S&P ups Alpha, Piraeus

Standard & Poor’s yesterday upgraded its ratings for two of Greece’s largest banks. It said that it revised its outlook on Alpha Bank to positive from stable, in response to the substantial strengthening of Alpha’s financial performance in recent years and expectations of continued superior returns. At the same time, the bank’s BBB+ long-term and A-2 short-term counterparty credit ratings were affirmed. With total assets of 46.4 billion euros at the end of June 2006, Alpha is the third-largest banking group in Greece, holding an attractive market share of about 19 percent of the system’s assets. The ratings reflect Alpha’s valuable franchise and increasingly diversified business profile, track record of strong profitability in recent years, and comfortable liquidity. They also factor in Alpha’s high credit risk profile and weak loan book performance over the past few years, together with the risks inherent in continuing rapid loan growth, the challenge to manage expansion abroad, and Alpha’s moderate core capitalization when adjusted for real estate revaluation reserves. «For the ratings to be raised Alpha will, in addition to maintaining strong returns, also have to show progress on the asset quality front, reducing its level of problem loans and keeping the quality of recent and future production under control,» said Standard & Poor’s credit analyst Elena Iparraguirre. Piraeus Bank Standard & Poor’s also said it has raised its long-term counterparty credit rating on Piraeus Bank to BBB+ from BBB. At the same time, the A-2 short-term counterparty credit rating was affirmed. The outlook is stable. «The upgrade is supported by Piraeus’s constant progress in profitability to healthy, sustainable levels, as well as by the bank’s improvement in asset quality, thanks to the cleanup of the stock of old bad debts from past acquisitions, and, more importantly, to better-quality organic growth,» said Standard & Poor’s credit analyst Angela Cruz. The ratings balance Piraeus’s good market position as the fourth-largest financial group in Greece (with total assets of 26.6 billion euros at the end of June 2006), successful growth strategy, and healthy profitability, with its increasing capital leverage, riskier credit profile than that of EU peers (albeit improving), and challenging international expansion strategy. «We expect Piraeus to continue to successfully implement its strategic plan – managing to consolidate its domestic market position – sustain sound profitability, moderately improve asset quality, and conservatively manage its increasing wholesale-funding needs,» said Cruz. «Core solvency, however, will continue declining, reaching tight levels.» An upgrade in the medium term will depend on the bank’s strengthening its credit risk profile and managing its expansion abroad successfully, while preserving a track record of sound, consistent returns.