Moody's revises the long-term ratings of Attica Bank and Pancreta Bank to upgrade them.

As noted in a report released on Wednesday, the agency decided to proceed with the review after Attica Bank announced on July 8 that the main shareholders of the two banks have reached an agreement in principle on the main terms of their upcoming merger. 

According to Moody's, the review will take into account the progress of the phased implementation of the transformation and merger plan, as well as the amount and timing of the expected equity capital increase by the strategic shareholders of the two banks, including HFSF and Thrivest Holdings Ltd.

The review will focus on the details of the securitization of non-performing exposures (NPEs) that both banks will undertake through Hercules III, which will lead to the winding up of the balance sheets of both banks. In particular, the agency will assess the solvency of the joint entity after the NPEs are wound up and the expected capital increase.

In addition, the firm will also assess any risks associated with the merger process of the two banks and the potential challenges that management will face in the process, as well as the business and growth plans of the now-merged bank, including its balance sheet structure, risk-taking and profitability prospects.

Moody's also notes that the decision to revise the rating was also taken following expected improvements in the new bank's corporate governance framework and risk management practices. This is because, it notes, weaknesses in corporate governance were among the main reasons for the deterioration of the credit profiles of both banks in the past, having a material negative impact on their ratings.

The agency adds that following the completion of the review, the ratings of both banks may be upgraded and converged if it considers the resulting solvency and profitability prospects of the merged bank to be significantly stronger than those of the two banks.