Moody's on Wednesday downgraded the deposit and debt ratings of six Greek banks, following the downgrade of Greece's sovereign rating to B1 from Ba1 two days earlier and its reassessment of some of the banks' standalone credit strength, reflected in their bank financial strength ratings (BFSRs), a Moody's announcement said.

According to its decision on Wednesday, Moody's downgraded the ratings of National Bank of Greece (NBG) to Ba3 from Ba1; EFG Eurobank Ergasias (Eurobank) to Ba3 from Ba1; Alpha Bank to Ba3 from Ba1; Piraeus Bank to Ba3 from Ba1; Agricultural Bank of Greece (ATEbank) to b1 from Ba2; and Attica Bank to b1 from Ba2.

The outlook on all these ratings is negative, Moody's said, adding that Wednesday's rating actions conclude the preview for possible downgrade, which Moody's initiated on December 17, 2010.

The key drivers for Wednesday's rating actions are:

(1) Moody's decision on 7 March to downgrade Greece's government bond ratings to B1 from Ba1. Under Moody's methodology, a government's credit strength serves as a key input in assessing the capacity of a country to support its banking system which, in turn, can provide rating uplift to a bank's deposit and debt ratings.

(2) Moody's re-assessment of some banks' intrinsic financial strength (standalone BFSRs), due to persistent pressure on liquidity and asset quality, and the banks' material exposure to Greek government securities. Although Moody's central scenario is that holders of Greek government debt will not bear losses, the rating agency believes that the likelihood of a sovereign default or distressed exchange has risen, as denoted by the new B1 government rating.


The downgrade of the Greek government's debt rating has prompted Moody's to lower Greece's systemic support indicator (SSI) , which is the measure Moody's uses to determine bank rating uplift due to systemic support considerations. By lowering Greece's SSI to Ba3 from Baa3, the uplift imbedded in the deposit and debt ratings of the banks was reduced.

The SSI denotes the country's capacity to provide support to its banking system beyond that indicated by its own rating level, as it incorporates a range of tools at its disposal (financial and non-financial), which for Greece includes elements of support now available through European Commission/ECB/IMF programmes.

These programmes include, but are not limited to (i) the €10 billion Hellenic Financial Stability Fund, which is available as a capital backstop; (ii) the ECB's decision to suspend the application of the minimum credit-rating threshold in its collateral eligibility requirements for marketable debt instruments issued or guaranteed by the Greek State; and (iii) the Greek government's guarantee scheme (approved by the European Commission). Under that scheme, the banks can issue debt that is eligible collateral for ECB's refinancing operations. The availability of these tools allows some systemically important Greek banks to be rated one notch higher than the government bond rating.


The downgrade of the BFSRs was prompted by the increased credit and liquidity risk emanating from the banks' material exposure to Greek government securities. The downgrade of the Greek government bond rating to B1 reflects a rising probability of government-debt bondholders experiencing losses. In addition, today's rating actions reflect the banks' limited funding options and their dependence on ECB funding, which accounts for at least 20% of their balance sheet. Moody's believes that this dependency could increase during 2011 and that a possible government debt default -- or distressed exchange -- could not only pressure the banks' capital structures with material government securities holdings, but might also indirectly weaken their already weak funding positions.

This would make them even more dependent on ECB funding. To capture these increasing risks, Alpha's BFSR was downgraded by one notch, compared with the two-notch downgrade of NBG and Eurobank. The smaller adjustment in the case of Alpha reflects the bank's relatively low exposure to Greek government bonds -- at approximately 80% of its Tier 1, compared with 150% plus for NBG and Eurobank.

Moody's notes that the BFSRs of Piraeus, ATE and Attica Bank were affirmed at E+ with stable outlooks, as the low levels of these ratings already capture Moody's concerns outlined above.


The negative outlook on the banks' deposit and debt ratings reflects (i) the negative outlook on the government bond ratings; and (ii) Greece's sustained challenging operating conditions and difficult macroeconomic environment. In particular, these two latter factors continue to exert pressure on banks' financial fundamentals -- including asset quality and funding metrics -- and their earnings generating capabilities.


Moody's has also affirmed the ratings of Emporiki Bank of Greece SA (Baa3/Prime-3/E+) and General Bank of Greece SA (Baa3/Prime-3/E+), with all ratings carrying a stable outlook. Both banks continue to receive significant uplift from Moody's assessment of a very high probability of support from their French parents (Credit Agricole SA (Aa1/C+) and

Societe Generale (Aa2/C+), respectively). Moody's notes that the BCAs of Emporiki Bank and General Bank remain under negative pressure and could be lowered, within the E+ BFSR category.