Moody’s downgrades five Greek banks amid public debt crisis

Moody’s downgrades five Greek banks amid public debt crisis

Athens, Greece: Moody’s credit ratings agency downgraded five Greek banks on Wednesday, saying the effects of the country’s public debt crisis—including painful austerity measures and a long recession—will weaken their finances.

The credit rating agency said the outlook on the banks—National Bank of Greece, EFG Eurobank Ergasias, Alpha Bank, Piraeus Bank and Emporiki Bank of Greece—remained negative, suggesting further downgrades are possible.

“Today’s rating actions were prompted by the country’s weakening macroeconomic outlook and its expected impact on these banks’ asset quality and earnings-generating capacity," Moody’s Investor Services said in a statement. “Pressures on the macroeconomic fundamentals have been evident for the past year and are expected to intensify as the year unfolds."

Greece has been gripped by a financial crisis since late last year, when the newly elected Socialist government drastically revised its projected budget deficit for 2009 to 12.7% from previous estimates earlier that year of below 4%.

The government has announced a series of harsh austerity measures to bring its debt under control, including cutting civil servants’ pay, hiking taxes and freezing pensions.

But the loss of market confidence has left the country facing high borrowing costs.

“Although additional measures taken to address fiscal imbalances at the national level may have a positive impact over the longer term, Greece’s fiscal challenges will weigh negatively on economic growth over the short to medium term," Moody’s said.

It added that recession in Greece is likely to lead to higher unemployment, lower consumer spending and reduced profitability for small and medium sized enterprises.

“Moody’s expects the upward trend in non-performing loans, which began in 2008, to continue in 2010 and, possibly, 2011. Combined, these factors will place additional pressure on the banking sector’s already weakened asset quality and profitability."

Greece’s borrowing costs remain high despite an agreement reached in Brussels last week to rescue the country if it finds itself unable to pay its debt or borrow on the market.

In Moody’s report, the rating for the National Bank of Greece was downgraded to A2 from A1, EFG Eurobank Ergasias to A3/Prime-2 from A2/Prime-1, Alpha Bank to A3/Prime-2 from A2/Prime-1 and Piraeus Bank to Baa1/Prime-2 from A2/Prime-1). Emporiki Bank of Greece’s deposit and debt ratings were downgraded to A3/Prime-2 from A2/Prime-1, it said.