Fitch affirms Alpha, Piraeus ratings
LONDON/BARCELONA/MILAN (Fitch) – Fitch Ratings yesterday affirmed Alpha Bank’s ratings at Long-term Issuer Default (IDR) A- (A minus) with a Stable Outlook, Short-term IDR F2, Individual B/C and Support 2. The Support Rating Floor is affirmed at BBB. Alpha’s Long- and Short-term IDRs and Individual rating reflect its strengthened position in the Greek banking system, with growing market shares in the most profitable retail segments, good operating profitability and cost efficiency, as well as adequate capital. Fitch also sees increased reliance on wholesale funding, potential pressure on asset quality from rapid loan growth in a relatively untested Greek retail market and risks associated with rapid expansion in the less-developed Southeast Europe (SEE). The Stable Outlook on Alpha’s IDR reflects Fitch’s view that the bank is in a good position to continue performing well and expand its business, backed by its enhanced retail franchise and expectations that the Greek and SEE economies should continue to grow soundly. Downside risk could be triggered by asset quality problems arising from rapid loan growth and increased exposure in SEE, or a marked deterioration in its financial ratios or capital due to the bank’s aggressive branch expansion plan. Increased retail business volumes and revenues remain the main drivers behind Alpha’s improving operating profitability and cost efficiency. The bank expects to compensate for higher costs associated with its ambitious SEE branch expansion plan through strong revenue growth both in Greece and SEE. Alpha’s main risk comes from rapid domestic retail loan growth and expansion in SEE. Despite asset quality being measured differently – based on expected loss according to the bank’s different loss-given-default estimates – asset quality seems to be improving, helped by Greece’s sound economic climate and write-offs. Piraeus Fitch also affirmed Piraeus Bank’s ratings at Long-term Issuer Default (IDR) BBB+, Short-term IDR F2, Individual B/C, Support 3 and Support Rating Floor at BB+. The Outlook on the Long-term IDR remains Positive. The affirmation reflects Piraeus’s solid position within the Greek banking market, strong operating profitability and improved cost efficiency, good asset quality and sound capital ratios, which were supported by a -1.35 billion share capital increase in mid-September 2007. The ratings also take into account the bank’s strongly growing retail credit portfolio, which has yet to experience a full credit cycle, as well as an increasing share of assets and capital in more volatile Southeastern European markets. Should Piraeus continue to grow its domestic franchise, maintain profitability and cost efficiency, broadly maintain its current risk profile and continue to build a longer track record in managing its retail credit exposure and international expansion, the Long-term IDR is likely to be upgraded within the next 12 months or so. Despite strong growth in consumer and mortgage lending, Piraeus’s loan book is still characterized by a large share of corporate loans (66 percent of total lending at end of June 2007), in particular to SMEs. Profitability in 2006 and the first half of 2007 was strong, underpinned by asset growth (although lending margins fell marginally), improved cross-selling and relatively well-contained operating and credit costs. The quality of Piraeus Bank’s revenues has improved as gains from capital markets and real estate have become less important.
