Outlooks On Four Greek Banks Revised To Stable From Positive On COVID-19's Impact On NPE Cleanup Efforts

  • The sudden economic stop across Europe caused by the spread of COVID-19 will hamper Greek banks' efforts to improve their operational performance and clean up their balance sheets at least during the rest of 2020.
  • We believe that this event will take its toll on domestic property markets as well as the tourism and hinder the recovery prospects for nonperforming exposures (NPEs) backed by residential and commercial property.
  • As such, the demand for Greek bad debt from distressed debt purchasers will slacken with a potential delay of the securitized sale of more than €30 billion of nonperforming exposures that Greek banks expected to be disposed during 2020.
  • We are revising outlooks to stable from positive on our ratings on Alpha Bank, Eurobank Ergasias SA, National Bank of Greece, and Piraeus Bank, while affirming our ratings on the banks (see Ratings List for more information).
  • At the same time, we are withdrawing our ratings on Eurobank Ergasias SA owing to the hive-down of its operations to the newly created Eurobank SA and we are assigning 'B' long- and short-term ratings and stable outlook to the new entity.
  • The stable outlook on the four banks reflects our belief that, also benefiting from supporting measures announced by public authorities, Greek banks should be able to preserve their deposits base and rebalanced funding position through 2020 despite the impact of a global recession.
PARIS (S&P Global Ratings) March 27, 2020--S&P Global Ratings today said it revised its outlook on Alpha Bank, Eurobank Ergasias SA, National Bank of Greece, and Piraeus Bank to stable from positive. At the same time, S&P Global Ratings affirmed its 'B' long and short-term issuer credit ratings and 'B' resolution counterparty ratings on Alpha Bank, Eurobank Ergasias SA, and National Bank of Greece. We also affirmed our 'B-/B' long- and short-term issuer credit ratings and 'B-' resolution counterparty rating on Piraeus Bank.
We subsequently withdrew our ratings on Eurobank Ergasias SA owing to hive-down of its business and operations to newly created Eurobank SA. Simultaneously, we assigned our 'B' long- and short-term issuer counterparty ratings and 'B' long and short term resolution counterparty rating to Eurobank SA. The outlook is stable.
The COVID-19 outbreak has heightened the risk of a significant delay in Greek banks' projects to clean up their asset quality and enhance their earnings. This is due, among other factors, to our anticipation of a visible impact on the ongoing recovery in property markets, and the private sector's creditworthiness.
The pace of the recovery of residential and commercial real estate prices are significant credit drivers for four Greek banks, which are cleaning up about €68 billion of nonperforming exposures (NPEs) as of Dec. 31, 2019. We believe that the pandemic and associated measures will hinder the property market improvement and the recovery prospects for small and midsize enterprises and mortgage loans backed by property, hampering the chances of recovery of bad loans in these segments.
We anticipate a temporary demand fall for Greek bad debt, as the recession in Europe could test not only the appetite of potential buyers for distressed portfolios, but also banks' own collection ability as well as that of domestic and foreign distressed debt purchasers operating in Greece. We also believe that, in this environment, the recent implementation of Hercules, the Greek government's asset protection scheme, is also unlikely to speed up the expected pace of problematic asset disposal.
While it is difficult to assess the outbreak's impact on the pace of the NPE sales and securitizations that were come to the market in 2020, we believe now the prospects for a successful and faster clean-up in the year are much less than what we expected.
As with the rest of the world, the extent of the COVID-19 outbreak remains uncertain in Greece. The Bank of Greece revised its real GDP growth expectations to 0% for 2020 from 2.4% previously. In our view, the crisis should take its toll mostly in the tourism sector, one of the backbones of the Greek economy. Tourism is a labor-intensive sector, so there could be a big hit to employment levels in countries such as Spain and Greece, which are still posting high structural unemployment. In the eurozone, Greece, Cyprus, and Portugal would face considerable challenges from a sudden stop in tourist flows. While these economies are generally more diversified than other tourist destinations, the very significant pre-existing external financing needs would amplify the effect of a tourist shock. In Greece, tourism receipts made up about 23.5% of current account receipts in 2018. Tourism, commerce, and services--highly correlated with the former--together accounted for about 20% of gross loans of Greek banks on Dec. 31, 2019. We believe that business volumes are likely to contract in other segments of the economy as well, because the prolonged lockdown in the country and in the rest of Europe will hinge on consumption and investment. While we expect a recovery in the second part of the year, we believe that constrained new lending and weak capital markets will weigh on already-weak revenue, including fees and commission income. We also expect a reversal in the positive trend on new NPE formation. However, the Single Supervisory Mechanism's decision to give banks more flexibility for NPE classification should lead to less stress on reported asset quality metrics. Similarly, the European Central Bank (ECB) announced several extraordinary measures to provide temporary capital and operational relief to European banks, as well as liquidity support in case of need, which to an extent alleviates risks to the overall financial risk profiles of Greek banks.
Moreover, the ECB launched a €750 billion emergency bond purchase program on March 18, 2020 in response to high market volatility and stem economic fallout from the Covid-19 pandemic. Of note, the scheme includes purchases of Greek government debt--estimated at about €12 billion, compared with €50 billion held by Greek banks--which has so far been ineligible for the ECB's government bond purchases. Greek financial institutions retain access to the ECB's long-term refinancing lines, while those Greek small and midsize enterprises most exposed to COVID-19, particularly in tourism, have access to dedicated targeted longer-term refinancing operations (TLTRO) III lines on highly accommodative terms. This should shield the Greek economy from intense external liquidity pressures.
Simultaneously, the Greek government (specifically, the Ministry of Finance) announced measures to alleviate the economic impact of the pandemic. These include, among others:
  • A four-month deferrals of tax and social-contribution payments for affected businesses (either shut down outright or severely affected);
  • Rent relief for corporations should their business is mandatorily suspended: these will be liable to pay 60% of the agreed rent for their business premises for the months March and April;
  • A €1 billion scheme, under which the state effectively lends funds directly to companies (bypassing the banking system) to be repaid at preferential terms;
  • Suspension of the repayment of loan installments owed to banks until at least Sept. 30, 2020, for affected enterprises. Entities will pay contractual interest; and
  • The fast-track clearance of state arrears to the private sector. For example, The Tax Administration, effective immediately, will proceed with the refund of debts due to the taxpayers up to €30,000.
We believe these measures could benefit some corporations affected from the outbreak and prevent a more significant asset quality deterioration. The latter is also due to ECB's decision to exercise flexibility on NPEs and the addendum regarding the classification of obligors as unlikely to pay, when institutions call on the COVID-19-related public guarantees.
The ratings withdrawal on Eurobank Ergasias SA follows the bank's split into two new entities, namely Eurobank S.A., the new operating entity; and Eurobank Holding & Services S.A., a non-operating holding company. Following the transaction Eurobank Ergasisas ceased to exist and all its activities, assets, and liabilities were transferred to Eurobank S.A., which is now fully owned by Eurobank Holding & Services (not rated). Our ratings on the new entity reflect the same rating factors for Eurobank Ergasias.


The stable outlook for the four banks balances, at the current rating level, the risks over the next 12 months from the COVID-19 outbreak on the ongoing asset quality cleaning up of Greek banks with the ECB's and Greek government's extraordinary measures. We anticipate that, in this environment, Greek banks should preserve their financial risk and business risk profiles, specifically, their deposits base and balanced funding position. Still, we expect a visible slowdown in the sale and securitization of Greek banks' NPEs during 2020.
Downside scenario
We could take a negative rating action if macroeconomic conditions in Greece substantially worsen, leading to resumed stress on asset quality, with NPEs rising to levels similar to those in the past downturn, or if their funding profiles unexpectedly weaken.
Upside scenario

Although unlikely in 2020, we could consider a positive rating action should banks meaningfully progress in cleaning up NPEs, contrary to our expectations. This could happen if the economic recovery is higher and faster than anticipated. Therefore, we'll closely monitor how banks deliver on their de-risking process and bring their asset quality more in line with those of higher-rated peers.
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