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Rating Action:

Moody's upgrades deposit and senior debt ratings of Alpha Bank and Eurobank to Caa2

22 May 2018

The rating action is driven by the rating agency's updated loss given failure (LGF) analysis for the two banks

Limassol, May 22, 2018 -- Moody's Investors Service ("Moody's") has today upgraded the long-term deposit and senior unsecured debt ratings of Alpha Bank AE and Eurobank Ergasias S.A. to Caa2 from Caa3, as well as the banks' counterparty risk assessment (CRA) to B3(cr) from Caa1(cr) for Alpha Bank and to B3(cr) from Caa2(cr) for Eurobank. The rating action was triggered by the expansion of the two banks' Greek deposit bases and issuance of subordinated liabilities, which will indicate increased protection for their senior creditors.

All other ratings of the two banks' were unaffected. Alpha Bank's ratings continue to have a positive outlook and Eurobank's ratings continue to have a stable outlook. The full list of the affected ratings can be found at the end of this press release.

RATINGS RATIONALE

The rating action reflects Moody's expectation of reduced loss severity for junior depositors and senior unsecured creditors of the two banks, according to Moody's advanced loss given failure (LGF) analysis.

ALPHA BANK AE

The rating upgrade of Alpha Bank's deposit and senior unsecured debt ratings to Caa2 from Caa3 reflects the bank's expanding deposits in Greece combined with a reduction of its emergency liquidity assistance (ELA) in the last few quarters, which result in lower loss severity for junior depositors and senior debt creditors. The bank's long-term CRA was also upgraded to B3(cr) from Caa1(cr), receiving two notches of LGF uplift from the bank's baseline credit assessment (BCA) of caa2.

Alpha Bank was able to grow its deposit base in Greece by around 4.3% during 2017, to around €30.3 billion compared to a non-consolidated balance sheet of €55.9 billion as of December 2017. A combination of increased total customer deposits domestically and the deleveraging of the bank's balance sheet has meant that total deposits accounted for around 54% of total non-consolidated assets in December 2017, up from around 48% in December 2016. The deposit increase and the bank's increasing access to the inter-bank repo market, has also helped in reducing further its ELA dependence to €7 billion in December 2017, from €13.2 billion the year before.

Accordingly, and based on Moody's advanced LGF analysis, the bank's pool of senior unsecured creditors has expanded to a degree where the potential loss severity in the event of failure has declined, resulting in the rating upgrade. The bank's larger volume of junior deposits (corporate and institutional deposits not covered by the deposit guarantee, which are assumed to be around 26% of total deposits for all Greek banks) spreads the risk among a larger pool of senior creditors. The rating upgrade also takes into account Moody's expectation of further increase in the bank's customer deposits and access to the international unsecured capital markets, as the economy in Greece gradually recovers from its deep recession in the last few years and capital controls relax further.

EUROBANK ERGASIAS S.A.

The rating upgrade of Eurobank's deposit and senior unsecured debt ratings to Caa2 from Caa3 is driven by the bank's expanding deposits in Greece, and the bank's recently issued Tier 2 bond. Both of these factors taken together result in lower loss severity for junior depositors and senior debt creditors of the bank. The bank's long-term CRA was also upgraded to B3(cr) from Caa2(cr), receiving two notches of LGF uplift from the bank's BCA of caa2.

Eurobank's total customer deposits in Greece increased by 5.6% during 2017 to around €25 billion, comprising around 49% of its non-consolidated balance sheet of €51 billion as of December 2017, from 41% in December 2016. The increase in deposits and the access to the inter-bank repo market has helped the bank reduce its ELA balance to €7.9 billion in December 2017 from €11.9 billion the year before. Accordingly the risk for a potential loss is spread around to a bigger pool of junior depositors and other senior creditors.

In addition, the rating agency notes that it has also incorporated in its advanced LGF analysis Eurobank's €950 million Tier 2 bond issued in January 2018, which was fully subscribed by the government and replaced its state preference shares. These state preference shares, which were perpetual instruments recognised as CET1 capital until December 2017, were issued to the Greek government in 2009 as part of the state aid that all Greek banks received at the time.

The intention by all Greek banks was to repay such state aid back to the government, including the contingent convertible (CoCo) capital instruments that some banks issued to the government-owned Hellenic Financial Stability Fund (HFSF) as part of their recapitalization in 2015. Since then, two Greek banks (National Bank of Greece and Alpha Bank) were able to repay such state aid back to the government. The issuance by Eurobank of a 10-year Tier 2 bond with a call option at five years, provides an additional buffer for bail-in to its senior creditors until at least January 2023. This extra buffer combined with the bank's bigger deposit pool result in a lower loss severity to senior creditors in case of failure, which drives the ratings upgrade.

WHAT COULD MOVE THE RATINGS UP

Over time, upward deposit and senior debt rating pressure could arise following sustainable improvement in the country's macroeconomic environment, combined with an improvement in the banks' asset quality, profitability and funding metrics, with more customer deposits. The return of more deposits to the banking system will also help the banks to fully repay their ELA in 2018-19.

WHAT COULD CHANGE THE RATINGS DOWN

The banks' deposit and senior debt ratings could be downgraded in case there is any 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. In addition, the deposit ratings could be downgraded if the sovereign rating is downgraded or in case banks are unable to reduce significantly their high stock of NPEs by the end of 2019.

RATINGS OUTLOOK

The positive outlook assigned to Alpha Bank's deposit rating was affirmed, reflecting mainly its stronger tangible capital position (excluding any deferred tax credits) relative to its local peers, and Moody's view that the bank's credit profile is better positioned for a potential BCA upgrade once there are concrete results in reducing its nonperforming exposures (NPEs) and improving its profitability. Alpha Bank's stronger positioning is also reflected in the recent stress-test results announced by the ECB for the four systemically important Greek banks, where it stands out in the adverse scenario with its regulatory common equity Tier 1 (CET1) ratio declining to 9.7% by the end of 2020, from 18.3% in December 2017. The rating agency notes that for the other three Greek banks (Piraeus Bank, National Bank of Greece and Eurobank), the CET1 ratio declines to less than 7% in the adverse scenario.

The stable outlook assigned to the Eurobank's Caa2 deposit rating was also affirmed, balancing its relatively weak tangible capital position due to its proportionally high deferred tax credits recognised as CET1 capital, and its stronger earnings performance than its local peers in recent quarters.

Alpha Bank AE is headquartered in Athens, Greece, with total consolidated assets of €60.8 billion as at 31 December 2017.

Eurobank Ergasias S.A. is headquartered in Athens, Greece, with total consolidated assets of €60 billion as at 31 December 2017.

LIST OF AFFECTED RATINGS

Issuer: Alpha Bank AE

Upgrades:

....LT Bank Deposits, Upgraded to Caa2 from Caa3, Outlook remains Positive

....Senior Unsecured MTN Program, Upgraded to (P)Caa2 from (P)Caa3

....LT Counterparty Risk Assessment, Upgraded to B3(cr) from Caa1(cr)

Outlook Actions:

....Outlook, Remains Positive

Issuer: Alpha Credit Group plc

Upgrades:

....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to Caa2 from Caa3, Outlook remains Positive

....BACKED Senior Unsecured MTN Program, Upgraded to (P)Caa2 from (P)Caa3

Issuer: Alpha Group Jersey Limited

Upgrades:

....BACKED Senior Unsecured MTN Program, Upgraded to (P)Caa2 from (P)Caa3

Issuer: Emporiki Group Finance Plc

Upgrades:

....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to Caa2 from Caa3, Outlook remains Positive

Issuer: Eurobank Ergasias S.A.

Upgrades:

....LT Bank Deposits, Upgraded to Caa2 from Caa3, Outlook remains Stable

....Senior Unsecured MTN Program, Upgraded to (P)Caa2 from (P)Caa3

....LT Counterparty Risk Assessment, Upgraded to B3(cr) from Caa2(cr)

Outlook Actions:

....Outlook, Remains Stable

Issuer: ERB Hellas (Cayman Islands) Limited

Upgrades:

....BACKED Senior Unsecured MTN Program, Upgraded to (P)Caa2 from (P)Caa3

Issuer: ERB Hellas PLC

Upgrades:

....BACKED Senior Unsecured Regular Bond/Debenture, Upgraded to Caa2 from Caa3, Outlook remains Stable

....BACKED Senior Unsecured MTN Program, Upgraded to (P)Caa2 from (P)Caa3

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published in April 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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

No Related Data.
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