21.04.2022
Moody’s Investor Service upgraded Hellenic Bank’s long-term deposit rating to Ba3 from B1 with a positive outlook, citing a “significant improvement” in the bank’s asset quality following the agreement to sell a portfolio of non-performing loans (NPEs) with a gross carrying amount of €720 million to PIMCO, as well as the acquisition operating loans from RCB Bank.
The agency also upgraded the senior unsecured, junior senior unsecured and subordinated ratings of the MTN program to (P)B3 from (P)Caa1, its long-term counterparty risk rating (CRR) to Ba2 from Ba3, its long-term counterparty risk assessment. (CRA) to Ba2(cr) from Ba3(cr) and its basic credit rating (BCA) and adjusted BCA to b2 from b3.
“The upgrade of Hellenic Bank’s ratings and valuations reflects a significant improvement in the bank’s asset quality after it agreed to sell a €720 million NPE portfolio to a company managed and advised by Pacific Investment Management. Company LLC (PIMCO),” Moody’s Investor Services said in a statement.
Moody’s said it expects a deal to go through that will reduce Hellenic Bank’s NPS inventory to an estimated 11.6% of gross loans as of December 2021 from 21.3% as of September 2021, while excluding unsecured assets. which are guaranteed by the government, the ratio of NPEs/gross bank loans is lower, at 4.4%.“The NPE ratio is reduced to 3.4% (excluding state-guaranteed NPEs) also due to the recent acquisition of performing loans from another local bank and other small NPE sales, a figure that is close to Hellenic Bank’s strategic medium-term goal of an NPE ratio of around 3. 0%. Residual NPE coverage (excluding government guaranteed) is relatively high at 69% as of December 2021, tentatively for sale,” Moody’s added.
Noting that the NPE sale deal contributes to capital growth by adding 15 basis points to Hellenic Bank’s Common Equity Tier 1 (CET1) ratio upon completion, based on December 2020 data, the agency added that “post-completion capital risks from legacy NPE will drop significantly for Hellenic Bank, with the bank’s residual net NPE (excluding those guaranteed by the state) at 6% of CET1 equity based on September 2021 preliminary data.”
The agency also said it expects Hellenic Bank’s CET1 ratio to be around 18% after the deal, as well as the impact of a full acquisition of performing loans. “Hellenic Bank’s ratings continue to reflect its strong retail deposit-based funding and ample liquid assets,” the agency said, adding, however, “at the same time, the ratings reflect heightened residual asset quality risks in the context of the still fragile economic recovery from pandemic with lower-than-expected economic growth following Russia’s invasion of Ukraine and significant downside risks.”
According to Moody’s, the positive outlook on Hellenic Bank’s long-term deposit ratings reflects Moody’s expectation that Hellenic Bank will continue to reduce its overall NPE stock while maintaining capital and liquidity buffers well above regulatory minimums, as well as “the possibility of further improvement in the operating environment, which could lead to cause Moody’s to conclude that a minority of the bank’s liabilities are at risk of being lost on resolution.”
“This will be reflected in Moody’s assigning a higher macroeconomic rating to Cyprus,” the agency added. Moody’s said all of Hellenic Bank’s ratings could be upgraded if Hellenic Bank manages to further improve its asset quality and profitability while maintaining robust capital and liquidity metrics, and could be upgraded if Moody’s concludes that the impact of the pandemic coronavirus and Russia’s Invasion of Ukraine will not cause long-term damage to the Cypriot economy, which in turn could lead to Moody’s deciding that a smaller portion of the bank’s liabilities are at risk of being forfeited in the resolution of the dispute.
The agency added that given the positive outlook, it is unlikely that the bank’s ratings will be downgraded in the next 12-18 months.
