Moody's Cuts Ratings on Five Greek Banks (NBG); Sees Lower Likelihood of Systemic Support

Moody's Investors Service has downgraded the long-term deposit and senior debt ratings of five Greek banks: Piraeus Bank SA (to Caa2 from Caa1), National Bank of Greece SA (to Caa2 from Caa1) (NYSE: NBG), Alpha Bank AE (to Caa2 from Caa1), Eurobank Ergasias SA (to Caa3 from Caa2) and Attica Bank SA (to Caa3 from Caa2). All ratings were placed on review for further downgrade. The rating actions follow Moody's decision to place Greece's Caa1 sovereign rating on review for downgrade on 6 February 2015: https://www.moodys.com/research/--PR_317662 .

Today's bank rating downgrades are driven by Moody's view of a reduced likelihood of systemic support given 1) the heightened uncertainty about the government's ability to come to an agreement with official creditors in time to meet its own liquidity and funding needs, and 2) the likely reduction in the Hellenic Financial Stability Fund's (HFSF) capacity to support the banks in case of need.

The rating review will assess the acute funding and liquidity pressures facing these banks. In addition, the review will assess banks' direct exposure to the sovereign and the impact of the weakened operating environment on asset quality and solvency.

The full list of affected ratings is provided at the end of this press release.

RATINGS RATIONALE

--- RATING DOWNGRADE DRIVEN BY UNCERTAINTY SURROUNDING THE COUNTRY'S SUPPORT PROGRAMME AND THE HFSF'S CAPACITY TO SUPPORT THE BANKS

The one notch downgrade of deposit and senior debt ratings is driven by Moody's view of a lower likelihood of systemic support, owing to the heightened uncertainty regarding the new government's ability to reach an agreement with its lenders before the end of the current support programme, which expires at the end of February. A possible deadlock in the government's negotiations with official creditors could place at risk its own liquidity and funding needs, limiting its ability to support the banks in case if need.

Furthermore, Moody's considers that there is uncertainty regarding the full renewal/extension of the state-owned HFSF, which has a mandate to ensure the stability of the banking system and forms an integral part of the support programme. Moody's considers that there is a material risk that the bulk of the HFSF's reserves of around €11.5 billion could be either used to finance government needs or returned back to the European Financial Stability Facility (EFSF), reducing the capacity of the HFSF to support the banks if needed.

--- RATING REVIEW TRIGGERED BY THE DETERIORATION IN THE BANKS' FUNDING AND LIQUIDITY PROFILES

The primary driver of the review for downgrade is the weakening of banks' funding and liquidity, owing to 1) significant private-sector deposit outflows since December 2014, and 2) international banks' reduced appetite to engage in repo transactions with Greek banks. As a result, Greek banks' dependence on Eurosystem funding, both in the form of European Central Bank (ECB) funding and higher cost emergency liquidity assistance (ELA) from the Bank of Greece, has increased significantly.

Moody's also considers that the ECB decision on 4 February to stop accepting Greek Government Bonds (GGBs) and Greek Government Guarantees as collateral for ECB funding purposes elevates the downside risks for Greek banks' funding and liquidity. Although the rating agency estimates that the banks' ELA collateral buffer (which remains unaffected by this decision) represents more than a third of the €150 billion total deposit base, the availability of ELA remains contingent to ECB's governing council approval every two weeks, rendering the banks' liquidity susceptible to government related developments.

According to official figures from the Bank of Greece, ECB funding for the system increased to €56 billion as of end-December 2014, from around €45 billion as of end-November 2014. Moody's expects this balance to have increased to around €75 billion in January 2015 and notes that following the ECB's decision on 4 February, around €50 billion of ECB funding will switch to ELA, increasing ELA from approximately €5 billion currently.

--- HIGH LINKAGES BETWEEN THE SOVEREIGN AND BANKS

Additional factors driving the rating review relate to Greek banks' high exposure to GGBs, treasury bills (T-bills) and other sovereign-related securities, which Moody's expects to continue to increase during the negotiations between the new government and its official sector lenders. While sovereign exposures have declined significantly since the GGBs debt-swap in 2012 (private-sector involvement or PSI), Moody's estimates that these continue to comprise more than 40% of the banks' core Tier 1 capital as of September 2014.

The rating review will also take into account the deterioration in the operating environment and associated risks for banks' non-performing loans and solvency.

FOCUS OF THE REVIEW

The rating review will focus on the risk of further negative funding and liquidity developments, including continued deposit outflows in the context of the ECB's decision to limit Greek banks' access to ECB funding and the ongoing availability of ELA. This assessment will be conducted on a bank-by-bank basis, taking into account differences in the banks' liquidity buffers and financial profiles. Likewise, the rating review will take into consideration the credit implications of the sovereign rating review for the banks' government exposures and also any pressure on banks' asset quality and solvency.

WHAT COULD MOVE THE RATINGS UP/DOWN

Increased risks related to deposit outflows, which further amplify the banks' reliance on central bank funding, could prompt Moody's to downgrade the banks' ratings, as could uncertainty regarding the continued availability of central bank funding. In addition, the ratings could also be downgraded if the rating agency considers that potential asset-quality deterioration will consume capital, compromising banks' solvency.

As signaled by the review for downgrade, upside potential for Greek banks' ratings is currently limited.

THE SPECIFIC RATING CHANGES IMPLEMENTED TODAY ARE AS FOLLOWS:

Issuer: Alpha Bank AE

....Long-term Bank Deposit Ratings Downgraded to Caa2 from Caa1; Placed Under Review for further Downgrade

....Short-term Bank Deposit Ratings, Affirmed NP

....Bank Financial Strength Rating, Affirmed E/Stable - (Baseline Credit Assessment caa2)

....Backed Senior Unsecured Medium-Term Note Program Downgraded to (P)Caa2 from (P)Caa1; Placed Under Review for further Downgrade

....Senior Unsecured Medium-Term Note Program Downgraded to (P)Caa2 from (P)Caa1; Placed Under Review for further Downgrade

....Subordinated Medium-Term Note Program, Placed on Review for Downgrade, currently (P)Caa3

....Short-term Program, Affirmed (P)NP

Issuer: Alpha Credit Group plc

....Backed Senior Unsecured Medium-Term Note Program Downgraded to (P)Caa2 from (P)Caa1; Placed Under Review for further Downgrade

....Backed Subordinated Medium-Term Note Program, Placed on Review for Downgrade, currently (P)Caa3

....Backed Senior Unsecured Regular Bond/Debenture Downgraded to Caa2 from Caa1; Placed Under Review for further Downgrade

....Backed Subordinated Regular Bond/Debenture, Placed on Review for Downgrade, currently Caa3

....Backed Commercial Paper, Affirmed NP

....Backed Short-term Program, Affirmed (P)NP

Issuer: Alpha Group Jersey Limited

....Backed Senior Unsecured Medium-Term Note Program Downgraded to (P)Caa2 from (P)Caa1; Placed Under Review for further Downgrade

....Backed Subordinated Medium-Term Note Program, Placed on Review for Downgrade, currently (P)Caa3

....Backed Pref. Stock Non-cumulative, Placed on Review for Downgrade, currently Ca (hyb)

Issuer: Emporiki Group Finance Plc

....Backed Senior Unsecured Regular Bond/Debenture Downgraded to Caa2 from Caa1; Placed Under Review for further Downgrade

Issuer: Attica Bank S.A.

....Long-term Bank Deposit Ratings, Downgraded to Caa3 from Caa2; Placed Under Review for further Downgrade

....Short-term Bank Deposit Ratings, Affirmed NP

....Bank Financial Strength Rating, Affirmed E/Stable - (Baseline Credit Assessment caa3)

Issuer: Attica Funds plc

....Backed Subordinated Regular Bond/Debenture, Placed on Review for Downgrade, currently Ca

Issuer: Eurobank Ergasias S.A.

....Long-term Bank Deposit Ratings Downgraded to Caa3 from Caa2; Placed Under Review for further Downgrade

....Short-term Bank Deposit Ratings, Affirmed NP

....Bank Financial Strength Rating, Affirmed E/Stable - (Baseline Credit Assessment caa3)

....Backed Senior Unsecured Medium-Term Note Program Downgraded to (P)Caa3 from (P)Caa2; Placed Under Review for further Downgrade

....Senior Unsecured Medium-Term Note Program Downgraded to (P)Caa3 from (P)Caa2; Placed Under Review for further Downgrade

....Subordinated Medium-Term Note Program, Placed on Review for Downgrade, currently (P)Ca

....Backed Short-term Program, Affirmed (P)NP

....Short-term Program, Affirmed (P)NP

Issuer: EFG Hellas Funding Limited

....Backed Pref. Stock Non-cumulative, Placed on Review for Downgrade, currently Ca (hyb)

Issuer: ERB Hellas (Cayman Islands) Limited

....Backed Senior Unsecured Regular Bond/Debenture Downgraded to Caa3 from Caa2; Placed Under Review for further Downgrade

....Backed Senior Unsecured Medium-Term Note Program Downgraded to (P)Caa3 from (P)Caa2; Placed Under Review for further Downgrade

....Backed Subordinated Medium-Term Note Program, Placed on Review for Downgrade, currently (P)Ca

....Backed Short-term Program, Affirmed (P)NP

Issuer: ERB Hellas PLC

....Backed Senior Unsecured Regular Bond/Debenture Downgraded to Caa3 from Caa2; Placed Under Review for further Downgrade

....Backed Subordinated Regular Bond/Debenture, Placed on Review for Downgrade, currently Ca

....Backed Senior Unsecured Medium-Term Note Program Downgraded to (P)Caa3 from (P)Caa2; Placed Under Review for further Downgrade

....Backed Subordinated Medium-Term Note Program, Placed on Review for Downgrade, currently (P)Ca

....Backed Commercial Paper, Affirmed NP

....Backed Short-term Program, Affirmed (P)NP

Issuer: National Bank of Greece S.A.

....Long-term Bank Deposit Ratings Downgraded to Caa2 from Caa1; Placed Under Review for further Downgrade

....Short-term Bank Deposit Ratings, Affirmed NP

....Bank Financial Strength Rating, Affirmed E/Stable - (Baseline Credit Assessment caa2)

....Backed Senior Unsecured Regular Bond/Debenture (Government Guaranteed), Placed Under Review for Downgrade, currently Caa1

....Backed Short-term Senior Unsecured Regular Bond/Debenture, Affirmed NP

....Backed Senior Unsecured Medium-Term Note Program Downgraded to (P)Caa2 from (P)Caa1; Placed Under Review for further Downgrade

....Pref. Stock Non-cumulative, Placed on Review for Downgrade, currently Ca (hyb)

....Backed Short-term Program, Affirmed (P)NP

Issuer: National Bank of Greece Funding Limited

....Backed Pref. Stock Non-cumulative, Placed on Review for Downgrade, currently Ca (hyb)

Issuer: NBG Finance plc

....Backed Senior Unsecured Regular Bond/Debenture Downgraded to Caa2 from Caa1; Placed Under Review for further Downgrade

....Backed Subordinated Regular Bond/Debenture, Placed on Review for Downgrade, currently Caa3

....Backed Senior Unsecured Medium-Term Note Program Downgraded to (P)Caa2 from (P)Caa1; Placed Under Review for further Downgrade

....Backed Subordinated Medium-Term Note Program, Placed on Review for Downgrade, currently (P)Caa3

Issuer: Piraeus Bank S.A.

....Long-term Bank Deposit Ratings Downgraded to Caa2 from Caa1; Placed Under Review for further Downgrade

....Short-term Bank Deposit Ratings, Affirmed NP

....Bank Financial Strength Rating, Affirmed E/Stable - (Baseline Credit Assessment caa2)

....Senior Unsecured Medium-Term Note Program Downgraded to (P)Caa2 from (P)Caa1; Placed Under Review for further Downgrade

....Subordinated Medium-Term Note Program Placed on Review for Downgrade, currently (P)Caa3

Issuer: Piraeus Group Capital Limited

....Backed Pref. Stock Non-cumulative, Placed on Review for Downgrade, currently Ca (hyb)

Issuer: Piraeus Group Finance Plc

....Backed Senior Unsecured Regular Bond/Debenture Downgraded to Caa2 from Caa1; Placed Under Review for further Downgrade

....Backed Subordinated Regular Bond/Debenture, Placed on Review for Downgrade, currently Caa3

....Backed Senior Unsecured Medium-Term Note Program Downgraded to (P)Caa2 from (P)Caa1; Placed Under Review for further Downgrade

....Backed Subordinated Medium-Term Note Program, Placed on Review for Downgrade, currently (P)Caa3

....Backed Commercial Paper, Affirmed NP

....Backed Short-term Program, Affirmed (P)NP

The principal methodology used in these ratings was Global Banks published in July 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

All banks affected by today's rating actions are headquartered in Athens, Greece:

- National Bank of Greece SA reported total assets of EUR113.3 billion as of September 2014

- Piraeus Bank SA reported total assets of EUR86.4 billion as of September 2014

- Eurobank Ergasias SA reported total assets of EUR74.3 billion as of September 2014

- Alpha Bank SA reported total assets of EUR72.4 billion as of September 2014

- Attica Bank SA reported total assets of EUR3.9 billion as of September 2014

You May Also Be Interested In

• Cleveland Research Upgrades Dynatrace Inc. (DT) to Buy, 'optimism underlying fundamentals are likely to support upside'
• HSBC Upgrades Topdanmark (TOP:DC) (TPDKY) to Hold
• EUR/USD will struggle to sustain a move above 1.07: Analyst