Fitch Ratings has assigned Piraeus Bank S.A. (Piraeus Bank) a Long-Term Issuer Default Rating (IDR) of 'CCC' and Viability Rating (VR) of 'ccc'.

Piraeus Bank is a newly-established bank that replaces the former entity of the same name, now renamed Piraeus Financial Holdings S.A. (HoldCo). The Holdco has become a 100% shareholder of the newly-established Piraeus Bank, and its rating has now been withdrawn following the reorganisation.

Fitch has also affirmed the long- and short-term programme ratings of 'CC'/'C' for the senior preferred debt issued under the group's EMTN programme, which have been transferred from the HoldCo to the newly established Piraeus Bank.

A full list of ratings is provided below.

Fitch has affirmed and withdrawn the HoldCo's IDRs, VR, Support Rating and Support Rating Floor. The rating withdrawals follow the completion on 30 December 2020 of the HoldCo's transfer of banking assets and liabilities to Piraeus Bank, in line with its corporate transformation plan announced early 2020. The group has transferred its banking license and most of its banking assets and liabilities to the new entity ahead of large impaired loan securitisations.

Fitch has also affirmed and withdrawn the senior preferred debt ratings of Piraeus Group Finance plc, a funding vehicle for the group, for commercial reasons.

KEY RATING DRIVERS

IDRs AND VR

Piraeus Bank's ratings are in line with the previous ratings of the HoldCo, reflecting our opinion that the reorganisation has not fundamentally changed the credit risk profile of the group and that this will not change until the securitisations are completed, ensuring the transfer of risk outside the group.

A small amount of assets and liabilities are expected to remain on the HoldCo's balance sheet, mainly relating to two large impaired loan securitisations, Phoenix and Vega, which are expected to be completed in 1H21. The Holdco is expected to retain 95% of the mezzanine and junior notes of these securitisations and the respective non-performing loans. Piraeus Bank will retain 5% of the mezzanine and junior notes, and 100% of the senior notes that are guaranteed by the Greek asset-protection scheme. Phoenix and Vega are expected to amount to EUR7 billion.

The bank has announced a series of actions for 2021 that will facilitate the disposal of an additional EUR5 billion of impaired loans. The bank expects these measures to be capital-accretive. We estimate the planned transactions could reduce Piraeus Bank's impaired loan ratio to below 30% by end-2021, when also considering the bank's guidance for gross inflows of impaired loans for 2021 from performing loans under moratoria (about EUR1 billion or 25% of outstanding loans under moratoria).

We therefore expect that our assessment of asset quality of the bank, which is a factor of high importance in assessing the rating of the group, could improve. Nonetheless, material risks remain, including the possibility that the transactions are not completed over the 18-to-24 month rating horizon or that its impact on the overall asset quality of the group is not as large as expected.

Piraeus Bank's ratings also continue to reflect the very high capital encumbrance by unreserved problem assets. Fitch estimates the bank's impaired ratio was 48% and unreserved impaired loans represented more than 200% of common equity Tier 1 (CET1) capital at end-September 2020. This ratio is expected to fall following the securitisations but to remain high.

Like other Greek banks, Piraeus Bank's overall financial profile is sensitive to Greece's operating environment, which remains volatile and sensitive to the Covid-19 pandemic and its impact on the Greek economy. The bank's funding and liquidity continued strengthening in 2020 and compare favourably with the sector's overall.

SENIOR PREFERRED DEBT

Long-term senior preferred debt ratings are notched down twice from Piraeus Bank's Long-Term IDR to reflect poor recovery prospects in the event of a default on senior preferred debt as reflected in a Recovery Rating of 'RR6'. This is due to weak asset quality, high levels of senior-ranking liabilities (mainly insured retail and SME deposits) and high asset encumbrance from secured funding.

SUPPORT RATING AND SUPPORT RATING FLOOR

The Support Rating of '5' and Support Rating Floor of 'No Floor' highlight our view that support from the state cannot be relied upon. This is because of Greece's limited resources and the implementation of the Bank Recovery and Resolution Directive.

RATING SENSITIVITIES

IDRs AND VR

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Fitch could upgrade Piraeus Bank's ratings if the impaired loans/gross loans ratio falls to about 30% or less within Fitch's rating horizon and if the bank shows materially lower capital encumbrance from unreserved problem assets than at end-September 2020. More generally, an upgrade would require Piraeus Bank to withstand pressure on asset quality and capitalisation during the crisis, as well as an improved capacity to generate capital internally.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

The ratings would likely be downgraded if the deterioration in the operating environment results in a permanent damage of the bank's asset quality and capital, including an erosion of capital buffers without a clear path for the capital ratios to be restored within a reasonable timeframe. Downside pressure on the ratings could also arise if depositor-and-investor confidence weakens, compromising the bank's liquidity profile. Support measures by the authorities, including state-loan guarantees, liquidity facilities or sector-wide schemes for reducing problem assets, could mitigate the negative rating pressures on the bank.

SENIOR PREFERRED DEBT

The ratings of senior preferred debt are sensitive to changes in the Long-Term IDR and to the extent of asset encumbrance by secured funding. An increase in the proportion of unsecured funding in the bank's funding mix and/or improved asset-quality expectations could result in a narrower notching from the Long-Term IDR. The ratings of senior preferred debt may be downgraded if the Long-Term IDR is downgraded as the current notching from the Long-Term IDR of two notches is currently at its widest permitted under our criteria.

SUPPORT RATING AND SUPPORT RATING FLOOR

An upgrade of the Support Rating and upward revision of the Support Rating Floor would be contingent on a positive change in Greece's ability and propensity to support its banks. While not impossible, this is highly unlikely in Fitch's view. As the Support Rating and Support Rating Floor are at their lowest on Fitch's rating scale, they cannot be downgraded or revised downward respectively.

BEST/WORST CASE RATING SCENARIO

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit [https://www.fitchratings.com/site/re/10111579]

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.

ESG CONSIDERATIONS

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

RATING ACTIONS

ENTITY/DEBT	RATING	RECOVERY	PRIOR

Piraeus Group Finance PLC

Senior preferred

LT	CC 	Affirmed	RR6	CC

Senior preferred

LT	WD 	Withdrawn		CC

Senior preferred

ST	C 	Affirmed		C

Senior preferred

ST	WD 	Withdrawn		C
Piraeus Bank S.A.	LT IDR	CCC 	New Rating		
ST IDR	C 	New Rating		
Viability	ccc 	New Rating		
Support	5 	New Rating		
Support Floor	NF 	New Rating		
Piraeus Financial Holdings S.A.	LT IDR	CCC 	Affirmed		CCC
LT IDR	WD 	Withdrawn		CCC
ST IDR	C 	Affirmed		C
ST IDR	WD 	Withdrawn		C
Viability	ccc 	Affirmed		ccc
Viability	WD 	Withdrawn		ccc
Support	5 	Affirmed		5
Support	WD 	Withdrawn		5
Support Floor	NF 	Affirmed		NF
Support Floor	WD 	Withdrawn		NF

Senior preferred

LT	CC 	Affirmed	RR6	CC

Senior preferred

ST	C 	Affirmed		C

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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