OREANDA-NEWS. S&P Global Ratings said today that it has raised its long - and short-term counterparty credit ratings on four Greek banks, Alpha Bank A. E. (Alpha), Eurobank Ergasias S. A. (Eurobank), National Bank of Greece S. A. (NBG), and Piraeus Bank S. A. (Piraeus) to 'CCC+/C' from 'SD'. The outlook on all four banks is stable.

At the same time, we affirmed all of our issue ratings on the four banks.

RATIONALEOn July 22, 2016, the Greek government partly relaxed capital controls imposed in June 2015. The most important change concerns new cash deposits made in Greek banks, either in Greece or from abroad, which can now be withdrawn without any restrictions. We view the lifting of this ban as a significant relaxation, as it could allow for cash deposits to be brought back into the banking system, raising confidence in the Greek banking sector. We expect some minor deposit inflows in the coming months. Of note, since the beginning of 2014, domestic deposits of €46.5 billion left the banking system until capital controls were imposed from end-June 2015. One of the most significant elements of the current capital control framework is the €840 limit on cash withdrawals every two weeks. We believe that this restriction is likely to stay in place for a significant period of time. However, we have observed that the Greek economy and population have largely adjusted to this cash withdrawal limit in the last year by increasing their use of electronic payments. For example, we estimate that the four Greek banks doubled the number of debit cards issued in the second half of 2015, while debit card turnover almost tripled in the first half of 2016 relative to the first half of 2015.

In light of these developments, we raised our long-term and short-term issuer credit ratings on Alpha Bank, Eurobank, NBG, and Piraeus to 'CCC+/C' from 'SD'.

The upgrades reflect the banks' fragile financial profiles in the context of a weak economic and operating environment in Greece, a high level of nonperforming exposures, and poor profitability. We anticipate that the four banks' funding positions will remain highly unbalanced, resulting in their continued reliance on liquidity facilities provided by the European authorities to cover their needs. As such, we expect that the European authorities' support will still be crucial in ensuring the banks meet their financial commitments over the next 12 months.

Reliance on emergency liquidity assistance has gradually decreased in the last year by €32 billion, however, it still remains a vital funding source, supporting 15% of the Greek banking sector's assets. As of end-June 2016, another 9% of assets were funded by the European Central Bank's (ECB) main refinancing operations, which have been increasingly relied upon since June 22, 2016, when the ECB reinstated its waiver on the eligibility of Greek bonds to be used as collateral for refinancing operations.

OUTLOOKThe stable outlook reflects our opinion that, despite the banks' fragile financial profiles, we do not expect Greek banks to face a near-term default on their obligations.

We could lower the ratings if we see deterioration in the banks' liquidity positions due to banks losing access to funding provided by the European liquidity support mechanisms, or if we foresee such support being insufficient to meet the four banks' financing needs.

Any positive rating action would require increased confidence in the banking system and a significant improvement in the macroeconomic environment. This would result in the banks becoming less reliant on ECB funding, returning to profitability, and improvements to asset quality.