Fitch affirms four Greek Banks at ‘B-‘, Outlook Stable

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Fitch Ratings has affirmed National Bank of Greece S.A. (NBG), Piraeus Bank, S.A. (Piraeus), Alpha Bank AE (Alpha) and Eurobank Ergasias S.A.'s (Eurobank) Long-term Issuer Default Ratings (IDRs) at 'B-' with Stable Outlooks, Short-term IDRs at 'B', and Viability Ratings (VRs) at 'b-'. Fitch has also affirmed the banks' Support Ratings (SR) at '5' and Support Rating Floors (SRF) at 'No Floor'.

The agency has also upgraded the senior debt ratings of the banks and their issuing vehicles to 'B-'/'RR4' from 'CCC'/'RR5' and subordinated debt rating to 'CC'/'RR6' from 'C'/'RR6', primarily reflecting lower balance-sheet encumbrance following restructuring including capital increases.

After six years of recession, the banks' asset quality is weak. At end-2013, Fitch calculates that the problem loan ratios, which include all impaired loans and 90 days past due but not impaired loans, had reached a high 45.6% for Alpha, 41.3% for Piraeus, 31.7% for Eurobank and 29.7% for NBG, while reserves held against problem loans were below 50%, a proportion that Fitch views as low in a stress scenario. NBG's better asset quality ratios are in part due to its majority-stake in Turkey's Finansbank A.S. (BBB-/Stable), which has shown better asset quality performance. While diversification at NBG is rating positive, it is counterbalanced by potential constraints on capital and liquidity fungibility. Eurobank's NPL ratios benefit from a relatively more resilient mortgage portfolio. In addition to NPLs, Fitch notes that Piraeus has a portion of forborn loans that are not classified as NPLs, which could pose add-on risks.

Fitch expects asset quality deterioration to continue for the remainder of 2014 (albeit at a slower pace), mainly reflecting the lag between NPL recognition and economic recovery. Fitch forecasts 0.5% real GDP growth in 2014. Greek banks have strengthened their internal arrears and restructuring units, complying with the Bank of Greece's guidelines, which face the challenging task of restraining further credit deterioration and managing down their existing large NPL portfolios.