Press Release

Morningstar DBRS Upgrades Piraeus Bank S.A.'s Long-Term Issuer Rating to BBB from BB (high); Changes Trend to Stable from Positive

Banking Organizations
April 01, 2025

DBRS Ratings GmbH (Morningstar DBRS) upgraded all credit ratings of Piraeus Bank S.A. (the Bank), including the Long-Term Issuer Rating to BBB from BB (high). Concurrently, Morningstar DBRS upgraded the Bank's Long-Term Deposits to BBB from BBB (low). The trend on all credit ratings was changed to Stable from Positive. The Bank's Intrinsic Assessment (IA) has been upgraded to BBB from BB (high) and its Support Assessment remains SA3. See the full list of credit ratings at the end of this press release.

KEY CREDIT RATING CONSIDERATIONS
The Bank is the main operating entity of the Piraeus Financial Holdings Group (Piraeus or the Group), which is one of the four systemic banking groups in Greece. Since 2020, the Bank is a 100% subsidiary of Piraeus Financial Holdings S.A.; however, Morningstar DBRS notes that Piraeus aims to merge its holding company by incorporation into the Bank by the end of 2025.

The 2-notch upgrade and the Stable trend reflect strong and sustained improvements in the Group's earnings power and risk profile, that mark the continued improvements in the Group's credit profile, including a strengthening of its capital buffers over supervisory requirements, despite higher dividend distributions and significant loan growth. Morningstar DBRS' view is that Piraeus' profitability will likely remain adequate in the coming future despite interest rate cuts, higher personnel expenses, and digital investments, mostly reflecting loan book expansion, revenue diversification initiatives, and cost optimisation measures. At the same time, Morningstar DBRS expects the Group's asset quality metrics not to deviate materially from current levels, helped by further de-risking as well as more robust nonperforming exposure (NPE) coverage, and credit expansion prompted by good prospects for the Greek economy, projects connected to the European Recovery and Resilience Facility funds, and lower rates.

The credit ratings continue to consider Piraeus' robust domestic franchise in retail and corporate banking, and its stable funding and liquidity position, which relies on a large and sticky deposit base. Nonetheless, the credit ratings also incorporate the moderate diversification of Piraeus' business model, revenue streams, and funding structure as well as the Group's still relatively weak capital structure, which incorporates a still high--albeit lower and set to reduce faster--level of deferred tax credits (DTCs).

The acquisition of Ethniki Insurance (Ethniki), which remains subject to regulatory approvals at this stage, will enhance Piraeus' product offering while improving the degree of diversification of its revenue streams, ensuring higher stability to its earnings in any interest rate cycle with a manageable negative impact on its capitalisation in the short term. Morningstar DBRS believes that execution risks for this transaction should be relatively manageable, considering Piraeus' track record in managing acquisitions in Greece.

The Bank's Long-Term Senior Debt and Long-Term Deposits are both positioned in line with the BBB sovereign credit rating of the Hellenic Republic. Morningstar DBRS sees it unlikely for the Bank to be rated above the sovereign credit rating, given its business concentration in the domestic market and its significant exposure to Greek sovereign bonds. The Stable trend is also in line with the trend on Morningstar DBRS' sovereign credit rating on the Hellenic Republic.

The Bank's IA is positioned at the midpoint of the Intrinsic Assessment Range (IAR), to reflect that Piraeus' credit fundamentals and performance are commensurate with those of similarly rated peers.

CREDIT RATING DRIVERS
An upgrade of the Long-Term Issuer Rating would require an upgrade of the Hellenic Republic's sovereign credit rating and Piraeus to strengthen its capital buffers as well as improve the quality of its capital and the diversification of its revenue streams, while maintaining adequate profitability levels and asset quality profile.

A downgrade of the credit ratings would result from a downgrade of the Hellenic Republic's sovereign credit rating or a material deterioration in Piraeus' capitalisation or asset quality, or in the event its profitability reverted to substantially weaker levels.

CREDIT RATING RATIONALE
Franchise Combined Building Block Assessment: Moderate
Piraeus is one of the four systemic banking groups in Greece, with total assets of around EUR 80 billion at YE2024 and a leading domestic market position. While its business model remains highly focused on retail and corporate banking, the Group is making efforts to improve the diversification of its operations, including the share purchase agreement signed with CVC Capital Partners to acquire Ethniki, which remains subject to regulatory approvals. Since March 2024, Piraeus has been fully privatised following the exit of the Hellenic Financial Stability Fund. The Group has been investing more in information and technology infrastructure as well as in digitalisation, including its online bank snappi, which is expected to be launched in Q2 2025. Piraeus also aims to merge its holding company by incorporation into the Bank to streamline its corporate structure and for cost efficiency purposes.

Earnings Combined Building Block Assessment: Good
Piraeus' profitability has improved in recent years, driven by higher net interest income (NII) and net fees as well as strong operating efficiency and reduced credit costs. Considering the ongoing reduction in interest rates as well as the structural increase in personnel remuneration and higher digital investments, Morningstar DBRS expects the Group's profitability to somewhat decline. However, support to NII from loan growth and bond portfolio, coupled with improved revenue diversification and further cost optimisation, should help Piraeus maintain adequate profitability levels. Piraeus reported a net profit of EUR 1.1 billion in 2024, up 36% year over year (YOY). Total revenues were up 6% YOY in 2024, reflecting higher average interest rates as well as higher loan and fixed income security volumes, benefits from rate hedging, contained deposit funding cost, and higher diversification in fee income products and services. Piraeus' recurring cost-to-income ratio remained flat YOY at a strong 30% in 2024, while its cost of risk halved YOY to around 70 basis points (bps) in 2024, or 46 bps when excluding provisions for derisking.

Risk Combined Building Block Assessment: Moderate/Weak
Piraeus' asset quality metrics improved further in 2024, and they compare more favourably with European peers. Gross NPEs were down 15% YOY at YE2024, and down 95% since YE2020. The gross NPE ratio fell to 2.6% at YE2024 (or 1.3% net of provisions), from 3.5% one year earlier. The Group's NPE cash coverage increased to around 65% from 62% in the same period, based on total loan loss reserves. Stage 2 loans (loans where credit risk has increased since origination) represented 8% of gross loans at YE2024, down from 10% at YE2023. Unlike most European peers, Piraeus' performing loan book grew by 12% YOY in 2024, mainly driven by corporates and strongly accelerating in Q4 2024 because of projects connected to the development of the country.

The Group's securities portfolio was up 20% YOY at YE2024, and it accounted for 21% of its balance sheet. It mainly consisted of Greek sovereign bonds and other EU sovereign bonds. Around 90% of total securities were classified at amortised cost (AC) at YE2024, and while the fair value of the securities at AC was still lower than their carrying value, unrealised losses have reduced since YE2022 as Piraeus has increased the size of the portfolio while replenishing it with securities carrying higher remuneration.

Funding and Liquidity Combined Building Block Assessment: Good
Piraeus' funding and liquidity profile has benefitted from growth in customer deposits as well as enhanced access to the interbank and capital markets. Nonetheless, the Group's funding mix remains moderately diversified with customer deposits, representing 90% of its total funding at YE2024. Deposits are primarily granular, raised from retail clients, and 78% of total domestic deposits were savings and sight deposits, while time deposits have stabilised at around 22% of total. Piraeus had fully repaid its targeted longer-term refinancing operations funding to the European Central Bank at YE2024, while increasing its access to the interbank market to 3% of total funding from 2% one year earlier. Debt securities issued represented around 6% of Piraeus' total funding at YE2024, reflecting higher issuances of senior as well as subordinated bonds. The Group's liquidity coverage ratio and its net stable funding ratio were 219% and 134%, respectively, at YE2024, while its net loan-to-deposit ratio was 63%.

Capitalisation Combined Building Block Assessment: Weak/Very Weak
Piraeus' capitalisation strengthened in 2024, driven by improved earnings generation, stronger balance sheet, and capital management actions, and despite higher shareholder remuneration and significant loan growth. While the quality of the Group's capital remains relatively weak because of the still-high level of DTCs accounted for in its capital structure, Morningstar DBRS expects it to improve faster than previous expectations, reflecting the plan to accelerate DTC amortisation from 2025. At YE2024, and including an accrual for a 35% dividend pay-out, Piraeus' fully loaded CET1 and total capital ratios were 14.5% and 19.7%, respectively (or 14.7% and 19.9% pro forma), up from 13.2% and 17.8% at YE2023. As a result, the capital buffers over the 2025 supervisory requirements amounted to around 450 bps for CET1 ratio and 500 bps for total capital ratio, or 470 bps and 520 bps pro forma. DTCs represented 63% of CET1 capital at YE2024, down from 76% one year earlier. If successful, the acquisition of Ethniki will absorb around 150 bps of capital or around 100 bps should the Danish Compromise be accepted.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/451335/.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Credit rating actions on the Hellenic Republic are likely to have an impact on this credit rating. ESG factors that have a significant or relevant effect on the credit analysis of the Hellenic Republic are discussed separately at https://dbrs.morningstar.com/issuers/17484.

There were no Environmental factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (13 August 2024) https://dbrs.morningstar.com/research/437781.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Banks and Banking Organisations (4 June 2024) https://dbrs.morningstar.com/research/433881. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The sources of information used for this credit rating include Morningstar, Inc. and company documents, Piraeus 2024 Results Press Release, Piraeus 2024 Results Presentation, Piraeus 2024 Financial Factsheet, Piraeus 2020-24 Annual Reports, Piraeus 9M 2024 Pillar 3 Report, and Piraeus 2023 Sustainability & Business Report. Morningstar DBRS considers the information available to it for the purposes of providing this credit rating to be of satisfactory quality.

Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' trends and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/451336/.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Andrea Costanzo, Vice President - European Financial Institution Ratings
Rating Committee Chair: Elisabeth Rudman, Managing Director - Global Financial Institution Ratings
Initial Rating Date: 13 January 2022
Last Rating Date: 30 September 2024

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