Moody’s on Wednesday downgraded the deposit and debt ratings of five Greek banks, citing “a weakening in the banks’ stand-alone financial strength and anticipated additional pressures stemming from the country’s challenging economic prospects in the foreseeable future.”
It’s worth remembering that the rating agency’s power over the Greek sovereign was lessened by the European Central Bank’s decision to keep the minimum credit threshold for eligible collateral at BBB- beyond the end of 2010. Still, the banking downgrades will do little to boost investor confidence.
Here’s more from Moody’s statement, emphasis FT Alphaville’s:
The affected banks are: National Bank of Greece (to A2 from A1), EFG Eurobank Ergasias SA (to A3/Prime-2 from A2/Prime-1), Alpha Bank AE (to A3/Prime-2 from A2/Prime-1), and Piraeus Bank (to Baa1/Prime-2 from A2/Prime-1). Moody’s has also downgraded the deposit and debt ratings of Emporiki Bank of Greece SA (to A3/Prime-2 from A2/Prime-1), but as a result of a reassessment of the credit enhancement associated with systemic support for this institution. The outlook on all five banks’ ratings remains negative.
Today’s rating actions were prompted by the country’s weakening macroeconomic outlook and its expected impact on these banks’ asset quality and earnings-generating capacity. Pressures on the macroeconomic fundamentals have been evident for the past year and are expected to intensify as the year unfolds, said Moody’s. Although additional measures taken to address fiscal imbalances at the national level may have a positive impact over the longer term, Greece’s fiscal challenges will weigh negatively on economic growth over the short to medium term.
Moody’s expects the upward trend in non-performing loans, which began in 2008, to continue in 2010 and, possibly, 2011. Combined, these factors will place additional pressure on the banking sector’s already weakened asset quality and profitability. Over the past year, Greek banks have increased their dependence on short-term market funding as access to the wholesale capital markets has been limited due to the global financial crisis. This, in turn, has led to a rise in maturity mismatches. In recent months, negative market sentiment towards Greece has further constrained the banks’ access to the bond and interbank markets. As a result, Greek banks have had to increase their reliance on European Central Bank (ECB) funding by an estimated 50%. Going forward, we expect a rise in the average cost of funding as banks seek longer-term maturities, which in turn will pressure interest margins.
Related links:
Moody’s does δομημένη χρηματοδότηση – FT Alphaville
Greece faces a Herculean adjustment task – FT Alphaville
Investor concerns trigger sharp sell-off of Greek sovereign bonds – FT