Greek banking pain, again, as the country’s financial institutions reel from the effects of one sovereign downgrade from S&P — and expect action from Moody’s soon.
The latter agency had some bad news in the meantime. From a release on Friday:
Moody’s Investors Service has today downgraded the bank financial strength ratings (BFSRs) as well as the deposit and debt ratings of nine Greek banks to reflect their weakening stand-alone financial strength and the anticipated additional pressures stemming from the country’s challenged economic prospects. The banks’ deposit and debt ratings remain on review for possible downgrade and will be concluded at the same time as Moody’s ongoing review of the country’s sovereign rating, which serves as a reference point with which to impute bank rating uplift as a result of possible systemic support.
The banks affected by today’s rating action are: National Bank of Greece, EFG Eurobank Ergasias SA, Alpha Bank AE, Piraeus Bank, Emporiki Bank of Greece, Agricultural Bank of Greece, General Bank of Greece, Marfin Egnatia Bank and Attica Bank.
Just for reference: Emporiki Bank is a subsidiary of Credit Agricole, while EFG Eurobank recently domiciled itself in Luxembourg after a spell in Switzerland — causing a bit of analyst confusion over its exposure to Greece.
Anyway, all nine banks face problems, as Moody’s continues:
Moody’s says that the acute economic strain facing Greece is materially impacting the banking sector’s financial condition, requiring it to be further supported. “Increasingly challenging economic prospects point to low business growth, increased loan quality problems and continued pressure on margins. Based on the events of the past few weeks, Moody’s expects the Greek banking system to face heightened challenges, thus necessitating a fundamental repositioning of the banks’ ratings”, says Mardig Haladjian, Senior Vice President.
And it’s interesting to note that that Moody’s regards renewed Greek government austerity as currently bad for Greek banks, even if good for the sovereign:
Although additional measures taken to address fiscal imbalances at the national level are positive for the sovereign’s creditworthiness, they may come at a cost of depressing economic growth over the short to medium term. Negative growth will in turn give rise to unemployment, lower consumer disposable income and reduced profitability in the small- and medium-sized enterprise (SME) and corporate sectors. Mr. Haladjian added that “Moody’s expects the upward trend in non-performing loans, which began in 2008, to continue in 2010 and 2011. Taken together, these factors will place significant additional pressure on the banking sector’s already weakened asset quality and profitability.”
Ouch. Interesting too that Moody’s raises the issue of ECB funding (emphasis ours):
The banks’ funding franchises have also weakened over the past few months. The erosion of market confidence caused by the country’s fiscal problems has curtailed the banks’ access to the interbank and bond markets. As a result, the banks have had to rely increasingly on the ECB to manage their liquidity needs — indeed, ECB funding now accounts for approximately 15% of Greek commercial banks’ total liabilities. Moody’s expects that, over the foreseeable future, Greek banks are likely to face very difficult conditions in the wholesale markets and will therefore continue to rely on ECB funding. In this regard, Moody’s takes comfort that the ECB will remain a reliable source of funding for the banks until market confidence can be restored. However, access to ECB funding is not unlimited and Moody’s will continue to closely monitor each bank’s funding needs and the assets available to post as collateral for ECB funding.
And the assets available for posting will in large part be government bonds… which Moody’s is nigh-on certain to downgrade further. Oh dear.
Related links:
Who’s exposed to Greece? – FT Alphaville
Who’s exposed to Greece? (II) – FT Alphaville
Who’s exposed to Greece? (III) – FT Alphaville