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Fitch upgrades long-term Issue Default Ratings despite pressure on Greek banks

Fitch ratings agency upgraded the long-term issuer default issuer ratings for the four systemic banks of Greece despite the fact that they have come under strong pressure since last week. At the same time, a unit of the Fitch group warns of the risks if the Greek government implements an asset protection scheme for the banks with state guarantees.

Fitch Ratings upgraded Alpha Bank AE’s and National Bank of Greece S.A.’s Long-Term Issuer Default Ratings (IDR) to ‘CCC+’ from ‘RD’ and Eurobank Ergasias S.A.’s and Piraeus Bank S.A.’s Long-Term IDR to ‘CCC’ from ‘RD’, it said on Monday.

At the same time, Fitch has upgraded the four banks’ Short-Term IDRs to ‘C’ from ‘RD’.

All other issuer and issue ratings are unaffected by the event.

“The upgrades of the Long-Term IDRs to the level of the VRs follow the lifting of bank deposit withdrawal limits and legal restrictions on the free movement of capital within the country on 1 October 2018. In Fitch’s view, although some restrictions remain on cross-border outward capital flows, Greek banks are now substantively able to service all their obligations,” a statement reportedly  said. 

At the same time, Fitch Solutions, a unit of Fitch group, warned of  a financial injection by the Greek state to the banks.

“The creation of an asset protection scheme, in which the Greek government provides insurance for the sector’s bad debts, would go some way to stem the sell-off in Greek bank shares, were it to not require any losses from private sector investors,” Fitch Solutions in a report.

“Such a situation would shift risks from the Greek banking sector to the Greek government,” it said.

But any depletion of Greece’s own funding buffer or a solution that may involve government funding over the coming years would likely bring its own fiscal position into focus, Fitch Solutions said.

“It remains our core view that Greece will meet its primary budget surplus targets of 3.5 percent of GDP in 2018 and 2019, however a banking sector bailout would pose major downside risks to this view,” it said in its report.

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