Moody’s downgrades 8 Greek banks

KUALA LUMPUR: Moody’s Investors Service has downgraded the long-term deposit and senior debt ratings of eight rated Greek banks by two notches.

It said on Friday, Sept 23, the banks are the National Bank of Greece SA (NBG), EFG Eurobank Ergasias SA (Eurobank), Alpha Bank AE (Alpha), Piraeus Bank SA (Piraeus), Agricultural Bank of Greece (ATE) and Attica Bank SA downgraded to Caa2 from B3. Emporiki Bank of Greece (Emporiki) and General Bank of Greece (Geniki) downgraded to B3 from B1. All of the banks' long-term deposit and debt ratings carry a negative outlook.

Moody’s said the main factors driving the rating actions on domestically owned Greek banks are tThe impact of recent impairments of Greek government bonds (GGBs), and the increasing risk of significant additional impairments of GGBs, on banks' capital levels.

Another factor is the expected impact of the deteriorating domestic economic environment on non-performing loans (NPLs) and potential additional provisioning costs from the upcoming diagnostic asset quality study, initiated by BoG and to be conducted by external consultants (BlackRock).

The ratings agency said another significant factor was the declines in deposit bases and still fragile liquidity positions, as illustrated by limited remaining eligible collateral for funding from the European Central Bank (ECB) and the recent activation of Emergency Liquidity Assistance (ELA) by the Bank of Greece (BoG).

Moody’s said Greek banks' direct holdings of GGBs, which in most cases exceed 150% of Tier 1 capital, expose system capital levels to the risk of material reductions.

It also pointed out that although the capital position of Greek banks appears adequate (Tier 1 ratio of 11.1% for the system at the end of March 2011, prior to recording the above impairments), solvency levels were at risk from further write-downs on their GGB holdings.

“The deteriorating operating environment, with a deeper-than-expected recession now forecast, is likely to further increase the level of non-performing loans (NPLs) in the system, which stood at an already high 11.5% at the end of March 2011.

“The Greek economy declined by 7.3% year-on-year in the second quarter of 2011, while unemployment currently stands at 16%. In line with our recent revision of GDP growth projections to -5.4% for 2011, from -3.4%, Moody's expects operating conditions to continue to exert significant pressure on banks' profitability and asset-quality metrics,” it said.