Investing.com -- On Tuesday, April 1, 2025, Fitch Ratings announced an upgrade to Eurobank S.A.’s (Eurobank; OpCo) and Eurobank Ergasias Services and Holdings S.A. (HoldCo) Long-Term Issuer Default Ratings (IDRs) to ’BBB-’ from ’BB+’. The institution also increased the Viability Ratings (VRs) to ’bbb-’ from ’bb+’. The outlook for the Long-Term IDRs remains stable.

The upgrades come in response to ongoing enhancements in Eurobank’s credit profile. These include a consistent record of solid earnings, increased international diversification after acquiring Cyprus-based Hellenic Bank Public Company Limited, and a decrease in non-performing exposures (NPE) and credit losses.

Fitch’s improved assessment of Greece’s operating environment (OE), now at ’bbb-’, also contributed to the upgrades. The Greek economy is forecasted to continue outperforming the eurozone average, supported by steady investment acceleration, moderate consumption growth, and further unemployment reduction. This economic performance, along with the country’s Recovery and Resilience Fund, is expected to bolster banks’ capability to seize profitable business opportunities.

Eurobank and HoldCo’s ratings reflect sufficient asset quality, capitalisation, and profitability. They also indicate a robust domestic market position, international diversification, stable deposit-based funding, and reasonable access to the institutional debt market.

Fitch anticipates that Greek banks will benefit from resilient economic growth of 2.3% in 2025 and in 2026. This growth, driven by real-wage increases, falling unemployment, and solid investments, should continue supporting banks’ business model sustainability, asset quality performance, profitability resilience, and internal capital generation.

Eurobank’s business profile is strengthened by its strong franchise in Greece and its business diversification in Bulgaria and Cyprus. The bank’s focus on traditional commercial-banking activities and sustainable profitability prospects also enhance its profile.

At the end of 2024, Eurobank’s NPE ratio stood at 3.1%, the lowest in over a decade and broadly in line with the southern European average. High NPE coverage also mitigates risks.

Eurobank’s operating profit/risk-weighted assets (RWAs) peaked at 3.5% in 2024. Although the ratio is expected to reduce to around 3% in the next two years due to falling interest rates, it is expected to remain healthy due to continued loan and fee growth and manageable loan impairment charges.

At the end of 2024, Eurobank’s common equity Tier 1 (CET1) ratio was 15.7%. The bank’s exposure to Greek sovereign risk is manageable, with domestic government bonds accounting for 71% and deferred tax credits for 36% of CET1 capital.

Eurobank’s deposits are stable and exceed loans. Its access to the wholesale institutional debt market has improved over the past two years. However, market access remains sensitive to investor confidence in the Greek economy and sovereign.

Fitch equalised the ratings of HoldCo and Eurobank as it believes their risk of default is substantially the same. Factors that could lead to a downgrade of the ratings include a material deterioration in Greece’s OE, an increase in the NPE ratio above 5% for a prolonged period, and a fall in the CET1 ratio towards 13%.

Potential factors for a positive rating action include an improvement in Greece’s OE score, a decrease in the NPE ratio below 3%, and the maintenance of the CET1 ratio above 14%.

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