Moody's upgrades number of Hellenic Bank’s ratings and assessments

Moody's Ratings has upgraded a number of Hellenic Bank’s (HB) ratings and assessments, saying the rating action captures its expectations that Hellenic Bank will sustain its improved standalone financial strength, and that the recent one notch upgrade to Eurobank S.A.'s ratings, indicates a higher capacity to support Hellenic Bank in case of need.

More specifically, Moody’s has upgraded HB’s Baseline Credit Assessment (BCA) and Adjusted BCA to baa3 from ba1, its long-term deposit ratings to Baa1 from Baa2, its senior unsecured debt rating to Baa3 from Ba1, its long-term Counterparty Risk (CR) Assessment to A3(cr) from Baa1(cr), its long-term Counterparty Risk Ratings (CRR) to A3 from Baa1, its subordinated Medium-Term Note (MTN) program ratings to (P)Ba1, from (P)Ba2 and subordinated debt rating to Ba1 from Ba2, and its senior unsecured and junior senior unsecured MTN program ratings to (P)Baa3 from (P)Ba1.

The outlook on the bank's long-term deposit and senior unsecured debt ratings has been changed to stable, from positive. As part of the same rating action, the Prime-2 short-term deposit ratings and CRRs, and the Prime-2(cr) short-term CR Assessment have been affirmed, Moody’s added.

Standalone Baseline Credit Assessment

Hellenic Bank's standalone BCA has been upgraded to baa3, from ba1. “This reflects our expectation that the bank will sustain its improved solvency profile,” Moody’s said, adding: “Hellenic Bank's asset quality has stabilised at improved levels. As of December 2024, Hellenic Bank reported nonperforming exposures (NPEs) of 2.4% excluding NPEs that are 90% guaranteed by the government. The bank also reported an overall NPE coverage at 63%. We expect NPEs to remain close to these levels over the next couple of years supported by the solid macroeconomic condition in Cyprus, lower lending rates, and the bank's selective lending practices, with 99.6% of loans originated post 2018 performing.”

The bank's net income remains solid at 2.1% of assets during 2024, it said, compared to 1.8% during 2023. “While we expect profitability to fall from these high levels, as interest rates normalise, it will remain solid supported by the bank's sustained low loan loss provisioning coverage, improved efficiencies and higher non-funded income from the bank's imminent acquisition of CNP Assurances' (CNP) local subsidiary,” said Moody’s.

Hellenic Bank also maintains a very high regulatory Common Equity Tier 1 (CET1) capital ratio of 28.7% (including 2024 profits) as of year-end 2024, up from 22.8% as of year-end 2023. While CET1 capital will drop closer to 26% following the acquisition of CNP, Moody’s said, it will remain strong supported by its improved internal capital generation and moderate loan growth, while risks to capital have receded.

“Hellenic Bank's standalone assessment further reflects its low-cost, retail-deposit-based funding structure and ample liquid assets,” it said.

Adjusted BCA

The rating action also reflects Eurobank's recent BCA upgrade to baa3, Moody’s said. “While Hellenic Bank's BCA is already at the baa3 level, our moderate assumptions of parental support from Eurobank anchor Hellenic Bank's Adjusted BCA at the baa3 level, limiting the likelihood of any potential downgrade from a lower standalone BCA.”

Eurobank already holds 93.5% of Hellenic Bank, has made an offer to acquire the remaining shares, and eventually intends to exercise its "squeeze-out" right to acquire full ownership of Hellenic Bank. Following this, Eurobank plans to delist Hellenic Bank's shares from the Cyprus Stock Exchange and merge it with Eurobank Cyprus Ltd, Eurobank's existing Cypriot subsidiary. “Eurobank's acquisition provides a more clear and focused strategic direction, and longer-term benefits like access to expertise from, and greater integration with, the Eurobank group,” the agency pointed out. “This will benefit Hellenic Bank in areas like corporate, private banking and wealth management.

Loss Given Failure (LGF) analysis

“Our forward-looking Advanced LGF analysis continues to indicate an extremely low loss given failure for Counterparty Risk Ratings and the Counterparty Risk Assessment, resulting in a three-notch uplift from the baa3 Adjusted BCA; a very low loss given failure for junior depositors, resulting in a two-notch uplift; a moderate loss given failure for senior unsecured and junior senior unsecured ratings, resulting in no uplift; and a high loss given failure for subordinated debt, which results in a one-notch adjustment below the bank's Adjusted BCA.”

Stable outlook

“The stable rating outlook on the long-term deposit and senior unsecured debt ratings reflects our expectations for broadly stable financial metrics, supported by Cyprus' solid macroeconomic conditions, and incorporates the bank's upcoming maturities and planned refinancing.”

Factors that could lead to an upgrade or downgrade of the ratings

“Hellenic Bank's ratings could be upgraded if our assessment of the domestic operating environment improves, and if the bank's overall asset quality profile improves further, while it maintains solid profitability, and strong funding, liquidity and capital metrics,” Moody’s said. Hellenic Bank's more senior ratings may also benefit from a potential higher buffer by more junior instruments, in case the bank's liability structure shifts materially following Eurobank's full acquisition, raising the buffers available to absorb losses,” it added.

However, it said, “Our assumptions of moderate parental support anchor the bank's Adjusted BCA and ratings, limiting the likelihood of a potential rating downgrade from a lower BCA. A potential downgrade will need a combination of a weakening in Hellenic Bank's operating environment or in the bank's financial fundamentals, and a downgrade in Eurobank baa3 BCA.