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Greece: Fitch ups Piraeus Bank to A- from BBB+

01. August 2008. | 10:17

Source: Reporter

Fitch Ratings has today upgraded Greece-based Piraeus Bank's (Piraeus) Long-term Issuer Default rating (IDR) to 'A-' (A minus) from 'BBB+'.

Fitch Ratings has today upgraded Greece-based Piraeus Bank's (Piraeus) Long-term Issuer Default rating (IDR) to 'A-' (A minus) from 'BBB+'. "Piraeus's other ratings have been affirmed at Short- term IDR 'F2', Individual 'B/C', Support '3' and Support Rating Floor 'BB+'. Following the upgrade, the Outlook for the Long-term IDR has been changed to Stable from Positive," the ratings agency said.

The press release is as follows:

The upgrade acknowledges Piraeus's continued good performance, improving franchise in Greece and selected South-Eastern European (SEE) countries, increased capital base, good risk management framework and better asset quality indicators. The bank's Long-term IDR and Individual rating also reflect risks associated with fast loan growth in untested markets (both in Greece and SEE) and a growing share of higher-risk emerging market assets and revenues.

Despite expanding its franchise in retail lending, SME loans (46% at end-Q108) and corporate loans (22%) still account for the bulk of Piraeus's loan book. As a result, Piraeus's net interest margin is somewhat thinner than that of its Greek peers, but strong loan growth and well-contained operating and credit costs have enabled the bank to improve its underlying profitability in recent years. Also, the bank's profitability benefited from the benign operating environment in Greece and SEE, economies that are forecasted to grow above the EU average in 2008 and 2009.

As a commercial bank, Piraeus is mostly exposed to credit risk in its loan book, which accounted for 69% of total assets at end-Q108. Concentration by borrower or sector is relatively low. Piraeus's asset quality indicators, among the best in the sector, are helped by Greece's favourable economic environment, the upgrade of the bank's risk management systems and strong loan growth. At end-Q108, impaired loans accounted for 1.8% of total gross loans (2.3% at end- 2007). Fitch deems Piraeus's loan loss coverage (59.3% at end-2007) acceptable, considering the availability of collateral. Credit risk is likely to increase as the share of foreign and consumer lending grows, but Piraeus has sound risk management systems and controls in place. Market risk is relatively limited since Piraeus frequently makes use of derivatives to hedge its interest rate sensitivity and sensitivity to foreign currency movements arising from its SEE investments.

Piraeus regularly accesses wholesale markets and has recently made efforts to diversify its wholesale funding base. However, loans are still predominantly funded by retail deposits (74% at end-Q108; 81% including retail bonds). In 2007 and Q108, balance sheet liquidity improved as Piraeus intensified its deposit gathering activities and retail deposit growth outstripped loan growth since end-Q307. A EUR1.35bn share capital increase in Q307 boosted Piraeus's equity base; its Tier 1 ratio at end-Q108 (under Basel II) was sound at 8.8%.

Piraeus, established in 1916, is Greece's fourth-largest banking group by assets and with a network of 782 branches (322 in Greece) employing more than 13,000 staff (around 6,800 in Greece) at end-H108. In the last decade Piraeus has expanded abroad: at end-2007, foreign loans accounted for around one-fifth of total loans and the group had meaningful market shares in most Balkan countries, as well as Egypt (Piraeus Bank Egypt SAE, rated 'AA' (EGY)/Outlook Stable) and Ukraine, where it acquired a small corporate bank in late 2007. The bank is listed on the Athens Stock Exchange and has a diversified shareholder base.


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