Fitch affirms four Greek banks at B-/stable

Fitch Ratings has affirmed National Bank of Greece’s (NBG), Alpha Bank’s (Alpha), EFG Eurobank Ergasias’s (Eurobank) and Piraeus Bank’s (Piraeus) Long-term Issuer Default Ratings (IDR) at B- and removed them from Rating Watch Negative (RWN).

Agricultural Bank of Greece’s (ATEbank) Long-term IDR of B- has been maintained on RWN to reflect uncertainties about its viability. All five bank’s Viability Ratings (VR) has been affirmed at f.

These rating actions follow the upgrade of Greece’s sovereign rating to B- from Restricted Default and Fitch’s revised judgement of external support for Greek banks’ recapitalization following the new private sector involvement (PSI Plus) debt exchange agreed in early March.

NBG’s, Alpha’s, Eurobank’s and Piraeus’ Long-term IDRs are on their Support Rating Floors (SRF) and reflect Fitch’s assumption that support from the IMF/EU in respect of Greek banks’ recapitalization is committed and ensured after Greece’s debt restructuring and on the basis that they are viewed as viable banks. An official statement made by EU/IMF and ECB in its discussion paper on the second economic adjustment program for Greece published in March lead Fitch to reach this conclusion.

Fitch also believes the Bank of Greece and the ECB will continue to provide emergency liquidity assistance in a timely manner, as evidenced in the past weeks when Greece was downgraded to RD and Greek government bonds (GGB) lost their eligibility for ECB funding.

ATEbank’s Long-term IDR of B- is also on its SRF reflecting external support in the form of capital (as evidenced by state capital injections in the past) and liquidity from the ECB and the Bank of Greece. However, ATEbank’s viability analysis is addressed separately by the authorities taking into account the legal, operational and financial aspects.

Fitch will resolve the RWN once there are more details on the final solution, which could involve the recapitalization of the bank if considered viable or its resolution. The latter could entail the full or partial sale of the bank, a creation of a bridge bank or an orderly winding down. The latter scenarios could constitute, in Fitch’s view, an event of default.

Fitch believes that the extended extraordinary capital backstop facility of 50 billion euros through the Hellenic Financial Stability Fund (HFSF) as part of the IMF/EU support programs is likely to prove sufficient to cover banks’ estimated losses and restore the solvency of the major Greek banks.

Losses include writedowns from the PSI Plus (which entail a 53.5 percent nominal value haircut on GGB and of some state guaranteed public sector loans), credit losses from the BlackRock exercise and costs associated with the resolution of non-viable banks.

All banks will be required to achieve a core capital ratio of 9 percent by end-September 2012 and 10 percent by end-June 2013. Based on capital needs and capital-raising plans, the Bank of Greece will assess the viability of banks. Viable banks will be then given time to raise capital in the market until end-September. If banks failed to improve capital by private means, they will be able to access capital from the HFSF through common shares and contingent convertible bonds.

At such time that Greek banks’ effectively receive capital support, Fitch will upgrade banks’ VR to a rating level commensurate with its post-supported financial strength.

However, Fitch anticipates that the VR of Greek banks will remain at a deeply sub-investment grade rating level to reflect the numerous challenges there are faced with and their substantial weak credit fundamentals. The latter is expressed by their fragile funding and liquidity profiles, rising asset quality concerns and potential operating losses in the context of Greece’s distressed macroeconomic environment. [Reuters]

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