ECONOMY

Fitch changes Emporiki Bank outlook to positive

Fitch Ratings yesterday revised Emporiki Bank of Greece’s outlook for its long-term issuer default rating (IDR) to positive from stable. At the same time, the agency has affirmed Emporiki’s ratings as long-term IDR A+, short-term IDR F1, Individual C/D and Support 1. The positive outlook acknowledges Emporiki’s increasing integration into Credit Agricole SA (rated AA/F1+), Emporiki’s majority shareholder since August 2006, and reflects Fitch’s opinion that Emporiki’s long-term IDR could be upgraded by one notch within 12 to 18 months if integration continues as planned or CA increases its stake in Emporiki. Emporiki’s long- and short-term IDRs and support rating reflect potential shareholder support from its ultimate parent, CA, the central body of Credit Agricole and France’s largest bank by equity. In Fitch’s view, there is extremely high probability of support from its parent if needed. The individual rating reflects Emporiki’s good national franchise, better revenue generation and improving risk management framework. It also reflects its high cost base and a rising risk profile in an untested retail market. CA took managerial control of Emporiki toward the end of 2006 and has since started aligning Emporiki’s structure, systems and controls with CA standards. In the medium term, Emporiki should, in Fitch’s view, benefit from CA’s control culture and systems. In 2006, a review of Emporiki’s loan book and provisioning policies resulted in greatly increased impairment charges and, subsequently, an operational loss for the year. Impairment charges fell significantly in the first half of the year and management expects them to stabilize at around 90 basis points for 2007 and fall to 70bp by 2009. Credit risk in Emporiki’s loan book appears acceptable, with moderate loan concentration and good sector diversification. However, much of the retail loan portfolio, where growth has been strong in recent years, is young and has yet to be tested in an economic downturn. Impaired loans, according to the bank’s definition, amounted to 6.6 percent of total loans at the end of the first half of the year which is relatively weak in Fitch’s opinion, particularly considering that the ratio would increase if the «90 days overdue» rule were applied. The coverage ratio was with 95 percent at the end of the year’s first half, just adequate given the amount and quality of collateral available. Emporiki’s good liquidity is underpinned by a large and stable deposit base, although wholesale funding, increasingly within the CA group, is becoming more important. Capitalization of the first six months was adequate with a regulatory Tier 1 capital ratio of 7.44 percent, supported by a -170 million hybrid issue at end-2006. Emporiki is the fifth-largest commercial bank in Greece by total assets, with about 9 percent of the domestic loan and deposit markets. In the end of the first half, it had 6,245 staff and 370 branches in Greece, and a limited presence in Southeast Europe. CA has had a minority stake in the bank since 2000 and acquired a majority stake in August 2006 (directly and indirectly 72.4 percent at end-Q307) when the Greek government, Emporiki’s previous major shareholder, put its stake up for sale.