CI Ratings improves Hellenic Bank’s outlook

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Capital Intelligence is confident that Hellenic Bank is on the right path to growth and profitability, raising its outlook on the long-term foreign currency rating (LT FCR) to ‘positive’ from ‘stable’.

The rating agency raised the core financial strength (CFS) rating to ‘bb’ from ‘bb-’ and affirmed its long-term foreign currency rating (LT FCR) and short-term foreign currency rating (ST FCR) at ‘BB-’ and ‘B’, respectively, the same as in June last year.

Capital Intelligence said its decision was based on the “marked improvement in asset quality in recent years and, in turn, reduced residual risks to capital.”

It added the bank’s securitisation of non-performing exposures (NPE) in the second half of this year “is expected to reduce the NPL (non-performing loans) ratio to single digits.”

“We also consider HB’s business strategy for 2022-24 a positive development as planned selective credit growth will likely boost operating profitability while maintaining sound asset quality.”

CI Ratings argued the bank’s sound economic performance, which is forecasted to continue in 2022 (albeit at a reduced rate), is balanced with the high GDP per capita and benefits from eurozone membership against the ongoing weakness in the banking sector.

“The latter is characterised by high NPLs (although significantly reduced in recent years), large debt overhang in the private sector and high operating costs.”

It said Hellenic’s strengths include its funding and liquidity.

“The large customer deposit base, coupled with the relatively low proportion of loans in the balance sheet, means that HB deploys a significant share of assets in liquid investment securities.”

It warned, however, that loan asset quality remains an important credit challenge despite the marked improvements in the workout of legacy NPEs in recent years.

The other main credit challenge is weak profitability.

“At the net level, this reflects the high cost of credit, including the large proportion of operating profit consumed by provisioning.

“Moreover, profitability is modest at the operating level.

“The main challenges are weak income generation overall coupled with a large cost base and the resulting high cost-to-income ratio.”

CI Ratings believes the change in HB’s senior management in 2021, coupled with the introduction of a leaner structure, is another key consideration for an expected improved performance in the years to come.