S&P Global Ratings has upgraded four Greek banks, citing their stronger institutional framework and improved capital quality.
The National Bank of Greece and Eurobank were upgraded to investment grade (BBB- with stable outlook from BB+). Piraeus Bank was upgraded to BB+ with a stable outlook from BB, while Aegean Baltic Bank was upgraded to BB with a stable outlook from BB-.
According to S&P rating agency, Greek banks’ institutional framework is now in line with that of most eurozone peers. “ Greek banks’ gradual financial strengthening has given the regulator more leeway to act proactively and tackle the remaining issues from the financial crisis. The sharing of regulatory and supervisory duties with the European Central Bank (ECB) for the four largest banks, which account for 95% of total system assets, also supports our view.
The Bank of Greece has helped implement initiatives to accelerate the Greek banking system’s clean-up after a decade-long financial crisis. The regulator has also supported banks in their efforts to tackle their large legacy stocks of nonperforming exposures (NPEs), together with the ECB’s Single Supervisory Mechanism, the Hellenic Ministry of Economy and Finance, and the Hellenic Financial Stability Fund”, said S&P in its ratings among Greek banks.
According to the rating agency, the Hercules asset protection scheme has proved successful since its implementation by providing government guarantees to assist banks in securitizing and offloading legacy NPEs from their balance sheets. “ This has led to a remarkable improvement in banks’ risk profiles, with the banking system’s NPE ratio improving to 4.6% at end-September 2024 from 56.3% as of end-2016.
In 2024, the Greek authorities finalised the merger of Attica Bank and Pancreta Bank, the sixth and seventh largest banks in the system respectively, with the intention of restructuring and consolidating the two banks. If managed successfully, this would lead the new bank to report an NPE ratio below 3%, compared with above 50% at end-2023, marking the final step in the clean-up of the Greek banking system.”
As S&P notes, the trend of consolidation since 2012 has largely reduced the Greek banking system’s complexity and improved its efficiency. “ We view the banking system as relatively plain vanilla, with a manageable number of banks. In the aftermath of the financial crisis, the major Greek banks have gradually absorbed the weakest players, leading to a drop in the number of banks to 13 from 30 as of 2012. At the same time, banks have simplified their business models as they have divested most non-core assets and foreign exposures. The asset size-to-GDP ratio for all financial institutions decreased from a peak of 238% at end-2012 to 140% at end-2023. This should lower the risk of supervisory lapses.
We also take a positive view of the Bank of Greece beefing up its macroprudential regulatory framework. The Bank of Greece has implemented new borrower-based measures to prevent the future buildup of imbalances in the property market. From January 2025, banks will cap the loan-to-value ratio at origination at 90% for first-time buyers and 80% for other buyers. It will also cap the debt service-to-income ratio at 50% and 40%, respectively.”
According to S&P, “we revised our industry risk score on Greece to ‘5’ from ‘6’, and the overall Banking Industry Country Risk Assessment (BICRA) to ‘5’ from ‘6’, leading to an improvement in the anchor for Greek banks to ‘bbb-‘ from ‘bb+’.
After restoring asset quality and earnings capacity, we believe that the Greek banking system has reached an inflection point and will now be looking to deploy capital to grow its balance sheet and preserve profitability while limiting inflows of new defaulted loans. In 2024, domestic nonperforming assets dropped further on the back of NPE sales, but more importantly, the system didn’t record any material new inflows of defaulted loans, benefitting from the ongoing positive economic momentum in Greece.
We expect Greek domestic systemically important banks’ (DSIBs’) NPE ratio to range between 2.5% and 4.0% as of year-end 2024. In our view, the decrease in restructuring charges, coupled with banks’ wide margins, has supported the restoration of banks’ bottom lines. We expect the banking system’s return on equity (ROE) to land at about 13.5% at end-2024.
Going forward, a decline in interest rates and spread compression will pressurize banks into fostering new earnings drivers to protect their profitability. These drivers include a significant pick-up in lending to 4%-5% per year in 2025-2026-thanks to the continuation of large government projects and Next Generation EU funds-and the expansion of fee-generating capacities. Banks’ ability to keep operating costs low and credit losses at bay despite rapid growth will be key to them retaining earnings”.
