Greeks’ covered progress a driver in Moody’s positivity
Monday, 30 July 2018
Greek banks’ reclaimed access to covered bond markets contributed to Moody’s revising its outlook on the banking system to positive today (Monday), amid an improving environment. NBG has meanwhile issued a privately-placed/retained deal to finance SMEs and mid-caps.
Moody’s today changed its outlook on the Greek banking system from stable to positive, citing expectations that banks’ funding and asset risk will improve over the next 12 to 18 months, amid an improving but still challenging operating environment.
The rating agency noted that Greek banks’ dependence on central bank funding and emergency liquidity assistance (ELA) is declining – with dependence on ELA expected to be fully eliminated in the coming months – as banks regain access to the interbank repo and covered bond markets and as their deposits gradually increase.
Moody’s noted that in recent quarters, Greek banks have raised EUR2.3bn of funding in the covered bond market.
“The successful issuance indicates investors’ increasing appetite for Greek banking risk,” said Moody’s. “Over the next 12 to 18 months, we expect that they will be able to regain access to the unsecured international capital markets.”
The Greek covered bond market was reopened in October 2017 by National Bank of Greece, which issued a EUR750m three year deal that was the first benchmark bank bond since the country’s debt crisis. Eurobank Ergasias and Alpha Bank followed with inaugural public benchmarks, while Piraeus Bank issued a EUR500m private placement.
Earlier this month, NBG was assigned the first investment grade rating of a Greek issue since 2011, getting a BBB- rating from S&P for its EUR15bn conditional pass-through (CPT) programme, off which its recent benchmark was issued. The deal has thus gained eligibility for ECB repo.
Market participants said the milestone, and the potential for other issuers to gain investment grade ratings, would improve market access and could make issuance more likely in the near term.
Among other drivers for the revision of its outlook, Moody’s cited its expectation that Greek banks will continue to reduce their problem loans in 2018-2019 and an improving operating environment, with GDP growth forecast to rise from 1.4% in 2017 to 2% in 2018 and 2.2% in 2019.
“Most Greek banks are likely to remain marginally profitable through 2019, as credit and operating costs remain low,” it added. “However, net interest margins will remain pressured as banks continue to deleverage and run down their loan balances through write offs and sales of NPEs.”
Moody’s currently rates six Greek banks. It rates the big four – NBG, Alpha, Eurobank and Piraeus – and the smaller Pancretan Cooperative Bank Caa2, while Attica Bank is rated Caa3.
NBG issue to finance SMEs, mid-caps
National Bank of Greece today issued a EUR200m five year covered bond of which EUR100m was privately placed with the European Investment Bank (EIB) and EUR100m retained by NBG.
The EIB and NBG announced on Friday that they had signed a financing agreement to provide financing of up to EUR200m to SMEs and mid-caps, via the covered bond issuance. The two parties agreed that the EIB may purchase the remaining EUR100m that was retained by NBG in the next six months.
NBG said the deal fits into its strategy to increase the volume of financings to SMEs and mid-caps and also contributes to the extension of the average term of NBG’s liability structure and benefits its liquidity ratios.
The financing agreement was signed under the European Commission’s Investment Plan for Europe, known as the Juncker Plan.
Photo: National Bank of Greece