Multiple benefits of investment grade
The recovery of investment grade is an important milestone for Greece and a rare achievement, as most countries faced with bankruptcy never come close to this status, let alone achieve it 11 years after defaulting, which was in 2012 in Greece’s case.
The effects have already been seen in Greek bonds, as many months ago the market started pricing in this development, while it is estimated they will be felt in the economy next year.
The upgrade decisions have begun and put Greece on the radar of quality and long-term investors. However, in order for it to establish itself on the map of these investors for good, its evaluation should be investment grade on average, by S&P, Fitch and Moody’s. An average investment grade rating for Greece means a reduction in the borrowing costs for the state and businesses, improving liquidity conditions. Banks, enterprises and households affected by higher European Central Bank interest rates will see this effect partially mitigated, followed by rating upgrades for Greek banks and listed companies.
For banks, Greece’s investment grade translates into improved funding conditions, interest cost savings on future bond issuances and an improvement in the quality of their bond portfolios, which are mostly Greek bonds, NBG Securities reiterated on Friday. The upgrade has already led to the eligibility of Greek banks’ collaterals without the need for a waiver, which they had until end-2024. The value of the Greek bonds which they deposit as guarantees for the refinancing operations, will not receive a bigger haircut than that which applies to other states’ bonds. According to estimates, haircuts on Greek bonds will decrease by 40% on average. This means Greek banks with the same amount of bonds (collateral) will draw more funds from the ECB.
In addition, the fall in borrowing costs will further facilitate Greek banks to repay the cheap long-term loans provided by the ECB, TLTROs. Investment grade brings further confidence and will accelerate foreign investment. According to estimates, the increase in private investment will provide an additional boost of up to 0.5% to GDP in 2024. It will lead to an expansion of the investment base for bonds and equities, while attracting new, high-quality, long-term investors, who previously could not invest in Greece. It will also facilitate the upgrade of the local bourse to the developed markets category.
