Fitch affirms Marfin

Fitch Ratings yesterday affirmed Marfin Egnatia Bank’s (MEB) long-term issuer default rating (IDR) at BBB, short-term IDR at F3, individual rating at C and support rating at 2. Fitch has changed the outlook for MEB’s long-term IDR to «positive» from «stable» following increased integration of MEB with its parent bank Marfin Popular Bank (MPB). At the same time, the agency has affirmed MPB’s ratings at long-term IDR BBB+, short-term IDR F2, individual C, support 2 and support rating floor BBB. The outlook for MPB’s long-term IDR remains «stable.» The «positive» outlook for MEB’s IDR reflects Fitch’s view of progress made in integrating MEB into MPB in terms of management, risk reporting and operating systems. Although there are still some differences, in particular with regard to both banks’ IT systems (which will be harmonized in early 2009), the outlook indicates that MEB’s and MPB’s IDRs could be equalized in 12-to-18 months, should integration continue as planned. MPB’s ratings reflect its improving profitability, cost efficiency and asset quality, as well as its satisfactory capitalization. The ratings also consider the fast growth outside its home markets of Cyprus and Greece and the residual risk due to the integration of two medium-sized Greek banks, Marfin Bank (Marfin) and Egnatia Bank (Egnatia), into the group. Fitch views positively the creation of a leading bank in the fast-growing Southeastern European (SEE) and Greek markets. Should MPB continue to successfully manage integration risk, improve its profitability and asset quality, and maintain sound capital ratios, these factors could reflect positively on MPB’s ratings. Downward pressure could occur should the fast growth abroad endanger the bank’s profitability and asset quality. MPB reported a good 16.1 percent rise in operating return on assets employed (ROAE) in the first half of 2007 and an efficient cost/income ratio of 43.7 percent due to a sharp increase of its lending activity. By end-2009, MPB plans to have its Cypriot and Greek operations each generating 40 percent of its operating profit and international operations generating 20 percent. Market risk is limited and relates mainly to the bank’s structural interest rate position. Liquidity is sound and is supported by a large deposit base that exceeded MPB’s customer loans in the first half. Since December 2006, MEB is majority-owned (95 percent of shares) by MPB and is the result of a merger between former Egnatia Bank, Marfin Bank and the Greek operations of former Laiki Bank (Laiki Hellas), legally completed at the end of the first half. MEB’s IDRs and support ratings are based on support from and integration into MPB. Given MPB’s shareholding in MEB and MEB’s strategic importance for MPB as a whole, Fitch believes that there is a high probability that MPB would provide support for MEB if necessary. MEB accounted for around 53 percent of MPB’s loan book and 44 percent of net interest and fee income. At the end of 2007 first half, MPB was the largest bank by total assets in Cyprus while MEB was the seventh-largest in Greece. The group had 315 branches worldwide (166 in Greece) and offered a full range of banking and financial services. MPB’s main shareholder is Dubai Financial Group (DFG), the direct investment arm of the Gulf state’s Dubai Investment Group. DFG, in November 2007, raised its stake in MPB to 19.9 percent (from 16.4 percent) and announced its commitment to increase it to 30 percent.