Morningstar DBRS Upgrades Eurobank S.A.'s Long-Term Issuer Rating to BBB From BBB (low), Changes Trend to Positive From Stable

DBRS Ratings GmbH (Morningstar DBRS) upgraded its credit ratings on Eurobank S.A. (the Bank), including the Long-Term Issuer Rating to BBB from BBB (low). Concurrently, Morningstar DBRS changed the trend on the Bank's Long-Term Issuer Rating to Positive from Stable. 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 Bank is the main operating entity of the Eurobank Holdings Group (Eurobank or the Group), one of the four systemic banking groups in Greece. Since 23 March 2020, the Bank is a 100% subsidiary of Eurobank Ergasias Services and Holdings S.A, a financial holding company listed on the Athens Stock Exchange. However, Eurobank has initiated the merger process of Eurobank Ergasias Services and Holdings S.A with Eurobank S.A. through absorption of the holding company by the Bank.

The credit rating upgrades consider the Group's greater ability to maintain its improved profitability and asset quality profile while preserving adequate capital buffers despite the acquisition of Hellenic Bank (HB) in Cyprus. In Morningstar DBRS' view, Eurobank's profitability will continue to stand at adequate levels in the coming future as the negative impact from lower interest rates and higher operating expenses will be likely mitigated by loan growth as well as higher revenue diversification, cost optimisation, and synergies from the integration of HB. At the same time, Morningstar DBRS' view is that Eurobank should be able to keep a broadly stable asset quality profile as new nonperforming exposure (NPE) inflows should be broadly offset by de-risking, robust NPE coverage, and loan book expansion.

The credit ratings continue to consider Eurobank's stable funding and liquidity position, which mostly benefits from a large and sticky deposit base which is also more geographically diversified following the acquisition of HB. Nonetheless, Morningstar DBRS' credit ratings reflect the Group's moderate diversification by business, revenue mix, 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.

The Bank's Long-Term Senior Debt and Long-Term Deposits are both positioned in line with Morningstar DBRS' BBB sovereign credit rating on the Hellenic Republic. However, the Positive trends consider Morningstar DBRS' view that the Bank could be rated above the sovereign, should the integration of HB proceed smoothly and Eurobank maintain adequate earnings as well as sound asset quality and capitalisation profiles. While maintaining its leading domestic franchise in retail and corporate banking, the acquisition of HB strengthens Eurobank's presence in Cyprus, enhancing its geographic diversification while loosening its link with Greece. This is reflected in the Positive trends assigned to the Bank compared with the Stable trends on Morningstar DBRS' sovereign credit rating on the Hellenic Republic.

The Bank's IA of BBB is at the lower end of the Intrinsic Assessment Range. However, the Positive trend envisages potential improvement of the IA in the coming future.

CREDIT RATING DRIVERS
An upgrade of the Long-Term Issuer Rating would require Eurobank to successfully integrate Hellenic Bank and leverage on its improved geographic diversification while maintaining sound profitability, asset quality, and capitalisation profiles, and continuing to improve the quality of its capital.

Given the Positive trend, a downgrade of the credit ratings is unlikely. However, the trend could be revised to Stable in the event of significant risks emerging from the integration of Hellenic Bank and challenges in achieving benefit from its geographical diversification and/or a material deterioration in Eurobank's asset quality and underlying profitability.

CREDIT RATING RATIONALE
Franchise Combined Building Block (BB) Assessment: Moderate
Eurobank is one of the four systemically important banking groups in Greece with around EUR 101 billion in total assets at YE2024, a network of 568 branches and business/private banking centres, and approximately 12,400 employees. The turnaround to which the Group has been subject after the Greek sovereign debt crisis required Eurobank to shrink its footprint significantly. The Group maintains its strong domestic franchise and operates in Bulgaria, Cyprus, and Luxembourg. Eurobank recently enhanced its geographic diversification through the acquisition of HB in Cyprus, which also included CNP Cyprus Insurance Holdings Limited as part of the transaction. Nonetheless, Morningstar DBRS considers Eurobank's diversification by business as moderate. Following the Hellenic Financial Stability Fund's disposal of its stake in 2023, Eurobank has been fully privatised, and, at the end of January 2025, more than 90% of the Group's share capital was held by foreign institutional investors. Eurobank is in the process of merging its holding company with the main operating bank to streamline its corporate structure and for cost efficiency purposes.

Earnings Combined Building Block (BB) Assessment: Good
Eurobank's profitability has improved in recent years, mainly driven by higher net interest income and net fees, strong operating efficiency, and lower loan loss provisions. The acquisition of HB has also supported results in 2024. Morningstar DBRS expects lower interest rates, coupled with structurally higher personnel remuneration and higher digital investments, to negatively affect profitability. However, loan growth as well as higher fee income and further cost optimisation should help maintain adequate earning levels. Synergies from the acquisition of HB will also likely support profitability in the medium term. Eurobank reported a net attributable income of EUR 1.4 billion in 2024, up 27% year-over-year (YOY) or up 18% YOY when excluding restructuring costs and the negative goodwill associated to stake increases in HB. The international business contributed to around 48% of the Group's adjusted net profit in 2024. Total revenues were up 17% YOY in 2024, driven by all revenue streams and including HB. The Group's cost-to-income ratio, as calculated by Morningstar DBRS, increased to a still strong 36% from 35% in the same period, when calculated on core revenues and excluding restructuring charges. The cost of risk was 59 basis points (bps) in 2024, significantly down from the average level of around 200 bps reported in 2020-23.

Risk Combined Building Block (BB) Assessment: Good/Moderate
Eurobank's asset quality metrics improved further in 2024 and compare more favourably with European peers. Gross NPEs totalled around EUR 1.5 billion at YE2024, flat YOY, excluding EUR 0.2 billion NPEs of HB covered by the Asset Protection Scheme (APS). This translates into a gross NPE ratio of 2.9% at YE2024, down from 3.5% one year earlier on the back of loan growth, which also included HB's contribution. Net of total loan loss reserves, NPEs amounted to around EUR 0.2 billion at YE2024, embedding an NPE coverage of more than 88%. Including HB's NPEs covered by the APS, the gross NPE ratio and NPE coverage would be around 3.3% and 80% at YE2024, respectively. Stage 2 loans (loans where credit risk has increased since origination) represented around 9% of gross customer loans at YE2024, down from around 16% at YE2020. Morningstar DBRS' view is that Eurobank should be able to preserve a broadly stable asset quality profile as new NPE inflows should be broadly offset by de-risking, robust NPE coverage, and loan book expansion considering the expected stronger prospects for Eurobank's key markets relative to the European average, projects connected to the European Recovery and Resilience Facility funds, and lower rates.

The Group's securities portfolio accounted for 22% of its total assets at YE2024 and consisted predominantly of investment securities. Total sovereign bonds are more diversified following the acquisition of HB and represented around 1.6 times (x) Eurobank's common equity tier 1 (CET1) capital, of which 0.7x is attributable to Greece. Approximately 79% 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, albeit not as low as in the past as the Group has replenished the portfolio with securities carrying higher remuneration.

Funding and Liquidity Combined Building Block (BB) Assessment: Good
Eurobank's funding and liquidity profile has benefitted from growth in customer deposits as well as an enhanced presence in the interbank and capital markets. The acquisition of HB has contributed to improve the geographic diversification of the Group's deposit base. Nonetheless, the diversification in Eurobank's funding by sources remains moderate. Customer deposits, up 37% YOY at YE2024 mostly because of the acquisition of HB, mainly consist of savings and current accounts collected from individuals and small businesses and accounted for over 89% of Eurobank's total funding. Eurobank had fully repaid its debt with the European Central Bank at YE2024, and other bank funding mainly included secured borrowings, other financings, and deposits. Eurobank has increased its debt issuance activity in recent years and its debt securities issued represented around 8% of its total funding at YE2024. Eurobank could rely on around EUR 24 billion of high-quality liquid assets at YE2024, while its net loan-to-deposit ratio, as calculated by Morningstar DBRS, was around 65% and its liquidity coverage ratio was around 188%. The Bank's net stable funding ratio was around 142% at the end of September 2024.

Capitalisation Combined Building Block (BB) Assessment: Moderate
Eurobank's capitalisation is more robust than in the past on the back of improved earnings generation as well as a stronger balance sheet and capital management actions, despite higher shareholder remuneration, loan growth, and the acquisition of HB. While the Group's capital structure remains relatively weak because of the still significant level of DTCs accounted for in its capital structure, Morningstar DBRS expects it to improve faster than previously expected, reflecting the plan to accelerate DTC amortisation from 2025. Eurobank's fully loaded CET1 and total capital ratios were 16.8% and 19.5%, respectively, at YE2024, flat YOY but significantly up from YE2020. Pro forma (PF) for some expected risk-weighted asset relief and shareholder remuneration equivalent to 50% of 2024 net income, including share buybacks, the CET1 and total capital ratios would be equal to 15.7% and 18.5%, respectively. Eurobank's capital buffers over the supervisory requirements stood at around 620 bps for the CET1 ratio and 420 bps for the Total Capital ratio at YE2024, or 510 bps and 320 bps respectively on a PF basis. DTCs represented 36% of Eurobank's fully loaded CET1 capital at YE2024, down from 44% one year earlier.

Further details on the Scorecard Indicators and Building Block Assessments can be found at https://dbrs.morningstar.com/research/451704/.

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, Eurobank 2024 Results Press Release, Eurobank 2024 Results Presentation, Eurobank 2020-2024 Annual Reports, Eurobank 9M 2024 Pillar 3 Report, and Eurobank 2023 Business & Sustainability 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/451705/.

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: 10 July 2024
Last Rating Date: 13 March 2025

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