Fitch upgrades ratings of Greece’s four systemic banks; Moody’s upgrades ratings for six banks

Fitch Ratings on Tuesday upgraded Greece’s four systemic banks ratings, following a recent round of upgrades of Greece’s credit rating.

More specifically, Fitch Ratings upgraded Eurobank SA’s Long-Term Issuer Default Ratings (IDRs) to ‘BB’ from ‘BB-‘, and Viability Ratings (VRs) to ‘bb’ from ‘bb-‘. The outlooks on the Long-Term IDRs are Stable.

The upgrades reflect structural improvement to Eurobank’s profitability from higher interest rates and low deposit rates; on careful cost management; and normalised loan impairment charges (LICs) following the bank’s successful strategy to reduce balance-sheet risk. This has allowed the bank to accumulate capital, strengthening buffers relative to regulatory requirements and provided greater flexibility to pursue investments and growth initiatives, which we expect to result in greater business-model sustainability.

Fitch Ratings also upgraded National Bank of Greece SA’s Long-Term Issuer Default Rating (IDR) to ‘BB’ from ‘BB-‘ and Viability Rating (VR) to ‘bb’ from ‘bb-‘. The outlook on the Long-Term IDR is Stable.

The upgrades reflect structural improvement to NBG’s profitability from higher interest rates and low deposit rates; on careful cost management; and normalised loan impairment charges (LICs) following the bank’s successful strategy to reduce risk on its balance sheet. This has allowed NBG to accumulate capital well above regulatory requirements and provided strategic flexibility to pursue investments and growth initiatives, which we expect to result in greater business model sustainability.

Fitch Ratings upgraded Piraeus Bank SA’s Long-Term Issuer Default Rating (IDR) to ‘BB-‘ from ‘B’ and Viability Rating (VR) to ‘bb-‘ from ‘b’. The outlook on the Long-Term IDR is Stable.

The upgrade reflects the acceleration of Piraeus’s strategy to reduce risk on its balance sheet, which led to a marked reduction of its non-performing exposure (NPE) ratio to levels more closely in line with higher-rated peers. It also reflects the strengthening of its regulatory capital ratios and the resulting reduction in capital encumbrance by unreserved problem assets (which include NPEs and foreclosed assets). The upgrade further considers Piraeus’s structurally improved profitability, which will drive further capital accumulation; stable funding; and improved access to the wholesale debt market to meet minimum requirements for own funds and eligible liabilities (MREL).

Fitch Ratings has upgraded Alpha Bank SA’s Long-Term Issuer Default Ratings (IDRs) to ‘BB-‘ from ‘B+’ and Viability Ratings (VRs) to ‘bb-‘ from ‘b+’. The outlooks on the Long-Term IDRs are Stable.

The upgrade reflects structural improvement in Alpha’s profitability, which will drive further organic capital generation and result in stronger capital ratios. The upgrade also reflects the continued downward trajectory in the bank’s non-performing exposure (NPE) ratio, stable funding and improved access to the wholesale debt market to meet minimum requirements for own funds and eligible liabilities (MREL).

Moody’s ratings

Moody’s Investors Service has today upgraded the long-term deposit ratings of six Greek banks that it rates (Alpha Bank SA, Attica Bank SA, Eurobank SA, National Bank of Greece SA, Pancreta Bank SA, and Piraeus Bank SA), by either one or two notches, as well as the stand-alone Baseline Credit Assessment (BCA) of those banks. The outlook for the long-term deposit ratings for all six banks is positive following their rating upgrades.
The rating action was driven by structural improvements in the Greek economy, as well as significant enhancements in banks’ financial fundamentals. It also captures the rating agency’s view of the good prospects for Greek banks to sustain their relatively strong financial performance in the next two years, which will also enhance their tangible capital base and loss absorbing capacity.
The principal rating driver is the better operating and credit conditions in Greece, providing a more supportive operating environment for the country’s banks. Structural improvements and reforms have improved the economy’s resilience to shocks, triggering a recent sovereign rating upgrade to Ba1 (stable) from Ba3 (positive).

As a result, Moody’s has raised the Macro Profile it assigns to Greece to ‘Moderate+’ from ‘Moderate-‘, which in turn exerts upward pressure to all six rated banks’ standalone credit profiles.
Moody’s believes that Greek banks are now better prepared to face new headwinds and challenges, resulting from inflationary pressures and increasing interest rates that will likely impact more vulnerable borrowers.

The BCA of Alpha Bank was upgraded to ba3 from b1, its long-term deposit ratings were upgraded to Ba1 from Ba2 and its senior unsecured debt rating was upgraded to Ba2 from Ba3. The rating upgrade considers Alpha Bank’s substantial progress in reducing its problem loans in recent years, achieving a single-digit nonperforming exposures (NPE) ratio of 7.6% in June 2023 (pro-forma 7.4% incorporating a recent portfolio sale of unsecured NPEs), although marginally higher than some of its local peers. Moody’s notes that around half of Alpha Bank’s stock of legacy NPEs are residential mortgages, with a higher proportion of paying customers. The bank has plans to further improve its asset quality by decreasing its NPE ratio to around 6.5% by the end of 2023 and to approximately 4% by the end of 2025, although this could prove challenging in the current interest rate cycle.

Concurrently, the bank’s rating upgrade also captures its stronger recurring earnings profile and its efforts to contain its cost base. The significant tailwind from higher interest rates has increased net interest income during the first half (H1) 2023 by 49% year-on-year, while core pre-provision income was higher by 79% year-on-year. This performance has improved the bank’s profitability metrics and solvency with its common equity Tier 1 (CET1) ratio at 13.6% in June 2023, which will likely end up at approximately 14% by the end of 2023 in anticipation of some additional capital enhancing actions.

Attica Bank’s BCA was upgraded to caa2 from caa3, and its long-term deposit ratings were upgraded to B3 from Caa1. The upgrade of Attica Bank’s ratings considers its capital increase in April 2023 raising € 473 million, but also the new CEO’s efforts to restructure the bank and implement its new business plan to clean up the balance sheet and operate with a more modern, flexible and efficient management model. The bank’s pro-forma CET1 and capital adequacy ratio (CAR) was 13.4% and 17.8% respectively as of March 2023, incorporating the share capital increase.

Nonetheless, the bank’s still low BCA considers its still high level of NPEs (66% of gross loans) on its balance sheet as of March 2023 and weak earnings profile, although gradually improving, with pre-provision income of around € 0.5 million in the first quarter of 2023 compared to losses in the past. A recent sale agreement for a portion of its nonperforming securitized notes (Astir I of € 312 million) will likely reduce its pro-forma stock of NPEs to around € 2 billion as of September 2023. Moreover, the bank is planning to offload more problematic assets and achieve an NPE ratio closer to 35% by the end of 2025, while in case it utilizes an expected new round of Hercules scheme the ratio could potentially drop further to single-digit. The potential for merger with another small domestic bank (Pancreta Bank S.A.) to form a bigger and healthier mid-size bank in the market, is also a factor driving Moody’s rating action.

Eurobank’s BCA was upgraded to ba2 from b1, its long-term deposit ratings were upgraded to Baa3 from Ba2 and its senior unsecured debt rating was upgraded to Ba1 from Ba3. The upgrade of Eurobank’s ratings by two notches incorporates its proven ability to organically generate capital in recent quarters, and significantly boost its loss absorbing capacity. The bank boasts a pro-forma CET1 ratio of 16.3% as of June 2023 (incorporating a potential buy-back of its shares owned by the Hellenic Financial Stability Fund), adding around 230 basis points of capital over the last 12 months. The bank’s rating upgrade also considers its contained NPE ratio at 5.2% in June 2023, and its robust financial performance in H1 2023, with its core pre-provision income increasing by 76% year-on-year.

Eurobank has the most diversified earnings generation among Greek banks, both geographically and by line of business, supporting its credit profile. Its recent agreement to acquire an additional stake in the Cyprus-based Hellenic Bank Public Company Ltd (Ba1/Ba3 positive, ba3), raising its shareholding to majority of 55.3%, further enhances its group geographical diversification by reducing its Greek-based assets to just below 60% of the total consolidated assets. Moody’s considers Hellenic Bank’s strong retail franchise would provide a complementary business model to Eurobank’s existing subsidiary in Cyprus that is geared towards corporate lending and private banking. The rating agency expects this transaction to have a minimal impact on Eurobank’s capital, while the relevant regulatory approvals will likely be granted in the next 12 months.

The BCA of National Bank of Greece SA (NBG) was upgraded to ba2 from b1, triggering its long-term deposit ratings upgrade to Baa3 from Ba2 and its senior unsecured debt rating upgrade to Ba1 from Ba3. The upgrade of NBG’s ratings takes into consideration its strongest capital metrics in the market with a CET1 ratio of 17.3% in June 2023, which confers the bank with the highest loss absorbing capacity among its local peers. This was reaffirmed recently with the EBA stress-test results, in which NBG achieved the highest CET1 of 21.6% under the baseline scenario and 14.5% under the adverse scenario by the end of 2025. The high capital buffers provide NBG with the capacity to grow its loan book robustly supporting its earnings, and also invest where needed based on its digitalization and transformation plan.

Concurrently, NBG has good asset quality among its local peers with an NPE ratio of 5.3% (aiming to reduce it to around 3% by the of 2025) combined with the highest provisioning coverage of 82% as of June 2023. An improving profitability is also a driver of the bank’s ratings upgrade, with a 116% year-on-year increase of its core pre-provision income in H1 2023 supporting its credit profile. The bank’s BCA also captures challenges to diversify its earnings profile and fee income, with its operations and assets constrained solely within Greece.

The BCA of Pancreta Bank was upgraded to caa1 from caa2, and its long-term deposit ratings were upgraded to B2 from B3. The upgrade of Pancreta Bank’s ratings reflects the gradual implementation of its strategic plan, following a € 98.7 million capital increase in October 2022, including the recent take-over of HSBC Continental Europe’s (A1/A1 stable, ba1) operations in Greece. Moody’s expects this transaction will enhance the bank’s capital metrics, which will likely increase to a pro-forma CET1 of around 13% and CAR of approximately 15.5% from a reported 9.1% and 11.8% respectively as of June 2023. The HSBC operations will also provide the bank with a country-wide presence, while the assets and the relevant staff will be complementary to the bank’s existing business model geared towards SME lending.

The bank’s still relatively low BCA reflects the need to proceed with cleaning up its balance sheet from NPEs, which stood at a high 64.5% of gross loans in June 2023. This will inevitably involve a capital hit in view of the relatively low provisioning coverage (35%) of the bank’s high NPEs ( € 1.1 billion). The bank’s BCA 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. Concurrently, the rating upgrade captures the potential of merging with Attica Bank to form a mid-sized player in the market, with the bank’s strategic shareholder (Thrivest) and Pancreta Bank S.A. itself partly subscribing to Attica Bank’s recent capital increase.

The BCA of Piraeus Bank was upgraded to ba3 from b2, its long-term deposit ratings were upgraded to Ba1 from Ba3 and its senior unsecured debt rating was upgraded to Ba2 from B1. The bank’s higher BCA takes into consideration the NPE derisking of its balance sheet combined with strong core operating profitability in 2023. The bank has reduced its NPE ratio to 5.5% in June 2023 from 9.3% in June 2022, following the implementation and front-loading of a number of actions as part of its clean-up plan. According to Moody’s, the rating upgrade also recognises the bank’s successful track record so far in executing its transformation plan and achieving an asset quality that is commensurate to its local peers, unlike its positioning in past years.

Another factor driving Piraeus Bank’s ratings upgrade is its strong underlying profitability, with its core pre-provision income in H1 2023 increasing by 81% year-on-year, which combined with tight management of operating expenses lead to a cost-to-core income ratio of 34% in June 2023. The bank has also been able to strengthen its capital metrics with a pro-forma CET1 ratio of 12.3% in June 2023 compared to 10.2% in June 2022, bringing it closer to the corresponding ratios of its local peers.