Moody’s affirms Greek banks’ long-term deposit ratings at ‘Caa3’

Moody’s Investors Service affirmed on Monday the Caa3 long-term deposit ratings of Alpha Bank, Eurobank, National Bank of Greece, and Piraeus Bank, following the completion of the country’s program review.

The ratings agency also upgraded all four banks’ baseline credit assessment (BCA) to caa2 from caa3, the long-term senior unsecured ratings to (P)Caa3 from (P)Ca, and the long-term counterparty risk assessment to Caa2(cr) from Caa3(cr). The long-term deposit ratings for Alpha Bank and National Bank of Greece carry positive outlooks, while those of Eurobank and Piraeus Bank carry stable outlooks.

“The long-term deposit ratings of Attica Bank S.A. were affirmed at Caa3 with stable outlook, as well as its BCA of caa3, while the bank’s counterparty risk assessment was upgraded to Caa2(cr) from Caa3(cr). These rating actions follow the successful completion of Greece’s second review for its support program, which also triggered an upgrade of Greece’s government bond rating to Caa2 (positive) from Caa3 (stable),” Moody’s said.

“The higher BCAs primarily reflect the improved operating environment in Greece, which has resulted in Moody’s raising the country’s Macro Profile to ‘Very Weak+’ from ‘Very Weak’, as well as improvements in banks’ funding profile, lower funding costs, the return to marginal core profitability and the likely continuation of this trend in 2017-18,” the agency said.

“In addition, the BCAs also take into account the prospects for further modest improvements in banks’ financial fundamentals stemming from the potential return of more deposits into the banking system and gradual reduction of nonperforming loans, as the economy starts to show signs of recovery.”

The affirmation of the banks’ Caa3 deposit ratings is primarily driven by the rating agency’s “Loss Given Failure” (LGF) analysis of banks’ liability structure and the relatively small pool of unsecured liabilities available to absorb losses in a potential bank resolution scenario. The deposit ratings also reflect the on-going deposit controls in Greece, and the fact that depositors do not have instant access to the full amount of their deposits.

The banks’ senior unsecured ratings were upgraded to (P) Caa3 from (P) Ca based on the full application of the rating agency’s LGF analytical approach following the stabilisation of banks’ liability structures. Previously these debt ratings were benchmarked at Ca based on expected losses, following the liability management exercises and exchange offers to senior bondholders that banks carried out in late 2015, as part of their last recapitalisation.

Moody’s said that its Greek bank ratings balance the improvements in their credit profiles against the still significant downside risks stemming from the fragile operating environment in Greece and the very high level of nonperforming loans.”