Lenders hit with downgrades

Ratings agency Moody’s has downgraded three of Greece’s leading lenders, including Eurobank, citing a downturn in operating conditions and pressure on profit margins. Eurobank, Greece’s second-largest lender, saw its long-term deposits and debt ratings downgraded to A1 from Aa3 and its financial strength rating lowered to C from C+. Ratings on Alpha and Piraeus banks were also downgraded. Moody’s said weak conditions in Greece and countries such as Romania and Bulgaria – where Eurobank has sizable operations – are harming its fundamentals. Slower business expansion, interest margin pressure and elevated credit costs are putting pressure on its profitability, it added. «The prospect of higher unemployment could also lead to a rise in default rates in retail lending… where Eurobank has built a sizable credit portfolio,» Moody’s said late on Tuesday. Greece’s unemployment rate is seen as rising to 9 percent in 2009 from 8.3 percent last year with economic growth expected to come to a standstill, according to the European Commission. Banks have been fast expanding into Southeastern Europe in recent years to tap fast-growing markets. However, emerging market exposure is becoming a weak point as local economies deteriorate and foreign exchange volatility threatens to harm the repayment ability of borrowers. Shares in Eurobank ended flat at 5.10 euros on the Athens bourse yesterday. Alpha Bank added 0.33 percent to 6 euros, while Piraeus jumped 2.37 percent to 5.18 euros, with investors having already priced in the news, according to brokers. Moody’s also downgraded the long-term deposit and debt ratings of Alpha and Piraeus to A2 from A1. The outlooks for these ratings was also placed on negative. Piraeus Bank’s downgrade reflects exposure to sectors seen as suffering «severe financial stress, such as shipping (accounting for 3.8 percent of loans in September 2008) construction and tourism,» Moody’s said.

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