S&P Lifts Ratings on Four Greek Banks (NBG)

Standard & Poor's Ratings Services today took various rating actions on four Greek banks:

-- Alpha Bank A.E. (Alpha),
-- Piraeus Bank S.A. (Piraeus),
-- National Bank of Greece S.A. (NYSE: NBG),
-- Eurobank Ergasias S.A. (Eurobank).

Specifically, it raised to 'CCC+' from 'CCC' its long-term counterparty credit ratings on these banks and affirmed its short-term ratings on the banks at 'C'. The outlook on all four rated Greek banks is stable.

The rating actions mainly signify that, in our view, the banks' creditworthiness has improved due to continued access to the liquidity facilities provided by the European authorities, the recently completed capital increases, and the reduction in downside risks caused by the gradual stabilization of the Greek economy.

We consider that Greek banks continue to face very high industry risks, mainly because of the effect Greece's financial distress had on its banking system's funding profile. We think that the Greek banking system's funding conditions remain one of the most stressed among the countries to which we assign a BICRA. That said, we consider that the risk of further deterioration in the conditions in which Greek banks operate has diminished.

Greek banks have raised new capital, mainly from private investors, following the follow-up stress test recently conducted by the Bank of Greece. This has diluted the participation of the Hellenic Financial Stability Fund (HFSF) in the banks' capital and we expect it to result in the privatization of Eurobank. As such, we now see a significantly lower risk that public authorities will sharply increase their interference in the banking system and thereby trigger material market distortions.

We consider that weak economic conditions and the high cost of funding continue to strain Greek banks' profitability. However, the risk of a further deterioration has fallen in line with the increased stability of the Greek economy.

All these factors support our view of the stable trend in industry risk.

In our view, Greek banks continue to face extremely high economic risk stemming from very high credit losses and a slow economy recovery. That said, we believe the Greek economy is gradually rebalancing and we expect the GDP growth will gradually recover in 2014-2017.

The rating actions also incorporate our opinion that Greek banks' stand-alone creditworthiness has improved. Greek banks depend on the liquidity facilities provided by the European Central Bank and the Bank of Greece to manage their short-term liquidity needs. However, we now expect those liquidity facilities to be available for as long as the Greek banks need them to correct the imbalances they accumulated during the crisis and while their access to other sources of unsecured funding remain limited. We now define these liquidity facilities as ongoing, rather than short-term extraordinary support and incorporate the ongoing support in our assessment of the Greek banks' stand-alone credit profile (SACP).

Furthermore, on April 29, 2014, Eurobank completed its capital increase of €2.9 billion and on May 8, 2014, NBG completed its capital increase of €2.5 billion. In April 2014, Alpha and Piraeus had already completed their own capital increases of €1.2 billion and €1.75 billion, respectively. These increases have improved our view of NBG's and Eurobank's capital positions--we now assess them as in line with those of Alpha and Piraeus.

Despite the recently completed capital increase, we anticipate that Greek banks will need to increase the size of their capital cushions further because we expect them to face large credit losses over the next two years. Therefore, we expect them to need additional capital to meet their minimum regulatory capital requirements, which we define as an 8% fully loaded Basel III core Tier I ratio, by 2015. We anticipate that the HFSH will remain willing and able to provide capital support to Greek banks.

Despite our expectations that Greek banks' asset quality will further deteriorate in 2014 and 2015, we consider the downside risks to their financial profiles that we do not capture in our risk-adjusted capital (RAC) projections have diminished. Not only has the Greek economy stabilized, in our view, but we have also already included the very high credit losses we expect in the large stock of NPAs in our projected RAC ratios.

As a result of our improved view of Greek banks' liquidity, capitalization, and risk position, we revised their stand-alone credit profiles to 'ccc' from 'cc'. Our 'CCC+' long-term ratings also incorporate one notch of extraordinary short-term support to reflect the potential capital support we expect from the HFSF.

The stable outlook on the Greek banks reflects our opinion that the HFSF will be willing and able to provide sufficient capital support to the banks to meet their minimum regulatory capital requirements, as defined above. The outlook also signifies that, in our view, there is lower downside risk to banks' creditworthiness because the Greek economy has gradually stabilized.

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