National Bank of Greece in euro1.25B rights issue

National Bank of Greece said Tuesday it was proposing a rights issue of up to euro1.25 billion ($1.74 billion) in shares mainly intended to boost its position in southeast Europe.

The bank _ Greece's largest by assets _ said in a statement that its board would meet Thursday to discuss the management proposal, which it described as "a proactive response to provide capital flexibility ahead of other expected capital raisings in the banking sector."

It said the rights issue would involve up to 110.4 million new shares, to be made available to existing shareholders at a proposed euro11.30 ($15.70) per share, at a ratio of two for nine old shares.

The company's share price tumbled following the announcement, down 10.7 percent at euro18.30 ($25.42) in European afternoon trading.

But NBG said the proposal "does not reflect a deterioration in the group's activities."

"The new economic environment requires banks to be vigilant and take strategic initiatives in order to operate with a stronger capital base," CEO Takis Arapoglou said. "The bank that achieves these higher standards early will have a comparative advantage and enhanced strategic flexibility."

The Economy Ministry issued a statement hailing the proposal.

"This will further strengthen the country's banking system and create the conditions for Greek banks' steady and healthy growth," it said.

Last month, NBG reported a 21 percent drop on the year in its first quarter net profit, largely as a result of higher provisions for credit risk.