Rating Action Commentary
ֳ Upgrades National Bank of Greece to 'BB+'; Outlook Positive
Wed 04 Sep, 2024 - 10:27 AM ET
ֳ - Barcelona - 04 Sep 2024: ֳ has upgraded National Bank of Greece S.A.'s (NBG) Long-Term Issuer Default Rating (IDR) to 'BB+' from 'BB'. The Outlook is Positive. A full list of rating actions is below.
The upgrade mainly reflects ֳ's improved assessment of Greece's operating environment (OE) to 'bb+'. We expect the Greek economy to continue to outperform the eurozone average. Paired with falling unemployment and the deployment of the country's Recovery and Resilience Fund, this should support banks' ability to capture profitable business opportunities.
The upgrade also reflects continued improvements in NBG's standalone credit profile, including a further reduction in the stock of problem assets (which include nonperforming exposures (NPEs) and net foreclosed assets) and healthy profitability resulting in capital accumulation.
The Positive Outlook reflects ֳ's expectation that its OE assessment could improve further if the positive macroeconomic trends continue and result in satisfactory business opportunities for banks. A higher OE score could have a positive impact on our assessment of most of NBG's key VR drivers.
Key Rating Drivers
Franchise, Capital Underpin Ratings: NBG's ratings reflect its strong position within the Greek domestic market, which supports its business and profitability prospects, stable deposit-based funding and sound liquidity. The ratings also reflect above-sector average capital ratios and low capital encumbrance from unreserved problem assets.
OE Drives Positive Outlook: ֳ expects business opportunities for Greek banks to benefit from resilient economic growth of over 2% in 2024 and 2025, driven by real-wage increases, falling unemployment and solid investments. This should support banks' business model sustainability, asset quality performance, profitability resilience and internal capital generation.
Systemic Domestic Bank: NBG is one of four systemically important banks in Greece, where it has strong market shares in retail and commercial banking. Our assessment also considers the bank's focus on traditional commercial-banking activities, largely resolved legacy asset quality issues and sustainable profitability prospects.
Moderate NPE Ratio; Adequate Coverage: NBG's NPE ratio (end-June 2024: 3.7%; excluding retained senior notes of impaired loan securitisations from total loans) has materially decreased and is the lowest among domestic peers, but is moderate by international standards. Our assessment also considers NBG's high NPE reserve coverage of 83% and small stock of foreclosed assets.
Satisfactory, Sustainable Profitability: NBG's profitability has stabilised in line with its progress with restructuring and deleveraging of legacy problem assets. The bank's operating profit/RWAs ratio was high at 4.7% in 1H24 (2023: 4.0%), and we expect it to remain healthy over the medium term, despite declining interest rates supported by fee-income growth, ongoing loan expansion, tight cost management and a continuing reduction of loan impairments. The contribution from net fee income is gradually improving, but still only makes up a modest share of the bank's revenues.
Comfortable Capital Buffers: NBG's common equity Tier 1 (CET1) ratio of 18.3% at end-June 2024 was the highest among domestic peers and had ample buffers over regulatory requirements. We expect NBG's capital buffers to remain sound in the medium term, supported by structurally improved profitability. This should more than offset RWA growth from increased lending and dividend distributions. Our assessment also reflects that capital encumbrance to unreserved problem assets is small, although capital remains exposed to Greek sovereign risk, from investments in government bonds and deferred tax credits, although the latter are decreasing.
Deposit-Based Funding; Sound Liquidity: NBG's loans/deposits ratio is strong and stable at around 60%, benefiting from a highly granular deposit base. Liquidity buffers are healthy. NBG is on track to meet its minimum requirement for own funds and eligible liabilities (MREL) needs following several wholesale debt issuances. The bank has recently issued both Tier 2 subordinated notes and MREL eligible senior preferred notes during 1H24, which demonstrates the bank's access to capital markets.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A downgrade is unlikely given the Positive Outlook on the Long-Term IDR. The Outlook could be revised to Stable if Greece's economic prospects deteriorate, for example, if an unexpected domestic economic slowdown without prospects of a rebound in the short term leads to less favourable business opportunities for banks.
The ratings could be downgraded if our expectations of improvements of the Greek operating environment do not materialise and there is a material deterioration in the bank's financial metrics, in particular if the NPE ratio (excluding senior notes) increases above 6% on a sustained basis, resulting in a material deterioration in capital and earnings.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade would be contingent on an upgrade of Greece's OE score, which could be triggered either by continued positive macroeconomic trends resulting in satisfactory business opportunities for banks or by positive action on Greece's sovereign rating.
An upgrade would also require the NPE ratio (excluding senior notes) to remain below 4% and the CET1 ratio to remain at least around 15% on a sustained basis. An upgrade would also require an operating profit/RWAs ratio sustainably around 2% without a material deterioration in the bank's risk profile, accompanied by stable funding.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
DEPOSITS
NBG's long-term deposit rating is one notch above its Long-Term IDR, because of full depositor preference in Greece and our expectation that NBG will comply with its final MREL, which will be binding from 1 January 2026. Deposits will therefore benefit from protection offered by more bank resolution debt and equity, resulting in a lower probability of default.
The short-term deposit rating of 'F3' is in line with the bank's 'BBB-' long-term deposit rating under ֳ's rating criteria.
SENIOR PREFERRED DEBT
The senior preferred debt rating is in line with NBG's Long-Term IDR, reflecting our view that the default risk of senior preferred obligations is equivalent to that of the bank as expressed by the IDR, and their average recovery prospects. This is based on our expectation that NBG's resolution buffers under the MREL regime will comprise senior preferred and more junior debt instruments, as well as equity. The rating also reflects our expectation that the combined buffer of additional Tier 1, Tier 2 and senior non-preferred debt is unlikely to exceed 10% of RWAs on a sustained basis.
NBG's short-term senior preferred debt rating of 'B' is aligned with its Short-Term IDR.
GOVERNMENT SUPPORT RATING (GSR)
NBG's Government Support Rating of 'no support' (ns) reflects ֳ's view that although extraordinary sovereign support is possible, it cannot be relied on. Senior creditors can no longer expect to receive full extraordinary support from the sovereign in the event that the bank becomes non-viable. The EU's Bank Recovery and Resolution Directive and the Single Resolution Mechanism for eurozone banks provide a framework for resolving banks that requires senior creditors participating in losses ahead of a bank receiving sovereign support.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The long-term deposit and senior preferred debt ratings are primarily sensitive to changes in the bank's Long-Term IDR, from which they are notched.
The long-term deposit and senior preferred debt ratings could be upgraded if NBG's resolution debt buffer excluding senior preferred debt issued at the operating company level exceeds 10% of RWAs on a sustained basis, which we deem unlikely.
An upgrade of the GSR would be contingent on a positive change in the sovereign's propensity to support the bank. In ֳ's view, this is highly unlikely, although not impossible.
VR ADJUSTMENTS
The operating environment score of 'bb+' is below the 'bbb' implied category score due to the following adjustment reason: level and growth of credit (negative).
The asset quality score of 'bb' is above the 'b & below' implied category score due to the following adjustment reason: historical and future metrics (positive).
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ֳ's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on ֳ's ESG Relevance Scores, visit /topics/esg/products#esg-relevance-scores.
Additional information is available on
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.
APPLICABLE CRITERIA
ADDITIONAL DISCLOSURES
ENDORSEMENT STATUS
| National Bank of Greece S.A. | EU Issued, UK Endorsed |