Fitch keeps NBG ratings
Fitch Ratings yesterday affirmed National Bank of Greece’s (NBG) ratings at issuer default A- (A minus), short-term F2, individual B/C and support 2. The outlook on the bank’s issuer default rating (IDR) remains stable. The IDR, short-term and individual ratings reflect NBG’s leading position in Greece, good revenue generation, improved cost control and asset quality and sound capitalization. They also consider its higher-risk profile due to rapid loan growth and more volatile emerging market exposure, particularly in Turkey where NBG has acquired Finansbank (FB). The ratings also consider the integration risk from this acquisition. The upside to NBG’s ratings would mostly arise if the bank manages well integration risks from FB’s acquisition, further improves cost efficiency and builds a proven record of managing credit risks in both a less benign domestic economy and its growing exposure in more volatile emerging markets. Downside risks could emerge from higher-than-expected integration risks, the inability to manage a higher-risk profile and earnings volatility from FB, asset quality problems arising from rapid loan growth and weaker economic conditions, negatively affecting its overall performance and capital. Fitch views that NBG, as the largest Greek bank, is well placed to take advantage of the rapidly expanding Greek retail banking market, leveraging its strong national franchise and large client base. The latter is proving a good platform on which to continue expanding volumes, cross-sell and improve the bank’s market penetration in certain business segments. Nevertheless, in Fitch’s opinion, NBG’s key challenge remains further improvement in cost control and careful management of credit costs, given fast loan growth in an untested retail markets and expansion in emerging countries. FB should provide NBG with greater geographical diversification while bringing the opportunity to expand its retail banking franchise in Turkey, where credit demand is rising rapidly from low levels amid continued improvements in the Turkish economy. FB is a profitable bank, with satisfactory asset quality and adequate capital, and Fitch does not anticipate any significant deterioration in NBG’s overall performance or asset quality. However, the agency notes that Turkey’s volatile operating environment heightens NBG’s risk profile and earnings vulnerability. Since 2003, NBG’s performance has improved sharply, thanks to retail loan growth and the dynamic Greek economy, which underpinned strong operating revenues. This, together with higher income from financial operations and stricter cost control, helped to reduce NBG’s cost/income ratio to 53 percent at the end of June, from 57 percent a year earlier, although there is scope for further improvement. While NBG is challenged to manage expanded credit risks carefully, enhanced risk management system and good economic conditions in Greece helped to improve asset quality ratios to satisfactory levels. Market risk is moderate. NBG’s FX and interest rate risks are largely hedged. Liquidity is good, supported by a large deposit base. NBG’s post-FB acquisition capital ratios are likely to remain sound (capital Tier 1 ratio of around 11 percent), which are necessary to offset the sizable share of speculative-grade assets on balance sheets and continued loan growth. At the end of September, 18.7 percent of NBG shares was held by state-controlled pension funds, with 45.7 percent and 35.6 percent respectively by international and domestic investors. NBG had 556 domestic branches and 21,131 staff.