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Moody’s sound alarm to HB

24/09/2009 06:43
Moody's Investors Service has today changed the outlook on the D+ bank financial strength rating (BFSR) of the Cyprus-based Hellenic Bank Public Company Ltd (Hellenic Bank) to negative, from stable. The bank's deposit rating of Baa2 still has a stable outlook.

In the first negative rating of a Cypriot bank in the past two years, Moody’s expressed its concerns on impact of the domestic economic recession on the profitability of Hellenic Bank and its bad debts. According to the report, “Moody's rating action was prompted both by challenging operating/macro conditions -- and their impact on Hellenic Bank's asset quality and interest margins -- and, more importantly, the operational and financial challenges facing the Cypriot institution's Greek operations, which are compromising its earnings-generation capabilities.”.

“Hellenic Bank currently operates 27 branches in Greece, where the operations account for around 21% of total group loans and 14% of deposits”, it said.

“Over the past 18 months, their performance has deteriorated substantially, with losses increasing from EUR3 million in 2007 to EUR34 million in H1 2009, on the back of shrinking margins, negative growth in business volume, and deteriorating asset quality”, it added.

However, Moody's believes Hellenic Bank's current BFSR is supported by its well-established local (Cyprus) franchise and strong position in the lucrative international banking business, as well as its good liquidity position and adequate capitalisation.

“Future rating actions will depend on management's ability to implement its restructuring plan in Greece and to improve the currently weak earnings-generation capabilities”, it stressed.

Moody's retains a stable outlook on Hellenic Bank's Baa2 deposit rating, supported by the very high probability of systemic support in case of need.

Yesterday, Moody’s downgraded the bank financial strength rating (BFSR) of Marfin Egnatia Bank SA of Greece ("Marfin Egnatia") to D, with a stable outlook, from D+. The outlook on the bank's Baa1/P-2 deposit, and Baa1/Baa2 senior and subordinated debt ratings was changed to positive, from stable.

Last November, the firm confirmed the rating of Bank of Cyprus (C-/A2/P-1) with a stable outlook.