Moody’s Investors Service, the credit rating agency has improved the rating on Hellenic Bank (HB) outlook to stable from negative for the D Financial Strength Rating (FSR). Moody’s also affirmed the bank’s Baa2 long-term foreign currency debt and deposit ratings and the Prime-2 short-term foreign currency deposit and commercial paper ratings, with stable outlooks.
According to Moody’s, the change to stable from negative in the FSR outlook reflects the ongoing improvement in HB’s main financial fundamentals. The bank’s D FSR continues to capture its well-established franchise in its domicile, although it remains constrained by relatively moderate – though improving – financial measures as regards asset quality, earning power and capitalisation.
Recent data suggest that management is making inroads towards putting HB on a more sound footing. Specifically, although Hellenic Bank’s credit portfolio quality continues to suffer from a high level of delinquencies, recent indications suggest that the worst could be over and that credit quality is on an improving trend. Regarding profitability, Moody’s adds that HB returned to surplus in FY05, following three consecutive years of net losses due to a very heavy provisioning burden. Furthermore, June 2006 results backed the improving profitability trends, with the losses in the Greek operations being significantly
reduced.
Going forward, HB is faced with a number of challenges, including: (i) to further improve its credit portfolio quality leading to lower problematic exposures and, hence, reduced credit costs, (ii) to address its high cost structure which pressures its earning power, and (iii) to increase its core equity position, by bolstering its loan loss reserves and/or to increase its equity levels.
In affirming the bank’s Baa2/Prime-2 foreign currency debt and deposit ratings, Moody’s notes that these ratings are enhanced due to strong implicit external support. Although on a stand-alone basis the bank’s debt and deposit ratings would be rated lower given its D FSR, these ratings are lifted higher due to Hellenic Bank’s importance within its domestic banking system and the likelihood of support by the financial authorities if the bank were to face financial difficulties.
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