Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDRs) of National Bank of Greece S.A. (NBG), Alpha Bank AE (Alpha), Piraeus Bank S.A. (Piraeus) and Eurobank Ergasias S.A. (Eurobank) at ‘Restricted Default’ (RD). At the same time the agency has affirmed the four Greek banks’ Viability Ratings (VRs) at ‘f’. A full list of rating actions is available at the end of this rating action commentary.
This rating action follows the review of Greek banks’ ratings. Their IDRs were downgraded to ‘RD’ on the 29 June 2015 following the imposition of restrictions on the withdrawal of deposits following large outflows from the banks in 1H15.
KEY RATING DRIVERS
IDRS AND SENIOR DEBT
The banks’ IDRs of ‘RD’ reflect Fitch’s view that the Greek banks are defaulting on a material part of their senior obligations given that capital controls, through restrictions on deposit withdrawals, are still in place in Greece.
The banks’ long-term senior unsecured debt ratings, including those on the debt programmes of their issuing vehicles, have been affirmed at ‘C’/’RR6′ (Recovery Rating). The ratings reflect exceptionally high levels of credit risk, because of poor recovery prospects in the event of the default on senior debt obligations, due to the banks’ weak asset quality and high levels of preferred liabilities (comprising mainly insured deposits) and asset encumbrance.
VRS
The affirmation of the four Greek banks’ VRs at ‘f’ reflects Fitch’s opinion that these banks would default if the deposit restrictions are lifted. The economic and political environment in Greece remains fragile. The Greek banking system has not yet regained confidence from customers and investors to restore the banks’ funding and liquidity profiles, and ultimately the viability of their business models.
However, Fitch acknowledges material progress in the banks’ credit fundamentals since June 2015. The four banks were recapitalised in 4Q15 following the Comprehensive Assessment that was carried out in October 2015. This allowed them to improve their problem loan reserve coverages and strengthen their capitalisation. At the same time, their liquidity positions have improved somewhat due to the capital controls, improved perception of the risk of Greece exiting the eurozone, and the liquid assets received upon the recapitalisation.
Nevertheless Greek banks’ credit profiles remain weak, with large funding imbalances and heavy reliance on Eurosystem funding. Loan quality is weak as the banks hold large stocks of non-performing exposures (NPEs). Despite the banks’ recapitalisation and provisioning efforts, their unreserved NPEs exceeded their regulatory common equity Tier 1 at end-2015.
SUPPORT RATING AND SUPPORT RATING FLOOR
Greek banks’ Support Ratings of ‘5’ and Support Rating Floors of ‘No Floor’ highlight our view that support from the state cannot be relied upon, given Greece’s limited resources and the implementation of the Bank Recovery and Resolution Directive (BRRD).
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The ratings on Eurobank’s and Alpha Bank’s subordinated debt and other hybrid capital (including debt issued through their funding vehicles) reflect exceptionally high credit risk, including poor recovery prospects. The banks’ hybrid capital is currently non-performing.
STATE GUARANTED DEBT – Eurobank
Eurobank’s government-guaranteed debt are senior unsecured instruments that benefit from a full guarantee from the Greek State. Fitch rates guaranteed debt at the higher of the senior unsecured debt ratings of the issuer (C for Eurobank) and the guarantor’s Long-Term Foreign Currency IDR (CCC for Greece). We believe that these guaranteed programmes and issues will be treated equally with other obligations of the Greek State.
RATING SENSITIVITIES
IDRS, VRS AND SENIOR DEBT
The four Greek banks’ IDRs, VRs and senior debt ratings are unlikely to be upgraded until capital controls are materially eased. We believe that further improvements in investor and customer confidence are needed before restriction on deposit withdrawals can be lifted and thus the Greek banks can restore their viability.
Recovery ratings are sensitive to the banks’ asset encumbrance and Fitch’s expectation on the valuation of free assets.
SUPPORT RATING AND SUPPORT RATING FLOOR
The banks’ Support Ratings and Support Rating Floors are unlikely to change, given Greece’s limited capacity to support its banks and the implementation of BRRD.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Eurobank’s and Alpha Bank’s subordinated debt ratings are unlikely to be upgraded until capital controls are materially eased. A rating upgrade is contingent on the banks’ hybrid instruments returning to performing status.
STATE GUARANTED DEBT – Eurobank
Eurobank’s government-guaranteed debt ratings are sensitive to a change in Greece’s sovereign ratings.
The rating actions are as follows:
NBG:
Long-Term IDR: affirmed at ‘RD’
Short-Term IDR: affirmed at ‘RD’
VR: affirmed at ‘f’
Support Rating: affirmed at ‘5’
Support Rating Floor: affirmed at ‘No Floor’
Senior notes: affirmed at ‘C’/’RR6’
Short-term senior notes: affirmed at ‘C’
NBG Finance plc:
Long-term senior unsecured debt rating: affirmed at ‘C’/’RR6’
Short-term senior unsecured debt rating: affirmed at ‘C’
Piraeus Bank:
Long-Term IDR: affirmed at ‘RD’
Short-Term IDR: affirmed at ‘RD’
VR: affirmed at ‘f’
Support Rating: affirmed at ‘5’
Support Rating Floor: affirmed at ‘No Floor’
Long-term senior unsecured debt rating: affirmed at ‘C’/’RR6’
Short-term senior unsecured debt rating: affirmed at ‘C’
Piraeus Group Finance PLC:
Long-term senior unsecured debt rating: affirmed at ‘C’/’RR6’
Short-term senior unsecured debt rating: affirmed at ‘C’
Commercial paper: affirmed at ‘C’
Alpha Bank:
Long-Term IDR: affirmed at ‘RD’
Short-Term IDR: affirmed at ‘RD’
VR: affirmed at ‘f’
Support Rating: affirmed at ‘5’
Support Rating Floor: affirmed at ‘No Floor’
Long-term senior unsecured debt rating: affirmed at ‘C’/’RR6’
Short-term senior unsecured debt rating: affirmed at ‘C’
Commercial paper: affirmed at ‘C’
Hybrid capital: affirmed at ‘C’/’RR6’
Alpha Credit Group PLC:
Long-term senior unsecured debt rating: affirmed at ‘C’/’RR6’
Short-term senior unsecured debt rating: affirmed at ‘C’
Subordinated notes: affirmed at ‘C’/’RR6’
Eurobank:
Long-Term IDR: affirmed at ‘RD’
Short-Term IDR: affirmed at ‘RD’
VR: affirmed at ‘f’
Support Rating: affirmed at ‘5’
Support Rating Floor: affirmed at ‘No Floor’
Senior notes: affirmed at ‘C’/’RR6’
Short-term senior notes: affirmed at ‘C’
Market-linked senior notes: affirmed at ‘Cemr’/’RR6’
Commercial paper: affirmed at ‘C’
Subordinated notes: affirmed at ‘C’/’RR6’
Hybrid capital: affirmed at ‘C’/’RR6’
Long-term state-guaranteed debt programme: affirmed at ‘CCC’
Short-term state-guaranteed debt programme: affirmed at ‘C’
ERB Hellas PLC:
Long-term state-guaranteed debt programme: affirmed at ‘CCC’
Short-term state-guaranteed debt programme: affirmed at ‘C’
Long-term senior unsecured debt rating: affirmed at ‘C’/’RR6’
Short-term senior unsecured debt rating: affirmed at ‘C’
ERB Hellas (Cayman Islands) Ltd.:
Long-term state-guaranteed debt programme: affirmed at ‘CCC’
Short-term state-guaranteed debt programme: affirmed at ‘C’
Long-term senior unsecured debt rating: affirmed at ‘C’/’RR6’
Short-term senior unsecured debt rating: affirmed at ‘C’
