Investing.com -- Alpha Bank (AT: ACBr ) S.A. and Alpha Services and Holdings S.A. (HoldCo), have seen their Long-Term Issuer Default Ratings (IDRs) upgraded to ’BB+’ from ’BB’ by Fitch Ratings. The outlook for both entities is positive according to the announcement made on Tuesday, April 1, 2025.

The upgrade comes as a result of continuous improvements in Alpha’s standalone credit profile. These include a reduction in problem assets, which consists of non-performing exposures (NPEs) and net foreclosed assets, as well as improved profitability and sound capital buffers.

Fitch’s improved assessment of Greece’s operating environment to ’bbb-’ also played a part in the upgrade. The Greek economy is expected to continue outperforming the eurozone average, supported by steady growth in investments, moderate consumption growth, and decreasing unemployment rates. These factors, along with the deployment of the country’s Recovery and Resilience Fund, are predicted to support banks in capturing profitable business opportunities.

Alpha’s standalone credit profile is expected to continue strengthening, as the bank maintains good levels of profitability despite lower interest rates, and continues to reduce the stock of problem assets.

Alpha and HoldCo are part of the four systemically important banks in Greece. The ratings reflect the group’s improved profitability and asset quality, albeit still weaker than domestic peers. The bank’s sound deposit-based funding and good capitalisation levels were also considered strengths in the rating.

Fitch anticipates Greek banks will benefit from resilient economic growth of 2.4% in 2025 and 1.9% in 2026. This is expected to continue supporting banks’ business model sustainability, asset quality performance, profitability resilience and internal capital generation.

Alpha’s business model focuses on traditional banking activities in the domestic market, with some diversification in asset management, insurance and international operations. The bank’s continuous balance-sheet de-risking and restructuring have benefited its business model sustainability, despite its exposure to legacy problem assets.

Alpha’s NPE ratio fell to 4.3% at the end of 2024, following NPE disposals and recoveries. However, its loan loss coverage remains lower than the sector average. Fitch expects the NPE ratio to reduce below 4% by the end of 2025, supported by limited inflows and performing loan growth.

Alpha’s common equity Tier 1 (CET1) of 16.3% represents satisfactory buffers over the regulatory requirements. The bank’s CET1 ratio is expected to increase towards 17% by the end of 2027, as improved earnings generation will more than offset the impacts of loan growth, increased capital distributions and upcoming capital regulations.

The bank’s stable and granular deposit base benefits from large domestic market shares in retail banking. Alpha has repeatedly tapped the unsecured debt markets and already meets its final minimum requirement for own funds and eligible liabilities (MREL), which will be binding from June 30, 2025.

The ratings of HoldCo and Alpha are equalised as Fitch believes that their risk of default is substantially the same, and that fungible liquidity is prudently managed at group level. Fitch does not expect any negative credit implication derived from this corporate restructuring.

A downgrade is unlikely, given the Positive Outlook on the Long-Term IDR. However, the ratings could be downgraded if there is a material deterioration in the bank’s financial metrics, or in the operating environment.

An upgrade could be possible if the bank maintains a CET1 ratio of above 13% on a sustained basis and the operating profit/RWAs ratio sustainably above 2%, without a material deterioration in the bank’s risk or funding profile. A reduction of the problem assets ratio towards 4% with increasing NPE coverage would also be positive for the ratings.

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