NATIONAL BANK OF GREECE S.A.
Fitch Ratings has upgraded
The Outlook on the Long-Term IDR is Stable. A full list of rating actions is below.
The upgrade reflects NBG's structural improvements in profitability as a result of its de-risking and restructuring, which is also supported by rising interest rates and economic growth in
Key Rating Drivers
Franchise, Capital Underpin Ratings: NBG's ratings reflect its strong position within the Greek domestic market, which supports its business prospects, stable deposit-based funding and sound liquidity. The ratings also reflect above-average capital ratios, and lower capital encumbrance from problem assets than peers.
Risk Profile Improving: NBG's risk profile has improved over the economic cycle, supported by significant reductions of legacy problem assets, although these still remain high by European standards. This has resulted in better asset quality due to active management of impaired loans and foreclosed assets, underpinned by prudent lending growth. The bank has large exposure to Greek government bonds, although the majority of these are held at amortised cost, which reduces capital volatility.
Moderate NPE Ratio, Adequate Coverage: NBG's non-performing exposure (NPE, which excludes retained senior notes of impaired loan securitisations from total loans) ratio of 6.7% at
Satisfactory Profitability, Sustainable Cost Base: NBG's profitability has continued to improve with operating profit/risk-weighted assets (RWA) expected to be stabilise at a satisfactory 2% in the medium term. We expect rising interest rates, a normalised cost of risk and continued tight cost control to result in structurally higher profitability. Our assessment remains constrained by the bank's domestic focus and limited diversification in capital-light fee-intensive businesses like wealth management, which expose profitability to interest rate and economic cycles.
Comfortable Capital Buffers, Manageable Encumbrance: NBG's fully-loaded common equity Tier 1 (CET1) ratio of 15.2% at
Deposit-based Funding, Sound Liquidity: NBG's gross loans/deposits is adequate, having fallen to around 60% as a result of the bank's de-risking and continued deposit growth. NBG's deposit base is stable and highly granular. Liquidity buffers are healthy. NBG completed three wholesale debt issuances in 4Q22, and is on track to meet its minimum requirement for own funds and eligible liabilities (MREL) needs. However, market access remains sensitive to changes in creditor sentiment and the Greek operating environment.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
We could revise the Outlook to Negative if the economic environment in
We could downgrade the ratings if we expected NBG's NPE ratio (excluding senior notes) to rise above 8% on a sustained basis, or if its CET1 ratio heads towards 12%, causing CET1 capital encumbrance by unreserved problem assets to rise significantly.
A decline of operating profit/RWAs to below 1% of RWAs due to structural weaknesses in NBG's business model, or evidence of funding instability or inability to access the wholesale debt markets for a prolonged period, could also be rating negative.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Rating upside could arise if NBG's business model strengthens further, resulting in stronger revenue generation and diversification and with reduced NPEs. We could also upgrade the ratings if the NPE ratio fell below 5% on a sustained basis or if the CET1 ratio is maintained above 14%, resulting in low CET1 capital encumbrance by unreserved problem assets.
Operating profit/RWAs would need to stabilise above 2% without a material deterioration in the bank's risk profile, resulting in increased financial flexibility and improved internal capital generation. Stable funding and continued build-up of minimum requirement for own funds and eligible liabilities (MREL) buffers could also be rating positive.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Deposits
NBG's long-term deposit rating is one notch above the Long-Term IDR, because of full depositor preference in
The short-term deposit rating of 'B' is in line with the bank's 'BB' long-term deposit rating under Fitch's rating criteria.
Senior Preferred (SP) Debt
The SP debt rating is in line with NBG's Long-Term IDR, reflecting our view that the default risk of SP obligations is equivalent to that of the bank as expressed by the IDR, and that SP obligations have average recovery prospects. This is based on our expectation that NBG's resolution buffers under the MREL regime will comprise both SP 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 (SNP) debt is unlikely to exceed 10% of the bank's RWAs on a sustained basis.
Subordinated Debt
The rating of the subordinated debt is two notches lower than its VR to reflect poor recovery prospects given default given its junior ranking. No notching is applied for incremental non-performance risk because write-down of the notes will only occur once the point of non-viability is reached and there is no coupon flexibility before non-viability.
Government Support Rating
NBG's Government Support Rating of 'no support' (ns) reflects Fitch's view that although extraordinary sovereign support is possible, it cannot be relied upon. Senior creditors can no longer expect to receive full extraordinary support from the sovereign in the event that the bank becomes nonviable.
An upgrade of the GSR would be contingent on a positive change in the sovereign's propensity to support the bank. In Fitch's view, this is highly unlikely, although not impossible.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The SP, debt and deposit ratings are sensitive to changes in the bank's Long-Term IDR. The SP could be upgraded by one notch if NBG is expected to meet its resolution buffer requirements only with SNP and more junior instruments, or if the size of the combined buffer of SNP and junior debt is expected to sustainably exceed 10% of RWAs, neither of which we expect.
The long-term deposit rating could be downgraded if we deemed NBG unable to increase the size of its senior and junior debt buffers and was unable to comply with its final MREL requirements.
The rating of the subordinated debt is sensitive to changes in the bank's VR.
VR ADJUSTMENTS
The operating environment score has been assigned below the implied score due to the following adjustment reason: sovereign rating (negative).
The earnings & profitability score of 'bb-' has been assigned above the 'b' category implied score, due to the following adjustment reason: historical and future metrics (positive).
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Sources of Information
The principal sources of information used in the analysis are described in the Applicable Criteria.
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'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.
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