa2. A full list of the bank's affected ratings is given at the end of this press release. Pancreta Bank's two notches long-term deposit rating upgrade is underpinned by the bank's BCA upgrade to caa2 from caa3, and from the more favourable loss rate assumptions used in Moody's LGF analysis.
The upgrade of Pancreta Bank's BCA to caa2 from caa3 takes into consideration its capital increase of €98.7 million that took place on 27 October 2022, significantly enhancing its capital adequacy. This capital increase paves the way for the implementation of its strategic plan, including cleaning up its balance sheet from NPEs, merging with Cooperative Bank of Chania in Crete and taking over HSBC Continental Europe's operations in Greece.
The bank's pro-forma CET1, Tier 1 and capital adequacy ratios (CAR) have increased to 12.1%, 13.1% and 15.1% respectively, compared to 5.7%, 6.7% and 8.7% reported in June 2022, and are now above its regulatory requirements of 8.3%, 10.2% and 12.8%. Moody's believes that these capital levels provide some cushion to the bank to carry out its NPE reduction plan, which will inevitably involve a capital hit in view of the relatively low provisioning coverage (34%) of the bank's high NPE levels (€1.1 billion or 65% NPE ratio) as of June 2022.
The caa2 BCA of the bank also takes into account its relatively weak core income profile and the need to expand and diversify its earnings, which are highly dependent on net interest income and on the local tourism sector, with relatively low fee income contribution. Concurrently, the bank's BCA also reflects the high level of DTCs on its balance sheet, which undermine the quality of its capital, and its evolving corporate governance and challenges to integrate its acquiring entities mentioned above.
The rating agency's revised LGF analysis is also a driver in today's rating action for Pancreta Bank. The lower loss assumptions, combined with the forward looking liability structure of the bank based on its funding plans, result in greater protection for depositors.
The positive rating outlook for the long-term deposit ratings reflects the bank's potential to clean-up its balance sheet by reducing significantly its NPEs and improving its earnings profile over the next 12-18 months.
NATIONAL BANK OF GREECE S.A. (NBG)
The BCA of NBG was affirmed at b1, its long-term deposit ratings were upgraded to Ba2 from Ba3 and its senior unsecured debt rating was upgraded to Ba3 from B1. A full list of the bank's affected ratings is given at the end of this press release. The deposit and senior unsecured debt rating upgrade is driven by the more favourable loss rate assumptions used in Moody's LGF analysis.
The affirmation of NBG's standalone BCA at b1 takes into consideration its already improved asset quality from before with an NPE ratio of 6.3% and a relatively high provisioning coverage of 80% as of June 2022, but also its improving profitability (40% increase year-on-year of its core operating profit in the first half 2022) supporting its credit profile. The bank's BCA also captures its comfortable capitalisation with a fully loaded CET1 of 15% in June 2022.
The rating agency's revised LGF analysis is the main driver in today's rating action for NBG. The lower loss assumptions, combined with the forward looking liability structure of the bank based on its funding plans, which incorporate its MREL requirements, result in greater protection for creditors.
The outlook for the bank's long-term deposit ratings remains positive, and reflects the potential for further BCA upgrade over the next 12-18 months on the back of more strengthening of its solvency profile, and resilience to face any headwinds from the current inflationary pressures and increase in interest rates that would weaken borrowers' repayment capacity.
EUROBANK S.A. (Eurobank)
Eurobank's BCA was also affirmed at b1, its long-term deposit ratings were upgraded to Ba2 from Ba3 and its senior unsecured debt rating was upgraded to Ba3 from B1. A full list of the bank's affected ratings is given at the end of this press release. The deposit and senior unsecured debt rating upgrade is driven by the more favourable loss rate assumptions used in Moody's LGF analysis.
The affirmation of Eurbank's standalone BCA at b1 incorporates its already reduced NPE ratio to a pro-forma 5.9% in June 2022 and a provisioning coverage of 72%, which has reduced significantly its solvency risk boasting a fully loaded CET1 ratio of 14%. Moreover, its BCA also considers its 13.5% year-on-year growth in its half-year 2022 core pre-provision income with a net profit of almost €941 million, which supports its credit profile.
The rating agency's revised LGF analysis is the main driver in today's rating action for Eurobank. The lower loss assumptions, combined with the forward looking liability structure of the bank based on its funding plans, which incorporate its MREL requirements, result in greater protection for creditors.
The outlook for the bank's long-term deposit ratings remains positive, signalling the upward pressure on its BCA and ratings over the next 12-18 months. Continued strong performance and ability to withstand the challenges that lie ahead will be important drivers for the bank's standalone credit profile.
ATTICA BANK S.A. (Attica Bank)
Attica Bank's BCA was affirmed at caa3, and its long-term deposit ratings were upgraded to Caa1 from Caa2. A full list of the bank's affected ratings is given at the end of this press release. The deposit rating upgrade is purely driven by the more favourable loss rate assumptions used in Moody's LGF analysis.
The affirmation of Attica Bank's BCA at caa3 reflects its need to raise more capital to enhance its weak capital metrics (CET1 at 6.4% and CAR at 9.9%) in order to meet its regulatory requirements, and the still high level of NPEs (67.6%) on its balance sheet as of June 2022. The bank's low BCA also considers its weak earnings profile, with operating loss of €20.1 million in the first half of 2022, mainly due to the reduction of net interest income and weaker results from its financial operations and investment portfolio.
The rating agency's revised LGF analysis is the sole driver in today's rating action for Attica Bank. The lower loss assumptions, combined with the forward looking liability structure of the bank based on its funding plans, result in greater protection for depositors.
The positive outlook for the long-term deposit ratings, considers the current ongoing capital increase exercise of the bank (€490 million) and the new CEO's efforts to restructure the bank and implement its new business plan to operate with a more modern, flexible and efficient management model.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Over time, upward deposit and senior unsecured debt rating pressure could arise for these banks following further improvements of the country's macro-economic environment, which could underpin better asset quality and profitability combined with stable capital metrics comfortably above requirements.
Conversely, Greek banks' long-term ratings could be downgraded in the event that there is any significant deterioration in NPE levels or recurring profitability. Any material weakening in the operating environment and in funding conditions from inflationary pressures and the increase in interest rates, could also have a negative effect on the banks' ratings.
LIST OF AFFECTED RATINGS
Issuer: Alpha Bank S.A.
..Upgrades:
....Long-term Counterparty Risk Ratings, upgraded to Ba1 from Ba2
....Long-term Bank Deposits, upgraded to Ba2 from B1, outlook changed to Stable from Positive
....Baseline Credit Assessment, upgraded to b1 from b2
....Adjusted Baseline Credit Assessment, upgraded to b1 from b2
....Senior Unsecured Regular Bond/Debenture, upgraded to Ba3 from B2, outlook changed to Stable from Positive
....Senior Unsecured Medium-Term Note Program, upgraded to (P)Ba3 from (P)B2
....Junior Senior Unsecured Medium-Term Note Program, upgraded to (P)B1 from (P)B3
....Subordinate Medium-Term Note Program, upgraded to (P)B2 from (P)B3
..Affirmations:
....Short-term Counterparty Risk Ratings, affirmed NP
....Short-term Bank Deposits, affirmed NP
....Long-term Counterparty Risk Assessment, affirmed Ba2(cr)
....Short-term Counterparty Risk Assessment, affirmed NP(cr)
..Outlook Action:
....Outlook changed to Stable from Positive
Issuer: Alpha Services and Holdings S.A.
..Upgrades:
....Long-term Issuer Ratings, upgraded to B1 from B3, outlook changed to Stable from Positive
....Senior Unsecured Medium-Term Note Program, upgraded to (P)B1 from (P)B3
....Junior Senior Unsecured Medium-Term Note Program, upgraded to (P)B1 from (P)B3
....Subordinate Regular Bond/Debenture, upgraded to B2 from B3
....Subordinate Medium-Term Note Program, upgraded to (P)B2 from (P)B3
..Outlook Action:
....Outlook changed to Stable from Positive
Issuer: Attica Bank S.A.
..Upgrades:
.... Long-term Bank Deposits, upgraded to Caa1 from Caa2, outlook remains Positive
..Affirmations:
....Long-term Counterparty Risk Ratings, affirmed B3
....Short-term Counterparty Risk Ratings, affirmed NP
....Short-term Bank Deposits, affirmed NP
....Long-term Counterparty Risk Assessment, affirmed B3(cr)
....Short-term Counterparty Risk Assessment, affirmed NP(cr)
....Baseline Credit Assessment, affirmed caa3
....Adjusted Baseline Credit Assessment, affirmed caa3
..Outlook Action:
....Outlook remains Positive
Issuer: Eurobank S.A.
..Upgrades:
....Long-term Bank Deposits, upgraded to Ba2 from Ba3, outlook remains Positive
....Senior Unsecured Regular Bond/Debenture, upgraded to Ba3 from B1, outlook remains Positive
....Senior Unsecured Medium-Term Note Program, upgraded to (P)Ba3 from (P)B1
....Junior Senior Unsecured Medium-Term Note Program, upgraded to (P)B1 from (P)B2
..Affirmations:
....Long-term Counterparty Risk Ratings, affirmed Ba1
....Short-term Counterparty Risk Ratings, affirmed NP
....Short-term Bank Deposits, affirmed NP
....Long-term Counterparty Risk Assessment, affirmed Ba2(cr)
....Short-term Counterparty Risk Assessment, affirmed NP(cr)
....Baseline Credit Assessment, affirmed b1
....Adjusted Baseline Credit Assessment, affirmed b1
..Outlook Action:
....Outlook remains Positive
Issuer: National Bank of Greece S.A.
..Upgrades:
....Long-term Bank Deposits, upgraded to Ba2 from Ba3, outlook remains Positive
....Senior Unsecured Regular Bond/Debenture, upgraded to Ba3 from B1, outlook remains Positive
....Senior Unsecured Medium-Term Note Program, upgraded to (P)Ba3 from (P)B1
..Affirmations:
....Long-term Counterparty Risk Ratings, affirmed Ba1
....Short-term Counterparty Risk Ratings, affirmed NP
....Short-term Bank Deposits, affirmed NP
....Long-term Counterparty Risk Assessment, affirmed Ba2(cr)
....Short-term Counterparty Risk Assessment, affirmed NP(cr)
....Baseline Credit Assessment, affirmed b1
....Adjusted Baseline Credit Assessment, affirmed b1
....Subordinate Regular Bond/Debenture, affirmed B2
....Subordinate Medium-Term Note Program, affirmed (P)B2
..Outlook Action:
....Outlook remains Positive
Issuer: NBG Finance plc
..Upgrade:
....Backed Senior Unsecured Medium-Term Note Program, upgraded to (P)Ba3 from (P)B1
..Affirmation:
....Backed Subordinate Medium-Term Note Program, affirmed (P)B2
..No Outlook assigned
Issuer: Pancreta Bank S.A.
..Upgrades:
....Long-term Counterparty Risk Ratings, upgraded to B2 from B3
....Long-term Bank Deposits, upgraded to B3 from Caa2, outlook remains Positive
....Long-term Counterparty Risk Assessment, upgraded to B2(cr) from B3(cr)
....Baseline Credit Assessment, upgraded to caa2 from caa3
....Adjusted Baseline Credit Assessment, upgraded to caa2 from caa3
..Affirmations:
....Short-term Counterparty Risk Ratings, affirmed NP
....Short-term Bank Deposits, affirmed NP
....Short-term Counterparty Risk Assessment, affirmed NP(cr)
..Outlook Action:
....Outlook remains Positive
Issuer: Piraeus Bank S.A.
..Upgrades:
....Long-term Counterparty Risk Ratings, upgraded to Ba2 from Ba3
....Long-term Bank Deposits, upgraded to Ba3 from B2, outlook changed to Stable from Positive
....Long-term Counterparty Risk Assessment, upgraded to Ba2(cr) from Ba3(cr)
....Baseline Credit Assessment, upgraded to b2 from b3
....Adjusted Baseline Credit Assessment, upgraded to b2 from b3
....Senior Unsecured Regular Bond/Debenture, upgraded to B1 from B3, outlook changed to Stable from Positive
....Senior Unsecured Medium-Term Note Program, upgraded to (P)B1 from (P)B3
....Subordinate Medium-Term Note Program, upgraded to (P)B3 from (P)Caa1
..Affirmations:
....Short-term Counterparty Risk Ratings, affirmed NP
....Short-term Bank Deposits, affirmed NP
....Short-term Counterparty Risk Assessment, affirmed NP(cr)
..Outlook Action:
....Outlook changed to Stable from Positive
Issuer: Piraeus Financial Holdings S.A.
..Upgrades:
....Long-term Issuer Ratings, upgraded to B2 from Caa1, outlook changed to Stable from Positive
....Subordinate Regular Bond/Debenture, upgraded to B3 from Caa1
....Senior Unsecured Medium-Term Note Program, upgraded to (P)B2 from (P)Caa1
....Subordinate Medium-Term Note Program, upgraded to (P)B3 from (P)Caa1
....Preferred Stock Non-cumulative, upgraded to Caa2(hyb) from Caa3(hyb)
..Affirmations:
....Short-term Issuer Ratings, affirmed NP
..Outlook Action:
....Outlook changed to Stable from Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology published in July 2021 and available at https://ratings.moodys.com/api/rmc-documents/71997. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
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 issuer/deal page for the respective issuer on https://ratings.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.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com.
Please see https://ratings.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 issuer/deal page on https://ratings.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
Henry MacNevin
Associate Managing Director
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
