Fitch Ratings has today affirmed Alpha Bank's ratings at Long-term Issuer Default (IDR) 'A-' (A minus) with a Stable Outlook, Short-term IDR 'F2', Individual 'B/C' and Support '2'. The Support Rating Floor is affirmed at 'BBB'. The Long- and Short-term IDR and Individual rating reflect Alpha Bank's strengthened position in the Greek banking system, good, resilient operating profitability and cost efficiency, satisfactory capital and improved asset quality. They also consider potential pressure on asset quality from rapid lending growth in the relatively untested Greek retail market and risks associated with rapid expansion in south-east Europe (SEE).
The Stable Outlook reflects Fitch's expectations that Alpha Bank's sound fundamentals will enable it to continue to perform well and expand its business despite the current difficult global capital market conditions. The preservation of Alpha's sound profitability, asset quality and good management of its rapid expansion in SEE could influence its ratings positively. Downside rating risk could be triggered by asset quality problems arising from rapid loan growth in Greece and SEE, notably Romania, or a marked deterioration in its financial ratios or capital due to the bank's aggressive branch expansion plan.
Alpha Bank's 2007-2010 business plan aims to strengthen its retail banking business in Greece and expand its presence in SEE to take advantage of an under-banked region with still high growth potential. It plans to have 1,010 branches in SEE by 2010 and increase the region's contribution to group profits to 25% (16.4% at end-H108) which, in Fitch's view, is ambitious.
Alpha Bank continues to benefit from resilient GDP growth and credit demand in Greece and the parts of the SEE region where the bank operates. In H108, Alpha Bank was able to maintain its good operating profitability, with an operating average return on equity of 30.5%, thanks to increased contribution to profitability of its banking operations in SEE, a strong and stable cost/income ratio in Greece, and improving cost efficiency in SEE. At end-H108, Alpha Bank's credit risk was satisfactory, with a gross impaired loans/total gross loans ratio of 3.59%, almost in line with top domestic peers.
The considerable improvement of its asset quality since 2006 relates to the bank's strong loan growth, which Fitch sees as a major risk - and increased efforts on collection and significant write-offs. The agency views positively the bank's efforts to centralise and improve credit risk management. Alpha Bank's market risk appetite is moderate, with limited interest rate risk. Liquidity is sound, supported by growing customer deposits, relatively diversified funding sources and improved liquidity risk management. Capital is satisfactory and maintaining it at the current level is a prerequisite, given strong and rapid lending growth in Greece and SEE and the risk of a downturn in the credit cycle.
Source: Interactive Investor
