Greek banks are well positioned to deal with any new bad loans that develop this year, after significantly improving their asset quality in 2021, rating agencies say.
Greece's aggregate nonperforming loan ratio fell to 18.65% in the third quarter of 2021, the latest period for which data is available, according to the European Central Bank. This is down from 32.92% in the third quarter of 2020, and much nearer to the ratios for other Southern European economies such as Cyprus and Portugal. Greece's NPL coverage ratio rose on a yearly basis to 47.45% in the third quarter of 2021, from 45.04% a year before.
Any increase in new nonperforming exposure, or NPE, inflows should be manageable for the big Greek banks and cost of risk should fall, DBRS Morningstar Vice President Andrea Costanzo wrote in a March 23 note. NPEs include "unlikely to pay" loans in addition to loans of more than 90 days past due.
Less risky balance sheets and better internal capital generation should support banks' capitalization, Costanzo said.
Piraeus Bank SA, Alpha Services and Holdings SA, National Bank of Greece SA and Eurobank Ergasias Services and Holdings SA are set to reduce NPEs and loan loss provisions in 2022, and to keep a tight grip on costs, S&P Global Ratings said in a March 28 report. This will probably allow NBG and Eurobank to reinstate dividends from 2022 earnings, and Alpha could follow a year later, Ratings said.
The four banks' long-term deposit ratings were upgraded by rating agency Moody's on March 30, driven by better asset quality and improved operating conditions, among other factors. The banks are likely to further improve their credit profiles over the next 12 to 18 months and are well positioned to tackle any new bad loans.
The war in Ukraine could indirectly slow the Greek banking sector's recovery through inflation, less tourism spending and greater investor risk aversion, Ratings said.
Falling NPL ratios
Alpha and Piraeus sharply reduced their problem loans as a proportion of gross customer loans between the fourth quarter of 2020 and the final quarter of 2021, according to S&P Global Market Intelligence data. Alpha's declined to 6.15% from 30.15%, while Piraeus' dropped to 8.47% from 34.51%.
Alpha Bank completed €16 billion of disposals and securitizations of nonperforming exposures in 2021, and began ramping up domestic lending significantly in the final quarter, following a decade of deleveraging, the bank said.
Piraeus' sale of NPLs through securitization also helped bring down the sector's bad loan stock. Both Alpha and Piraeus made use of the government-backed Hellenic Asset Protection Scheme, or HAPS.
The NPL cleanup led to a €2.9 billion loss at Alpha in 2021, compared to profit of €104.0 million in 2020. The accelerated de-risking also put pressure on Piraeus' net interest income, which fell to €318 million in the fourth quarter of 2021, from €1.49 billion a year before.
Alpha Bank told Market Intelligence that it aims to reduce its NPE ratio to 7% at the end of 2022, from 13% at the end of 2021. Eurobank said it expects to cut its NPE ratio to 5.8% in 2023, from 6.8% in 2021.
Piraeus Bank and National Bank of Greece did not respond to a request for comment.
European banks still face risks amid the phaseout of state pandemic-related measures and Russia's invasion of Ukraine, which could place pressure on asset quality, Bank of Greece Governor Yannis Stournaras said in a March 22 speech.
