Very Challenging Q3 for National Bank of Greece

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National Bank of Greece reported a EUR 554 million ($720 million) loss in the third quarter. This brings 2012′s year-to-date losses to EUR 2,458 million, compared with a EUR 1,325 million loss in the first nine months of 2011. Heavy provisions for bad loans and deeper trading provisions were largely behind the worsening of Greece’s largest bank’s bottom line.

The bank’s credit quality and capital position deteriorated further. Greece’s recession keeps pounding NBG very hard, pushing the bad-loan balance to new highs. As at Sept. 30, the group’s overall nonperforming loan ratio (loans past due 90 or more days) climbed to 18.0% from 16.3% and 11.0% in the second quarter and September 2011, respectively.

As before, Turkey remains the one mildly brighter spot on NBG’s horizon. Turkey’s NPL ratio stood at 5.2% (up from 5.1% in June), while Greece’s NPL ratio shot up to 21.9% (versus 19.3% in June). With no clear turning point in sight for Greece’s recession, we do not anticipate any amelioration in NBG’s credit quality in the near future. This will keep National Bank of Greece’s bottom line in the red for quite a while, in our view. As a result, the company’s capital position will keep weakening.

On a pro forma basis, which bakes in a total disbursement of almost EUR 10 billion in bailout funds, NBG’s core capital was 7.9%. However, on an accounting basis, this ratio was negative 6.9% in September. For the bank to remain a going concern, we think it will have to undergo a massive recapitalization to repay at least in part the bailout funds it received. Furthermore, the firm’s pro forma capital position may not be enough to counter future loan and security losses, in our view.

 

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