Moody’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 country, whose government has struggled to meet the terms of an international bailout.
Moody’s Investors Service downgraded these banks [to CAA2 from B3 unless otherwise specified]:
- National Bank of Greece
- EFG Eurobank Ergasias
- Alpha Bank
- Piraeus Bank
- Agricultural Bank of Greece
- Attica Bank
- Emporiki Bank of Greece — which is majority owned by French bank Credit Agricole — to B3 from B1
- General Bank of Greece — majority owned by another French bank, Societe Generale — 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. Shares on the Athens Stock Exchange plunged on the news, with the general price index losing 2.96 per cent in late morning trading and hovering just above the 800 mark at 806.65 points.
Greece has been kept solvent by a €110 billion ($149 billion) bailout in 2010 from other eurozone countries and the International Monetary Fund. But it has needed another massive bailout this summer, and has angered international creditors by lagging behind in its commitments to implementing reforms and carrying out pledges Greece needs an €8 billion ($11 billion) bailout instalment by mid-October to keep from defaulting on its massive debts as it moves into a fourth year of recession.
To get the money, the government this week announced another round of tax hikes and pension cuts, angering an already austerity-weary public. Metro, tram and train workers in Athens went on strike Friday, while all public transport workers and taxi drivers are to hold a 48-hour strike next week. However, an Athens court ruled a 24-hour air traffic controllers’ strike set for Sunday was illegal, meaning flights will operate normally over the weekend. 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 instalment . Without it, Greece will run out of cash in mid-October.
Moody’s said despite its downgrade, it “recognised 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 Greece’s economy contracted 7.3 per cent year-on-year in the second quarter of this year, while unemployment has risen to more than 16 per cent. 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.