Wednesday, 31 March 2010 04:00

Moody's Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks

From Moody's Downgrades Five Greek Banks

Moody’s Investors Service said Wednesday it downgraded the deposit and debt ratings of five of the nine Moody’s-rated Greek banks due to a weakening in the banks’ stand-alone financial strength and anticipated additional pressures stemming from the country’s challenging economic prospects in the foreseeable future. [Moody's is late to the party, but their logic is solid, see "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire! followed by our forecast of the weaker vs. stronger Greek banks (premium content subscribers only) - File Icon Greek Banking Fundamental Tear Sheet]

The affected banks are: National Bank of Greece (to A2 from A1), EFG Eurobank Ergasias SA (to A3/Prime-2 from A2/Prime-1), Alpha Bank AE (to A3/Prime-2 from A2/Prime-1), and Piraeus Bank (to Baa1/Prime-2 from A2/Prime-1). Moody’s has also downgraded the deposit and debt ratings of Emporiki Bank of Greece SA (to A3/Prime-2 from A2/Prime-1), but as a result of a reassessment of the credit enhancement associated with systemic support for this institution. The outlook on all five banks’ ratings remains negative. This action concludes the review of these banks initiated on 3 March 2010. [It looks as if Moody's peaked at the blog's subscription content :-)]

The agency said that the rating actions were prompted by the country’s weakening macroeconomic outlook and its expected impact on these banks’ asset quality and earnings-generating capacity. Pressures on the macroeconomic fundamentals have been evident for the past year and are expected to intensify as the year unfolds, said Moody’s. [Subscribers, see File Icon Banks exposed to Central and Eastern Europe as well as the links above, then all readers should reference The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!]

Although additional measures taken to address fiscal imbalances at the national level may have a positive impact over the longer term, Greece’s fiscal challenges will weigh negatively on economic growth over the short to medium term. As recently noted by the Bank of Greece, the magnitude of the economic contraction this year is likely to be more pronounced than was anticipated at the beginning of the year. Negative growth will give rise to unemployment, lower consumer disposable income and reduced profitability in the small- and medium-sized enterprise (SME) and corporate sectors. Moody’s expects the upward trend in non-performing loans, which began in 2008, to continue in 2010 and, possibly, 2011. Combined, these factors will place additional pressure on the banking sector’s already weakened asset quality and profitability.

Over the past year, Greek banks have increased their dependence on short-term market funding as access to the wholesale capital markets has been limited due to the global financial crisis. This, in turn, has led to a rise in maturity mismatches. In recent months, negative market sentiment towards Greece has further constrained the banks’ access to the bond and interbank markets. As a result, Greek banks have had to increase their reliance on European Central Bank (ECB) funding by an estimated 50%. Going forward, the agency expects a rise in the average cost of funding as banks seek longer-term maturities, which in turn will pressure interest margins.

Moody’s takes comfort in the fact that the ECB will remain a reliable source of funding for the banks until market confidence returns. Continued access to ECB funding has been part of Moody’s mainstream scenario since the beginning of the crisis...

National Bank of Greece SA

Moody’s downgrade of NBG’s deposit and debt ratings to A2 and bank financial strength rating (BFSR) to C- (which maps to a Baseline Credit Assessment (BCA) of Baa1) reflect the deterioration in the bank’s financial fundamentals, especially its asset quality, earnings and funding/liquidity indicators. Non-performing loans (NPLs) as a percentage of total loans have risen to 6.4% in December 2009 (2008: 4.0%); earnings fell by 40% in 2009 on the back of increased provision charges and slower revenue growth; while the bank has increased its reliance on short-term market funding, with "due to banks" (including ECB funding) increasing to 19% of total liabilities. For the current year, Moody’s expects asset quality to deteriorate further, and access to the wholesale capital markets to remain limited, with the bank’s revenue/earnings indicators unlikely to record any material improvement...

EFG Eurobank Ergasias SA

Moody’s downgrade of EFG Eurobank’s deposit and debt ratings to A3 was triggered by the lowering of its BCA to Baa2 from Baa1 and reflects the deterioration in the bank’s financial performance both in Greece and abroad. The bank’s BFSR was confirmed at C-. For the year-ended December 2009, the bank’s foreign operations reported post-tax losses of EUR44 million compared to profits of EUR135 million the previous year. Similar to its local competitors, EFG Eurobank’s credit quality indicators have weakened, with NPLs rising to 6.7% of gross loans as of December 2009 and provision charges absorbing 75% of pre-provision earnings, while its reliance on short-term market funding has increased and accounts for 20% of total liabilities. All these issues will likely continue to adversely affect the bank’s financial performance and funding profile for at least the remainder of 2010.

Alpha Bank AE

Moody’s downgrade of Alpha Bank’s deposit and debt ratings to A3 were triggered by the lowering of its BCA to Baa2 from Baa1, and reflects the deterioration in the bank’s financial performance and its increased reliance on ECB funding. The bank’s BFSR was confirmed at C-. For the year-ending December 2009, the bank has witnessed an increase in NPLs to 5.7% - likely to be accelerated further in 2010. Profitability also fell by 32%. Alpha Bank’s ECB funding increased to 15% of the bank’s total liabilities; this percentage is the highest among the Greek rated banks, with the current market conditions indicating that the reliance on ECB funding is unlikely to be substantially reduced during the course of the year.

Piraeus Bank SA

Moody’s downgrade of Piraeus Bank’s deposit and debt ratings to Baa1 and BFSR to D+ (mapping into a BCA of Baa3) reflects the bank’s increased dependence on short-term market funding and its deteriorating financial performance. The bank’s "due to banks" (primarily ECB and interbank repo funding) accounts for approximately 26% of total liabilities as of December 2009 -- the highest percentage among the big Greek banks -- while its liquid assets and investments account for 21% of total assets, down from 27% in 2007. Similarly, the bank’s 2009 bottom-line profitability fell by 36%; for 2010 Moody’s expects continued pressure on the bank’s asset quality and profitability indicators as the weakening economy hits the SME sector, which accounts for nearly 50% of Piraeus Bank’s loan portfolio.

Emporiki Bank of Greece SA

Moody’s downgrade of Emporiki Bank’s deposit and debt ratings to A3/Prime-2 reflects Moody’s assignment of a lower systemic uplift given the relatively small size of the institution. Moody’s notes however that Emporiki’s deposit and debt ratings continue to benefit from a five notch uplift as a result of parental and systemic support. The institutions is 91% owned by Credit Agricole SA.

The ratings of the other four Greek banks rated by Moody’s namely, Agricultural Bank of Greece ( Baa1/Prime-2), Attica Bank (Ba1/Not-Prime), General Bank of Greece (Baa1/Prime-2) and Marfin Egnatia Bank (Baa1/Prime-2), are not affected by today’s announcement.

All ratings carry a negative outlook.

Of particular interest may be the prospects of the various banks caught in this interwoven web (premium subscription material). To date, this analysis have proven to be right on the money:

I will soon be releasing the foreign claims model which will reveal all types of juicy stuff to both subscribers and the public that I am sure Moody's either overlooked or didn't elaborate on.

For the complete Pan-European Sovereign Debt Crisis series, see:

  1. The Coming Pan-European Sovereign Debt Crisis - introduces the crisis and identified it as a pan-European problem, not a localized one.
  2. What Country is Next in the Coming Pan-European Sovereign Debt Crisis? - illustrates the potential for the domino effect
  3. The Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country Would That Be.. - attempts to illustrate the highly interdependent weaknesses in Europe's sovereign nations can effect even the perceived "stronger" nations.
  4. The Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European Countries
  5. The Depression is Already Here for Some Members of Europe, and It Just Might Be Contagious!

  6. The Beginning of the Endgame is Coming???

  7. I Think It's Confirmed, Greece Will Be the First Domino to Fall

  8. Smoking Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!
  9. Financial Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of the Latter?
  10. "Greek Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!
  11. Germany Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort of...
  12. The Greece and the Greek Banks Get the Word "First" Etched on the Side of Their Domino

  13. As I Warned Earlier, Latvian Government Collapses Exacerbating Financial Crisis

  14. Once You Catch a Few EU Countries "Stretching the Truth", Why Should You Trust the Rest?

  15. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

  16. Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe

Last modified on Wednesday, 31 March 2010 04:00