Fitch affirms ATEbank outlook

LONDON – Fitch Ratings has today affirmed the ratings of ATEbank at long-term issuer default rating (IDR) BBB+, short-term IDR F2, individual rating C/D, Support Rating 2 and support rating floor BBB+. The outlook on ATEbank’s IDR remains stable. ATEbank’s IDRs and support rating are underpinned by potential support from the Greek state (rated A/Positive). At end-Q3 2007 the Greek state owned 77 percent of ATEbank’s shares and the bank’s charter (a statutory law) stipulates that the state has to maintain at least 51 percent. Although a reduction of the state’s stake or even a repeal of the charter is in Fitch’s view a distinct possibility, the agency expects the Greek state to remain committed to ATEbank in the medium term given the bank’s history and current ties with the government. As ATEbank’s long-term IDR is at its support rating floor, a change in ATEbank’s support rating could have an immediate effect on ATEbank’s long-term IDR. ATEbank’s individual rating reflects its strong depositor base, nationwide franchise and improved profitability and asset quality. It also takes into account the rapid growth in retail loans, relatively high market risk exposure, a high share of impaired loans and scope for improvements in organization and cost efficiency. Supported by high loan growth in more lucrative consumer and corporate/SME loans and well-contained operating costs, ATEbank was able to make up lost ground on its better-performing peers. At end-H107 both operating ROAE (25 percent) and ROAA (1.63 percent) improved to levels more commensurate with Greece’s benign banking climate. The bank’s cost efficiency has improved markedly since end-2005 but is, with a cost/income ratio of 55.1 percent and a cost/assets ratio of 2.43 percent, still weaker than that of most peers. ATEbank continued to tackle its very high legacy of impaired loans and wrote off -522 million in 2006 and the first half of 2007. Consequently, the bank’s impaired loans ratio improved to a still weak 9.23 percent in the first six months of 2007 (14.4 percent at end-2005). Coverage was, at 88.5 percent, sound, and loan concentration following write-offs was low. Further write-offs and a markedly slower inflow of new impaired loans due to improved risk management systems should in the medium term bring ATEbank’s asset-quality indicators down to more acceptable levels. At the end of the first half 2007, ATEbank’s balance sheet had a relatively high sensitivity to rising interest rates. Market risk is further augmented by sizable investments in hedge funds and domestic equities. ATEbank’s sound liquidity benefits from a large and stable retail deposit base and a sizable share of liquid assets. Capital ratios are satisfactory after a recapitalization in 2005, with an eligible capital ratio of 10.72 percent at end-H1 2007. However, in Fitch’s view, the bank should maintain capitalization at current levels to account for planned loan growth and the bank’s limited track record in managing retail credit risk. ATEbank is the fifth-largest Greek bank by equity, with market shares of about 7.5 percent and 9.3 percent in the domestic lending and deposit market, respectively at end-2006.