Moody’s Downgrades 8 Greek Banks

Athens protestMoody’s ratings agency downgraded eight Greek banks by two notches Friday due to their exposure to Greek government bonds and the deteriorating economic situation in the debt-ridden country, whose government has struggled to meet the terms of an international bailout.

Pictured: University students take part in a protest outside parliament in Athens, on Thursday, Sept. 22, 2011.  (AP Photo/Petros Giannakouris)

Moody’s Investors Service downgraded National Bank of Greece, EFG Eurobank Ergasias, Alpha Bank, Piraeus Bank, Agricultural Bank of Greece and Attica Bank to CAA2 from B3. It also downgraded Emporiki Bank of Greece and General Bank of Greece to B3 from B1.

The agency said the outlook for all the banks’ long-term deposit and debt ratings was negative.

Moody’s cited “the expected impact of the deteriorating domestic economic environment on non-performing loans” and “declines in deposit bases and still fragile liquidity positions” in its reasoning for the downgrade.

Greece has angered its international creditors by lagging behind in its commitments to implementing reforms and carrying out pledges it has made to secure funds from its euro110 billion ($149 billion) bailout from other eurozone countries and the International Monetary Fund.

In a rush to secure the disbursement of the vital next batch of loans, worth euro8 billion, and heading toward a fourth year of recession, the government this week announced another round of tax hikes and pension cuts, angering an already austerity-weary public which has responded with strikes.

Public transport workers and taxi drivers are expected to hold a 48-hour strike next week that will leave Athens without any form of public transport, while air traffic controllers have declared a 24-hour strike this Sunday. A nationwide general strike is set for Oct. 19.

Debt inspectors from the IMF, European Central Bank and European Commission, collectively known as the troika, are due back in Athens next week to complete their review of Greece’s progress and make a recommendation on whether it should receive the next loan installment. Without it, Greece will run out of cash in mid-October.

Moody’s said that despite its downgrade, it “recognized the continued potential for the Troika to extend systemic support to the Greek banks in case of need,” as well as the potential of a Greek financial stability fund to do the same.

This “results in a one notch of uplift in the senior debt and deposit ratings of the domestically owned banks from their standalone credit strength,” the agency said.

After more than a year and a half of repeated rounds of austerity measures that have included salary and pension cuts in the public sector and waves of tax hikes, Greece has found itself in the grips of a major recession, with its chances of returning to growth next year all but out of reach. The government insists it hopes to post a primary surplus – spending less than it earns before taking interest rates on outstanding debt into account – next year.

Moody’s pointed out that the country’s economy contracted by 7.3 percent year-on-year in the second quarter of this year, while unemployment has risen to more than 16 percent.

This, it said, also affected the potential benefits of the announced merger of Greece’s second and third largest lenders, EFG Eurobank Ergasias and Alpha Bank.

While the merger “has some potential positive elements for the credit standing of the future joint entity … Moody’s believes that these are offset by the currently fragile operating environment,” the agency said. “From a credit perspective, the near term risks in the form of possible systemic shocks outweigh the potential future benefits emanating from this merger.”

Source: Elena Becatoros, The Associated Press

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