Moody’s: What the upgrade of the four systemic banks means for the economy

The upgrades of the Greek banks by the credit rating agencies usually follow the upgrades of the country. Last Monday, however, Moody’s proceeded to upgrade the Greek banks by 1-2 notches, while it had kept the Greek government’s credit rating unchanged in September.

Moody’s rated the long-term creditworthiness of the deposits of three of the four systemic banks – Eurobank, Alpha Bank and National Bank – one notch higher than which assesses the creditworthiness of Greek bonds (Ba2 vs. Ba3).

He assessed the worthiness of Piraeus Bank’s deposits at the same level as Greek bonds.

The creditworthiness of the bonds (senior unsecured debt) issued by the Greek banks was upgraded by Moody’s to the same category as that of the Greek government bonds for Eurobank, Alpha and Ethniki and one level lower for Piraeus.

It is noteworthy that Moody’s upgraded the creditworthiness of the banks, citing as reasons both the improvement in the quality of their portfolio – thanks to the reduction of bad loans – and their profitability, as well as the structural improvement of the macroeconomic environment of the Greek economy which has strengthened the resilience of dealing with various shocks.

The house no longer considers Greece’s macroeconomic profile to be weak, but ranks it in a medium category and believes that banks will be able to recover high collateral should they need to be restructured, resulting in less risk to deposits and other assets. their liability.

“Greek banks have largely completed their radical transformation plans, which aim to reduce non-performing exposures to single digits and boost profitability over the next 12-18 months,” it said.

The funding and liquidity profile of Greek banks has improved in recent years, with more customer deposits and renewed access to capital markets. ECB funding increased to around €50.9 billion in July 2022 from €8.1 billion in December 2019. However, this ECB funding will be gradually reduced in 2023-2024, the house notes.

Moody’s is the only major rating agency that has not upgraded Greek bonds in the past two years, although it has acknowledged the progress that has been made. In the latest evaluation of the banks, it states that the Greek economy is growing at a rate of 5.3% this year compared to 2.2% of the Eurozone economy, while for 2023 it predicts a growth rate of 1.8% which will again be significantly higher than Eurozone.

“Greece’s institutional strength incorporates our assessment of fiscal, monetary and macroeconomic policy effectiveness, as the country’s fiscal have been placed on a much more solid footing during the last five years”, said the company.

Structurally low savings and investment rates remain significant obstacles to sustained strong growth. “The government has begun to address some of the challenges, particularly those associated with low investment, by reducing Greece’s high tax rates, relaxing business regulations, improving the investment licensing framework and promoting privatization. Effective absorption of EU recovery funds will also be crucial to boosting investment and growth over the next five years,” notes Moody’s.

Standard & Poor’s (S&P) and DBRS upgraded the Greek economy to one notch below investment grade and Fitch to two notches below it, while Moody’s maintains it three notches lower.

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