ATHENS--Greece's flagship lender, National Bank of Greece SA, said Friday it had successfully raised EUR2.5 billion ($3.5 billion) from private investors--the fourth and latest Greek bank to tap the equity markets for a capital increase--signaling a renewed confidence in the country's banking system.

In a statement, the bank said that the offer had been significantly oversubscribed, "confirming the strong interest of institutional investors in NBG." It gave no details of the investors, but bank officials said major foreign funds--including Fidelity, Pacific Investment Management Co. and York Capital--were among the buyers of the stock.

The move by NBG follows similar capital increases by rivals Eurobank Ergasias SA, Piraeus Bank SA and Alpha Bank AS, who have all turned to the private market in recent weeks to shore up their battered balance sheets.

Greece's banks have been hit hard by the country's six-year recession, a steep decline in local property prices, deposit outflows and an unprecedented EUR200 billion sovereign-debt restructuring in early 2012.

Last year, the four big banks were recapitalized with the help of a European Union loan, but together they still hold some EUR70 billion in bad loans, a sum equal to a third of Greece's annual gross domestic product. In March this year, Greece's central bank said the four lenders would need to raise another EUR5.8 billion to cope with that mountain of bad debt.

By selling the new shares exclusively to private investors, the banks have also watered down the giant stake held in them by the Greek government that it was given as a quid pro quo for last year's loan. Following the capital increase, the government's stake in NBG has now fallen to just 57% from 84% before.

Increased investor appetite for Greek banks comes as the sector's prospects recover despite the country's continuing economic problems.

Earlier this month, Moody's upgraded its outlook on Greece's banking system to stable from negative amid expectations that the country's economy would return to growth this year and next.

For this year, Greece and its international creditors expect the economy to expand by 0.6%, marking its first growth since 2007.

Write to Alkman Granitsas at alkman.granitsas@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires