National Bank of Greece’s benchmark covered bond was today (Friday) assigned a BBB- rating by S&P, in the first investment grade rating of a Greek issue since 2011, with the issuer telling The CBR the rating represents a “milestone” in its rehabilitation process.

S&P becomes the third agency to rate the National Bank of Greece (NBG) programme the benchmark was issued off, alongside Moody’s and Fitch, which rate it Ba2 and BB- on positive outlook. The programme is NBG’s EUR15bn conditional pass-through programme, NBG Covered Bond Programme II, off which NBG in October 2017 launched the first benchmark Greek covered bond since the county’s debt crisis, a EUR750m three year issue.

“The investment grade rating is a milestone in our rehabilitation process in the capital markets and a big step towards broadening our investor base,” Vassilis Kavalos, group treasurer at NBG, told The CBR. “It is also a milestone for the Greek banking sector in general and we expect the other Greek banks to follow.

“We expect that our covered bonds will become eligible to IG mandates that haven’t been involved so far and further appealing to investors that had already been involved.”

NBG now expects the outstanding EUR750m 2020 issue to be eligible for the ECB’s lending facility in accordance with the eligibility criteria for marketable assets. Kavalos said the rating therefore gives NBG greater flexibility going forwards.

“We believe that the IG rating will have a positive impact on the secondary performance of our outstanding covered bonds,” he said. “We remain committed to engaging with fixed income investors, but welcome the flexibility to also use the covered bonds as collateral for ECB refinancing operations.”

The bank added that the receipt of the investment grade rating proves its commitment to provide “visibility and the best possible outcome” to its investors.

S&P said the programme’s CPT payment obligation structure mitigates asset and liability mismatch risk and that its ratings on the covered bonds are therefore delinked from the issuer’s jurisdiction-supported rating level.

The BBB- rating is the maximum rating that NBG’s covered bonds can currently achieve, as under S&P’s criteria the programme can be rated up to four notches above the B+ long term sovereign credit rating of Greece. S&P upgraded the Greek sovereign to B+ on 25 June.

The rating is the first investment grade rating assigned to a Greek covered bond since the country’s debt crisis.

“In our view, reaching the investment grade threshold is a significant step that Greek institutions have been waiting for, for a long time,” said Michael Weigerding, research analyst at Commerzbank. “We therefore assume that other issuers will also examine their rating opportunities with S&P.”

Weigerding agreed that the new investment grade rating means NBG’s outstanding benchmark covered bond should soon be added to the list of ECB repo-eligible assets. He said this could make the instrument more attractive to bank investors and thus also benefit its spreads.

“For the last three Greek new issues, the allocation to banks was well below 30%, while ECB-eligible covered bonds generally exceed this level,” he said. “Although this difference is probably not only due to the lack of ECB eligibility, this factor should have played a significant role.”

Weigerding noted that the difference ECB-eligibility can make is demonstrated by comparing the placement statistics of euro benchmark covered bonds from Canada and Australia, with the former being eligible for ECB repo and the latter not.

“All in all, we therefore believe that getting the ECB eligibility should make future market appearances easier,” he said. “This could make near term Greek new issues more likely.”

However, Weigerding said the new investment grade rating should not result in changes to the covered bond’s CRR and LCR classification and iBoxx membership, due to its ratings from Moody’s and Fitch remaining below investment grade. The CPT structure of the programme will also continue to hamper its eligibility for CBPP3, he said.