Morningstar DBRS Upgrades National Bank of Greece S.A.'s Long-Term Issuer Rating to BBB From BBB (low), Stable Trend

DBRS Ratings GmbH (Morningstar DBRS) upgraded its credit ratings on National Bank of Greece S.A. (NBG or the Bank), including the Long-Term Issuer Rating to BBB from BBB (low). The trend remains Stable on all credit ratings. Morningstar DBRS upgraded the Bank's Intrinsic Assessment (IA) to BBB from BBB (low) 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 credit rating upgrades and Stable trends consider that NBG has consistently reported improved profitability levels while also strengthening its asset quality profile further. This enabled the Bank to continue to build up capital, resulting in NBG sitting on ample capital buffers over its supervisory requirements. Morningstar DBRS expects NBG's profitability to reduce mainly because of lower interest rates and higher operating expenses. However, new loan volumes, coupled with a higher contribution from fee income and further cost efficiency measures, should contribute to mitigate the negative impact. At the same time, continued de-risking as well as robust nonperforming exposure (NPE) coverage and loan growth will likely allow NBG to offset any potential increase in new NPE inflows, ensuring relative stability to its asset quality profile in the coming future. Morningstar DBRS expects NBG to deploy its excess capital maintaining adequate cushions, as the Bank's internal target suggests versus current levels.

The credit ratings continue to consider NBG's leading franchise in retail and corporate banking in Greece as well as its stable funding and liquidity position, which mostly benefits from a large and sticky domestic deposit base. Nonetheless, Morningstar DBRS' credit ratings reflect the Bank's moderate diversification by business, revenue sources, and funding structure as well as the significant, albeit lower and set to reduce faster, level of deferred tax credits (DTCs) accounted for in its capital structure.

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

The Bank's IA of BBB is below the Intrinsic Assessment Range. However, NBG's credit ratings are constrained by the sovereign credit rating.

CREDIT RATING DRIVERS
An upgrade of the Long-Term Issuer Rating would require an upgrade of the Hellenic Republic's sovereign credit rating and the Bank to maintain sound profitability, asset quality, and capitalisation profiles, while also continuing to improve the quality of its capital.

A downgrade of the credit ratings would result from a downgrade of the Hellenic Republic's sovereign credit rating or a material deterioration of the Bank's asset quality or profitability levels.

CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Moderate
NBG is a systemically important bank in Greece with around EUR 75 billion in total assets at YE2024, a network of 314 domestic branches, and 59 branches abroad. NBG's footprint has significantly shrunk domestically and internationally, in line with the restructuring plan agreed with the supervisory authorities to turn the Bank around after the Greek sovereign debt crisis. While partly divesting its stake in recent years, the Hellenic Financial Stability Fund (HFSF) remains a core shareholder for NBG, holding 8.4% of its share capital. However, HFSF aims to dispose of its remaining shares by YE2025. NBG maintains its strong domestic market shares; however, in Morningstar DBRS' view, the diversification of the Bank's business model remains moderate. NBG maintains a 10% stake in Ethniki Insurance (Ethniki) which could be sold as part of Piraeus Bank's plan to fully acquire Ethniki, leading to a substantial capital gain.

Earnings Combined Building Block (BB) Assessment: Good
NBG's profitability has improved in recent years, mainly driven by higher net interest income (NII) and net fees, strong operating efficiency, and reduced credit costs. Morningstar DBRS expects lower interest rates as well as higher personnel remuneration and digital investments to negatively affect earnings. However, loan growth, coupled with benefits from rate hedging, higher revenue diversification, and additional cost rationalisation, should help maintain good profitability levels. NBG reported net attributable income of EUR 1.2 billion in 2024, up 5% year-over-year (YOY). Total revenues were up 5% YOY in 2024, supported by higher NII amidst net interest margin resilience, significant loan growth, and higher contribution from fixed income securities as well as higher net fees associated with lending and payment services, investment, and bancassurance products. Nonetheless, net fees still represented a moderate 15% of the Bank's total revenues in 2024. NBG's cost-to-income ratio remained at a strong 38% in 2024 as calculated by Morningstar DBRS on core revenues and excluding restructuring charges, up from 35% in 2023. The cost of risk was 50 basis points (bps) in 2024 as calculated by Morningstar DBRS, down from 78 bps in 2023.

Risk Combined Building Block (BB) Assessment: Good/Moderate
NBG's asset quality metrics kept improving in 2024 and are now more in line with European peers. The Bank's gross NPEs were down 31% YOY in 2024 and its gross NPE ratio fell to 2.6% from 3.7% in the same period, also helped by loan book expansion. Net of total loan loss reserves, NPEs were almost nil at YE2024, embedding a NPE cash coverage of around 98%. Stage 2 loans (loans where credit risk has increased since origination) represented around 6.5% of gross customer loans at YE2024, significantly down from around 15% at YE2020. The ongoing trade war and the still relatively high interest rates might lead to a potential deterioration in economic conditions, resulting in an increase in new NPE inflows. Nonetheless, Morningstar DBRS' view is that NBG should be able to maintain a broadly stable asset quality profile, thanks to de-risking, strong NPE coverage, and credit expansion fuelled by stronger economic prospects for Greece than for most peers in Europe as well as projects connected to the European Recovery and Resilience Facility funds and lower rates.

The Bank's securities portfolio was up 19% YOY at YE2024, accounting for 27% of its total assets and predominantly consisting of sovereign bonds, mostly issued by the Greek government. Total sovereign bonds represented around 2.7 times (x) NBG's common equity tier 1 (CET1) capital, of which 1.3x is attributable to Greece. Approximately 77% of total securities were classified at amortised cost (AC) at YE2024 and the fair value of the fixed income portfolio at AC remained lower than its carrying value. However, the unrealised losses are largely hedged and are unlikely to materialise given NBG's solid liquidity position.

Funding and Liquidity Combined Building Block (BB) Assessment: Good
NBG's funding and liquidity profile has been recently supported by customer deposit accumulation as well as enhanced presence in the interbank and capital markets. Nonetheless, the Bank's funding mix remains moderately diversified. Customer deposits, mostly consisting of current and savings deposits raised from individuals in Greece, were up 1% YOY in 2024 and they accounted for over 91% of NBG's total funding. NBG was the first Greek bank to fully repay its central bank funding in Q1 2024, while continuing to tap sources from other banks in the form of deposits, repos, and other financing. Debt securities issued accounted for around 6% of NBG's total funding at YE2024, up from 1% at YE2020 following a ramp up in the Bank's issuance activity. The Bank's liquidity position is sound thanks to an excess cash position with the interbank market of around EUR 6.4 billion at YE2024, as well as a net loan-to-deposit ratio of 63%, a liquidity coverage ratio of 261%, and a net stable funding ratio of 148%.

Capitalisation Combined Building Block (BB) Assessment: Moderate
NBG's capital position is more robust compared with previous years on the back of improved earnings generation as well as de-risking and capital management actions, and despite higher shareholder remuneration and loan book expansion. The Bank's quality of capital remains relatively weak considering the still significant, albeit lower, level of DTCs; however, Morningstar DBRS expects it to improve faster than previously expected, reflecting the plan to accelerate DTC amortisation from 2025. At YE2024, NBG's fully loaded CET1 and total capital ratios were 18.3% and 21.2%, respectively (including profit for the period and dividend accrual), up from 17.8% and 20.2%, respectively, at YE2023. Subject to approvals, the dividend accrual corresponds to a 50% payout ratio of 2024 net income, up from the previous 30%, and embeds cash dividends as well as share buybacks. As a result, the capital buffers over the supervisory requirements stood at around 870 bps for the CET1 ratio and 690 bps for the total capital ratio at YE2024. DTCs represented 51% of NBG's fully loaded CET1 capital at YE2024, down from 55% one year earlier.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/451700/.

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, NBG 2024 Results Press Release, NBG 2024 Results Presentation, NBG 2020-2024 Annual Reports, NBG 9M 2024 Pillar 3 Report, and NBG 2023 ESG 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/451701/.

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: Marcos Alvarez, Managing Director - Global Financial Institution Ratings
Initial Rating Date: 30 April 2024
Last Rating Date: 13 March 2025

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