S&P affirms four Greek banks at CCC/C, outlook negative

The outlook on the long-term ratings on all four banks is negative, the agency said in a statement on Thursday.

The banks have operations in Albania, Bulgaria, Macedonia, Romania and Serbia.

S&P also said in the statement:

“At the same time, we affirmed our 'CC' issue rating on all four banks' hybrid securities.

The affirmation follows our upgrade of the Hellenic Republic (Greece) to 'B-/B' from 'SD' on Dec. 18, 2012. The sovereign action reflectd the benefits from the completion on Dec. 17, 2012, of Greece's distressed debt buyback in tandem with approval by the finance ministers of EU member states belonging to the eurozone of a loan disbursement to Greece under the second economic adjustment program.

We view the eurozone member states' decision to provide material cash flow relief to Greece as indicative of their determination to restore stability to Greek finances, and to preserve Greece's eurozone membership. Nevertheless, we think that the deteriorated financial profiles of the Greek banks we rate remain vulnerable to what we view as persistently high risk in their domestic economy. While capital and liquidity support from the authorities should allow the banks to continue complying with regulatory requirements, we believe that this support is unlikely to be sufficient to completely neutralize the impact of the weak operating and economic environment on our view of the banks' creditworthiness.

The long-term rating on NBG, Eurobank, Alpha Bank, and Piraeus is two notches higher than the 'cc' stand-alone credit profile, reflecting the uplift for extraordinary short-term capital and liquidity support provided by the Greek government and EU authorities.

Our negative outlook on NBG, Eurobank, Alpha Bank, and Piraeus is based on the possibility that we might lower the ratings on the banks if we believed they would default on their obligations, as defined by our criteria.

We might lower the ratings on the four banks if their access to the EU's extraordinary liquidity support mechanisms, including the Emergency Liquidity Assistance discount facility at the European Central Bank, became impaired for any reason. This support currently underpins the banks' capacity to meet their financing requirements. In this context, despite a mild recovery in recent months, we believe the pressure on the banks' retail funding base may lead to further deposit outflows, given the ongoing recession. This could, in our opinion, increase the banks' need for additional extraordinary liquidity support from the EU authorities.

We might also lower the ratings on the banks if we believed they were likely to default as a result of any developments associated with a substantial impairment of their solvency. This could happen if, for any reason, the banks were unable to access external capital support, or if we considered such support insufficient to allow the banks to continue meeting regulatory capital requirements, mainly as a result of potential recognition of continued large impairments on loans.

A revision of the outlook to stable could be possible if economic conditions in Greece improved and pressure on the banks' financials eased, and once external support materialized.”