The launch of the first public Greek covered bond since 2009 by National Bank of Greece is credit positive as it demonstrates the viability of covered bonds as a funding tool for Greek banks, through which they can reduce ELA dependence, Moody’s said yesterday (Wednesday), with Eurobank in the pipeline.

On Tuesday of last week (10 October), NBG issued a Eu750m three year covered bond, the first Greek covered bond since the country’s debt crisis.

In a comment published yesterday, Moody’s said the deal demonstrates that Greek banks can use covered bonds to replace lost customer deposits and reduce dependence on Emergency Liquidity Assistance (ELA) and ECB funding, replacing them via a stable market channel.

“The funding profile of Greek banks, including NBG, has deteriorated because of the drop-off in customer deposits since 2009,” said Moody’s. “Deposits have been very slow to return to the banking system even though capital controls have been partly eased by allowing new cash deposited into the banking system since July 2016 to be free from any withdrawal restrictions.”

NBG has stated that it intends to use the proceeds of its new covered bond issuance to reduce its ELA exposure, at Eu2.6bn as of August, and plans to fully repay the ELA by early 2018 at the latest.

“Reducing the ELA to zero is a top priority for all Greek banks, and covered bonds will be one of the means to achieve this during 2017 and 2018, despite the higher funding costs involved,” said Moody’s.

Eurobank Ergasias is currently on the road marketing an inaugural euro benchmark covered bond, which is expected to be launched next week, and other Greek banks are expected to follow.

“We believe the new deal will pave the way for further issuance of public covered bonds by NBG as well as other Greek banks, as both investor and issuer confidence build up amid gradually improving economic conditions in Greece,” said Moody’s.

The European Bank for Reconstruction & Development (EBRD) said today (Thursday) that it bought Eu30m of the Eu750m NBG deal, 4% of it.

“We are very pleased for National Bank of Greece and the success of its issuance, and very proud as the EBRD to be part of it,” said Lucyna Stańczak-Wuczyńska, director for EU banks in the EBRD’s financial institutions group. “This sends a strong signal to foreign and domestic investors that after many tough years the outlook for Greece has changed remarkably – for the better.

“The high demand shows us that appetite has returned, and this is good news for Greece and a reward for some painful adjustments.”

Central banks and official institutions were in total allocated 11% of the new issue. NBG also targeted CBPP3-eligibility for its covered bond.