Fitch Ratings has published Piraeus Financial Holdings S.A.'s (HoldCo) Long-Term Issuer Default Rating (IDR) of 'BB-' and Viability Rating (VR) of 'bb-'.
The Outlook on the Long-Term IDR is Positive.
Fitch has also assigned the HoldCo's upcoming subordinated Tier 2 notes a long-term expected rating of 'B(EXP)'. The notes will be issued under the HoldCo's EUR25 billion euro medium-term note programme and will qualify as Tier 2 regulatory capital. The assignment of the final rating is contingent on the receipt of final documents conforming to information already reviewed.
A full list of ratings is provided below.
Key Rating Drivers
IDRs and VR
The HoldCo is the full owner and holding company of Piraeus Bank S.A. (Piraeus), the group's main operating company and core bank. The ratings of the HoldCo and Piraeus are equalised as Fitch believes that the risk of default of the two entities is substantially the same. This is because Fitch expects that the HoldCo will not build up significant double leverage beyond 120% and believes that liquidity at the HoldCo is managed prudently with appropriate contingency plans. The group is also regulated on a consolidated basis and capital and liquidity are managed centrally.
Fitch assesses the HoldCo and Piraeus on a consolidated basis as the banking operations are managed in a highly integrated manner. The ratings of the HoldCo and Piraeus reflect the group's structurally improved profitability on higher interest rates and successful restructuring, which has allowed it to build up sufficient buffers over regulatory capital requirements. The ratings also reflect that the bank's non-performing exposure (NPE) ratio is now closer to domestic peers', although it is still high by international standards. The group's customer deposit-based funding remains a rating strength.
The HoldCo's Short-Term IDR of 'B' is the only short-term rating that maps to a 'BB-' Long-Term IDR under Fitch's rating correspondence table.
For more information on Piraeus's rating Outlook and key rating drivers, see the latest rating action commentaries (Fitch Revises Piraeus Bank's Outlook to Positive on Sovereign Upgrade; Affirms at 'BB-' dated 14 December 2023 and Fitch Upgrades Piraeus Bank to 'BB-'; Outlook Stable dated 19 September 2023) on www.fitchratings.com.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
The Holdco's ratings share the same negative sensitivities with Piraeus:
Piraeus's Outlook could be revised to Stable if Greece's economic prospects deteriorate, for example, if an unexpected domestic economic slowdown without prospects of a rebound in the short term leads to less favourable business opportunities for banks
We could downgrade Piraeus's ratings if we expect its NPE ratio (excluding senior notes) to rise above 8% on a sustained basis, or if its common equity Tier 1 (CET1) ratio falls below 12%, causing CET1 capital encumbrance by unreserved problem assets to rise significantly
A decline of operating profit to below 1% of risk-weighted assets (RWAs) due to structural weaknesses in Piraeus's business model, or evidence of funding instability or inability to access wholesale debt markets for a prolonged period, could also be rating-negative
The HoldCo's ratings could also be downgraded by at least one notch below those of Piraeus on a significant build-up of double leverage at the HoldCo, changes in regulation scope, or more onerous restrictions on fungibility of capital and liquidity between the two entities, which we do not expect.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
The Holdco's ratings share the same positive sensitivities with Piraeus:
The Positive Outlook indicates that Piraeus's ratings are likely to be upgraded in the next 12 to 24 months if Greece's operating environment score is revised higher or if Piraeus's business model strengthens via stronger revenue generation and diversification. A stabilisation of the operating profit/RWAs above 2% without a material deterioration in the bank's risk profile, and a strengthening of the CET1 ratio above 15% would also be positive for Piraeus's ratings
The problem asset ratio falling towards 7% with strengthened NPE coverage and resulting low CET1 capital encumbrance by unreserved problem assets, coupled with stable funding and a continued build-up of minimum requirement for own funds and eligible liabilities (MREL) buffers, could also lead to an upgrade
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
SUBORDINATED DEBT
The upcoming Tier 2 notes will constitute direct, unsecured, unconditional and subordinated obligations of the HoldCo.
The rating of the notes is notched off twice from the HoldCo's 'bb-' VR for loss severity to reflect their poor recovery prospects given their junior ranking. No notching is applied for incremental non-performance risk because write-down of the notes will only occur once the point of non-viability is reached and there is no coupon flexibility before non-viability.
GOVERNMENT SUPPORT RATING (GSR)
The HoldCo's GSR of 'No Support' is aligned with that of Piraeus and reflects Fitch's view that although extraordinary sovereign support is possible it cannot be relied on. Senior creditors can no longer expect to receive full extraordinary support from the sovereign in the event that the bank becomes non-viable. This is because the EU's Bank Recovery and Resolution Directive and the Single Resolution Mechanism for eurozone banks provide a framework for resolving banks that requires senior creditors participating in losses ahead of a bank receiving sovereign support.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The rating of Tier 2 notes is sensitive to changes in the HoldCo's VR, which in turn is sensitive to changes in Piraeus's VR.
An upgrade of the GSR would be contingent on a positive change in the sovereign's propensity to support the bank. In Fitch's view, this is highly unlikely, although not impossible.
VR ADJUSTMENTS
The operating environment score of 'bb' is below the 'bbb' implied category score, due to the following adjustment reason: level and growth of credit (negative).
The earnings & profitability score of 'bb-' is above the 'b & below' implied category score, due to the following adjustment reason: historical and future metrics (positive).
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
The VR of the Holdco is equalised to the VR of Piraeus.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
PIRAEUS FINANCIAL HOLDINGS S.A. 
