National Bank of Greece S.A.

Our stable outlook on NBG over the next 12 months balances its low quality of capital and weak earnings against its improved liquidity. During this period, we expect the economic rebound in Greece, supported by expected use of structural EU funds, to continue supporting the bank's operational performance and asset-quality restoration as part of its ongoing strategic transformation. In this context, we expect NBG's risk-adjusted capital (RAC) will remain above 3%. The bank already cleaned up a big part of its legacy loans and is well positioned to expand its lending against a strong economic rebound. We expect cost of risk to start normalizing until 2022, because NBG has lower volumes of NPE disposals in the pipeline than domestic peers.

...Like its domestic peers, weak capital and limited earnings prospect restrain National Bank of Greece's (NBG's) creditworthiness. We now believe that Greek banks are left with a stiffer competitive environment amid the pandemic and a private sector still recovering from the past decade's crises. Pressure on margins and fee income will prevail at least until year-end 2022 as competition grows in the banking industry. Still, faster loan growth than what we anticipate could boost fee income. Indeed, NBG's gross loans increased close to 10% year over year in first-half 2021. Lower cost of funding and meaningful cost savings, thanks to branch and headcount reductions in recent years, will help support bottom-line profitability somewhat. Moreover, the high amount of deferred tax credits in the common equity tier 1 (CET1) capital is a weakness for the Greek banks. We expect NBG's asset quality to gradually improve in 2021-2022. Despite anticipating new NPE inflows from the pending debt moratoria...

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