Eurobank’s recent acquisition of a majority stake in Hellenic Bank, Cyprus is set to enhance its credit profile and geographic diversification, according to a statement by credit rating agency Moody’s.
Moody’s noted that Eurobank’s newly acquired 55.9 per cent stake in Hellenic Bank, the second-largest bank in Cyprus, adds to its existing presence in the country.
Eurobank’s Cyprus subsidiary primarily focuses on corporate lending and private banking, whereas Hellenic Bank’s strong retail banking franchise complements this business model.
This acquisition comes as Moody’s revised Eurobank’s outlook from stable to positive for its Baa2 rating on unsecured debt and long-term deposits.
This change followed the revision of Greece’s sovereign rating outlook from stable to positive, reflecting the country’s improving macroeconomic conditions.
“The upgrade in Eurobank’s outlook to positive mirrors our view that the bank’s baseline credit assessment is limited by the government’s Ba1 rating, as the bank has significant exposure to Greek government securities, which represent approximately 77 per cent of its common equity Tier 1 (CET1) capital,” the agency said.
Moreover, the agency explained that the change in Greece’s rating prompted a corresponding upgrade in Eurobank’s outlook for long-term deposits and unsecured debt ratings.
It added that if the Greek sovereign rating is upgraded, Eurobank could see an improvement in its own baseline credit rating.
Furthermore, Moody’s affirmed Eurobank’s ratings, citing the bank’s strong financial performance and diversified asset base as key factors.
The agency pointed out that Eurobank has consistently delivered solid results, with its core pre-provision income rising by 10.2 per cent year-on-year in the first half of 2024.
This performance was attributed to robust revenue growth and effective cost management.
Eurobank achieved a return on tangible equity of 18.5 per cent and a cost-to-income ratio of 32.3 per cent during the same period.
Additionally, its pro-forma common equity Tier 1 (CET1) ratio stood at 16.2 per cent as of June 2024, incorporating the dividend distribution and the consolidation of Hellenic Bank.
Moody’s also highlighted the bank’s improved asset quality, with non-performing exposures (NPE) reduced to 3.1 per cent of gross loans by June 2024, down from 5.2 per cent a year earlier.
NPE coverage has also increased, with provisions covering 93.2 per cent of NPEs in June 2024, up from 73.2 per cent in 2023.
“The bank’s financial strength is further supported by its robust liquidity position, with a liquidity coverage ratio (LCR) of 182 per cent and a loan-to-deposit ratio of approximately 72 per cent,” Moody’s stated.
The agency also noted that Eurobank is expected to meet its Minimum Requirement for Own Funds and Eligible Liabilities (MREL) by the end of 2025.
Looking ahead, Moody’s indicated that further improvements in Greece’s macroeconomic environment could lead to upward pressure on Eurobank’s ratings.
An upgrade in the country’s sovereign rating would positively affect the bank’s profitability and asset quality.
“This, combined with strong capital metrics comfortably above requirements, could result in upward rating pressure,” the agency explained.
However, Moody’s warned that Eurobank’s ratings could face downward pressure if there is a significant deterioration in its non-performing exposures or recurring profitability.
A worsening in the broader operating environment, particularly due to rising interest rates, could also negatively impact the bank’s ratings.
Meanwhile, another agency, Fitch Ratings, on Monday upgraded Hellenic Bank’s Shareholder Support Rating (SSR) to “bb” from “bb-”, following the upgrade of Eurobank’s Long-Term Issuer Default Rating (IDR) to “BB+”.
Fitch said that Eurobank, holding a 55.9 per cent stake in Hellenic Bank, is viewed as the primary source of support. Hellenic Bank’s IDR remains at “BBB-” due to its Viability Rating.
Fitch noted that Eurobank’s ability to provide full support will increase if its stake surpasses 75 per cent.
Full consolidation of Hellenic Bank began in July 2024, with Eurobank expected to take a more active management role moving forward.
