The recent upgrades of the Greek banks, thanks to their significant strengthening and the momentum that the Greek economy is developing, came at the right time, when interest rates and bond yields internationally are rising to unprecedented levels, at least for the last few decades.

The investment grade given to Greek bonds in the last two months by credit rating agencies – such as Canada’s DBRS and previously Germany’s Scope and Japan’s R&I – and Moody’s double upgrade in mid-September were followed by 1 or 2 notch upgrades by credit institutions from the American houses Fitch and Moody’s. The latter even gave the investment grade for the deposits of National Bank and Eurobank. At the same time, the American house S&P and Fitch it is very likely that they will give investment grade to Greek bonds by the end of the year.

This particularly positive climate enables banks to issue subordinated bonds (Tier 2), within the framework of the Minimum Requirement for own funds and eligible liabilities (MREL), at a lower cost than with what they would have under other circumstances. The purpose of the MREL imposed by the European Central Bank on all Eurozone banks is to have the ability to face possible difficult situations in the future.

The four Greek systemic banks had started issuing Tier 2 bonds since 2019, when their yields were still internationally low due to very low central bank interest rates. Their issuance had been “frozen” for some time until last Monday, when National Bank went ahead with selling 10.25-year Tier 2 bonds (callable in 5.25 years) with impressive success, according to the leading firm. bond update IFR (International Financing Review).

“National Bank capitalizes on Greece’s momentum with its return to Tier 2 issues”, is the title of the IFR publication, noting that the positive course of this transaction is reflected in the strong demand from investors that exceeded 1.4 trillion. euros but also in its performance.

“The success of the transaction – its first subprime bond National from 2019 – was considered particularly impressive given the turmoil in returns following her message Fed last week that interest rates will remain high for a long time, obviously an inconvenient context for issuing debt,” notes the IFR. At this point it should be noted that the yield of the 10-year US government bonds reached 4.6% during the week and the corresponding German one reached 3%.

“Bankers, however, said they expected the issue to go well because of strong investor appetite for ‘Greek risk’ and the prospect that Greek banks still have value and performance now that they are well advanced in their recovery from country’s debt crisis,” IFR adds.

“Everyone knows that Greek banks need to be rated better and they are not the same – collectively or individually – as they were,” an executive at one of the banks syndicated to sell the bond to investors told IFR, adding: “The Greek public is stable and looking for investment grade by the end of the year, so it’s a completely different context than it was before.”

The yield of the bond, which was initially planned at 8.375%, was eventually reduced to 8% due to the very high demand that existed. It should be noted that the Tier 2 bonds they always have higher yields than other bond issues because they are subordinated to investors.

In 2019, the National had issued a Tier 2 bond with a yield of 8.25%, which matures in 2029, with the possibility of retirement in the summer of 2024. The small difference with the yield of the new bond is due to the fact that today the yields are much higher than four years ago and the overall economic environment more difficult since then, IFR notes. In other words, if Ethniki’s situation had not improved and the upgrades had not intervened, it would have had to pay a much higher return than 8%.

Ethniki’s stronger position, IFR adds, looks better than the new issue’s reset spread – that is, the spread that will apply when its yield is reset. In the case of the 2029 bond the reset spread was 846 basis points (8.46 percentage points), while in the new issue it was about half that (465 bps).

“The release was indeed a positive surprise – we did not expect to have this kind of book after the relatively strong revision (note: the reduction of the yield to 8%), said an executive of one of the sponsoring banks. “We had a response from investors who basically said they appreciate the very strong progress that the country and the banks have made over the last few years,” he added.