1. Bank Supervision
The CRR is directly applicable in Greece from January 1 2014,
with the exception of certain provisions which will enter into
effect at a later stage. Transitional provisions on the
calculation of own funds were put in place by the Bank of
Greece (BoG), the local bank regulator, in decision No
114/1/4.8.2014 (Credit and Insurance Committee Decision,
CRD IV was transposed by law 4261/2014 (the CRD law) and is
generally applicable from January 1 2014. Certain provisions
will enter into force from January 1 2016. Secondary
legislation issued under the previous legal framework will
remain in force, to the extent not contrary to the Greek CRD
law and the CRR, until replaced by new secondary legislation.
The CRD law abolished and replaced law 3601/2007 which, in
turn, transposed into Greek law directives 2006/48 and
The Bank of Greece is in charge of supervising credit
institutions. As of November 4 2014, the European Central Bank
(ECB) took over direct supervision over systemic Greek credit
institutions in line with the Single Supervisory Mechanism
(SSM). The four Greek systemic banks which fall into the
supervising powers of the ECB are Alpha Bank, Eurobank
Ergasias, National Bank of Greece and Piraeus Bank.
Smaller Greek banks, such as Attica Bank or certain
cooperative banks, remain within the supervisory perimeter of
the Bank of Greece.
Investment firms are supervised by the capital markets
regulator, the Hellenic Capital Markets Commission (HCMC). For
the purposes of this publication we discuss credit institutions
only and the BoG's powers.
No major changes are anticipated in the next 12 months as to
the allocation of supervisory powers among regulators, other
than those relevant to the implementation of the Single
Resolution Mechanism (SRM) framework which is still work in
progress in Greece.
2. Bank recovery/ bail-in
The deadline for implementation of the BRRD into Greek law was
December 31 2014. However, it has not been transposed as such
into Greek law to date. The same applies to the implementation
of the SRM framework.
Although the BoG has not issued draft regulations or a
timeline to implement the BRRD, the bank resolution and
recovery framework in Greece is relatively mature and similar
to the BRRD in terms of resolution tools. The Greek resolution
tools were introduced in 2012 in the context of the Greek
financial crisis and were applied in the overall scheme for the
consolidation of the Greek banking market.
By way of general rule, Greek credit institutions must draw
up and maintain a recovery plan including steps to address any
capital shortfall. The details of such plans are provided in
the Act of the BoG's Governor No. 2648/2012. The BoG may
implement preventative and resolution measures to credit
institutions under the CRD law which retained all relevant
provisions provided by the previous legal framework.
While at preventative stage, the BoG may request a credit
institution to proceed with a share capital increase within
specific timeframes. It may also appoint a commissioner to
manage the credit institution or grant a mandatory suspension
(by extending the relevant deadlines) of certain contractual
obligations of the credit institution.
The BoG can, through its Resolution Measures Committee,
order resolution measures to safeguard financial and/or
systemic stability and depositors trust in the credit
institution and overall banking system. The resolution tools
provided under the CRD law are: mandatory share capital
increase, transfer of business and establishment of a bridge
A bail-in tool is also available under Greek law but in a
different context. In 2010, as part of Greece's fiscal
adjustment programme under the EU, IMF and ECB, the Greek
government established the Hellenic Financial Stability Fund
(HFSF), a private law entity mandated exclusively with the
recapitalisation of Greek banks. The law establishing the HFSF
was amended in early 2014 to provide for a bail-in process as a
prerequisite to inject further HFSF funds into Greek banks. The
bail-in perimeter entails common shares, preference shares and
other tier 1 instruments and subordinated instruments. Those
instruments may be written down or converted into common
The CRD law also provides for a winding-up process applying
to credit institutions. This is a special insolvency procedure
applying to banks instead of the standard bankruptcy
Buffer requirements are set out in the CRD law (articles
121-134) and are applicable as from January 1 2016, with the
exception of the systemic risk buffer which the BoG may already
implement as from January 1 2015.
Capital conservation buffer: 2.5%
January 1 2016 – 0.625%
January 1 2017 – 1.25%
January 1 2018 – 1.875%
January 1 2019 – 2.5%
Institution-specific 0-2.5% and, subject to conditions,
higher than 2.5%.
The CRD law is broadly in line and reflecting CRD
provisions. The BoG is the regulator in charge of determining
countercyclical buffers on a quarterly basis, which are
published on the BoG website.
January 1 2016 – 0.625% max
January 1 2017 – 1.25% max
January 1 2018 – 1.875% max
January 1 2019 – 2.5%
1-3.5% depending on the G-SII category.
There are 5 G-SII categories and the buffer is increased by
0.5% for each respective category (applicable upon instructions
of the BoG).
Phase-in process applicable as a percentage of the
January 1 2016 – 25%
January 1 2017 – 50%
January 1 2018 – 75%
January 1 2019 – 100%
0-2% (applicable upon instructions of the BoG). There are no
announcements as to when the BoG will apply the O-SII
Systemic risk buffer:
At least 1% and increasing by 0.5% multiples. BoG to notify
and/or consult EBA when determining a systemic risk buffer in
excess of 3% and 5%, respectively (applicable if BoG opts to
issue relevant regulations which it can do as from January 1
4. Call options
To this date, the BoG has not issued specific guidance as to
regulatory and/or tax calls on capital.
5. Coupon payment
Restrictions on distributions under the CRD law
CRD law restrictions as to the distribution of profit and
calculation of MDAs are similar to those in article 141 of the
CRD. The concept of a distribution is defined in Greek law
similar to the CRD definition. The calculation of MDAs follows
the same formula, i.e. the multiple of a base amount which
includes interim and year-end profits by a factor calculated in
accordance with the provisions of article 141 of the CRD,
reflected in article 131 of the CRD law.
The BoG is entitled to order restrictions to the
distribution of profits in accordance with the above whenever
the capital requirements ratios and buffers are not duly met by
a credit institution.
In addition to the above, legislation put into effect during
the Greek financial crisis from 2008 onwards introduced
restrictions on the distribution of dividends as a consequence
of state aid to Greek banks.
State-aid was provided to Greek banks by means of two
legislative tools: the Hellenic Bank Support Plan established
by law 3723/2008 and the recapitalisation of Greek banks by the
HFSF pursuant to law 3864/2010.
The Hellenic Bank Support Plan
The Hellenic Bank Support Plan was enacted to provide state
originated financial assistance to Greek banks by means of
- Pillar I: special preference shares that
qualify as tier 1 capital
- Pillar II: state guarantees to debt
instruments issued by the bank
- Pillar III: special debt instruments
issued by the Greek state
The support plan was put in place as a provisional measure
with limited duration. However, its timeframes were extended
several times to allow for the Greek banks' participation in
the programme until June 30 2015 (with respect to pillars II
During the period of a bank's participation in the plan,
dividend payouts are limited to up to 35% of distributable
profits at the parent company level. Dividend distribution for
the financial years ending 2010, 2011, 2012 and 2013 was
further restricted to share distributions, excluding repurchase
Furthermore, while participating in the plan credit
institutions cannot buy back their shares to enhance liquidity.
This prohibition does not apply to the repurchase of preference
equity shares issued as redeemable if the buyback is intended
to strengthen core tier 1 capital.
In the context of its participation in the share capital of
Greek systemic banks, the HFSF entered into relationship
framework agreements with banks and appointed representatives
in their corporate bodies. HFSF representatives have veto
rights with respect to core business decisions, including
Furthermore, HFSF capital injections in the form of state
originated funds qualifying as state-aid were made on the basis
of restructuring plans approved by the EU's competition
directorate. In certain cases such plans included restrictions
on profit distribution.
In addition, banks may not buy-back own shares without the
HFSF's prior approval as long as the HFSF participates in their
Consequently, because of the special legislative framework
that governs Greek banks as a result of the financial crisis, a
series of additional restrictions apply to the distribution of
profit and hence payment of certain coupons.
6. Credit default swap contracts
Greece has not issued additional rules with regards to the use
of credit default swaps or other tools to mitigate credit risk
in addition to those in the CRR.
7. Disclosure & reporting
CRR/CRD disclosure rules apply. In parallel, secondary
legislation issued by the BoG prior to the transposition of the
CRD IV into Greek law applies, but is in transitional
8. Leverage ratio and liquidity coverage ratio
Article 412 CRR allows EU member states to regulate
liquidity requirements until an EU-wide framework is put in
place. The BoG has not issued relevant secondary legislation
for that interim period.
Under the previous legal framework the BoG issued rules on
liquidity ratio requirements, relevant reporting obligations
and methods of calculation (Act 2614/7.4.2009). To the extent
not contrary to the CRR and CRD law those rules still apply and
provide for two basic liquidity ratios: a liquidity asset ratio
of 20% and a maturity mismatch ratio of -20%.
CRR provisions and transitional rules with respect to
leverage ratio requirements, calculations and reporting apply
directly to Greek credit institutions. The BoG has not issued
guidance as to the transitional phase-in of leverage related
requirements, or the option to calculate end-of-quarter
leverage ratios during transitional periods.
9. Loss absorption features
CRR provisions apply directly to Greek credit institutions.
Secondary legislation issued under the previous regulatory
framework and now abolished by transitional secondary
legislation required AT1 instruments to have loss absorption
features. Those features needed to allow losses incurred during
regular business to be absorbed by the original capital or
principal and dividends or coupon payments respectively.
This should not inhibit the credit institution from raising
additional funds through schemes approved by the BoG. Write-off
and conversion into common equity were explicitly stated to be
considered as appropriate loss absorption features.
10. Minimal capital
CRR provisions on minimum CET1, tier 1 and total capital
ratios, including the relevant phase-in frameworks, apply
directly to Greek credit institutions.
Transitional requirements applied for the period January 1
2014 to December 31 2014: CET1 ratio 4.5%, tier 1 ratio 6%,
total capital ratio: 8%.
During 2013, when the HFSF undertook the recapitalisation of
Greek systemic banks, the BoG issued special capital
requirements applicable as from March 31 2013: a 9% core tier 1
ratio and a 6% ratio, which takes into account certain core
tier 1 elements (in particular the extent to which total
preferred shares and contingent convertible securities, if any,
exceed core tier 1 elements), and a total capital ratio of
11. Pillar 2
No secondary or other legislation has been issued to date
pursuant to the CRD IV package. Under the Basel II framework,
the BoG's Governor had issued Act 2595/20.8.2007 providing for
guidelines as to internal capital adequacy assessment processes
(ICAAP) that should be complied with Greek credit
12. Qualifying capital
By way of general rule, the new CRR provisions on qualifying
capital apply directly to Greek banks.
The BoG issued transitional provisions (CICD 114/2014),
including grandfathering of certain instruments, in accordance
with articles 467, 468, 478, 479, 480, 481 and 486 of the CRR.
Those provisions include, among others, progressive deduction
percentages for certain items of regulatory capital, the
recognition of certain instruments, and additional filters.
By way of general rule, the grandfathering period for the
de-recognition of instruments that no longer qualify as own
funds is 8 years, starting in 2014. As of January 1 2014 80%
remain recognised. This decreases by 10% each year until 2021.
As of 2022 instruments that no longer qualify as own funds will
be fully de-recognised.
In terms of government debt held by Greek banks, the BoG has
not issued guidance as to the inclusion or not of unrealised
losses or gains on exposures to central governments classified
in the available for sale portfolio in accordance with IAS 39.
Consequently, the general transitional framework would apply
for instruments measured at fair value (100% deduction of
unrealised losses for January 1 2014 to December 31 2017, 100%
recognition of unrealised gains from shares, debt instruments
and loans classified in the available for sale portfolio).
However, it should be noted that Greek government debt held
by private investors, including the Greek banks, underwent a
major restructuring in 2012 (the Private Sector Involvement,
PSI). Special legislation was enacted to govern the accounting
and tax treatment of PSI related losses.
Decisions made by policymakers envisage maintaining a T-bill
stock of €15 billion through the end of Greece's fiscal
adjustment programme supported by the EU, IMF and ECB.
Consequently, Greek banks are not allowed to subscribe for more
than €15 billion of T-bills issued by the Greek
With respect to deferred tax assets (DTAs), Greek law
introduced a number of measures which apply to Greek credit
institutions, allowing the conversion of certain DTAs into
directly enforceable credits against the Greek state
Entering or exiting from such conversion mechanism (the DTC
mechanism) is optional, subject to shareholder approval and
following a recommendation by the board of directors.
DTAs can be converted from 2015 onwards, allowing banks to
offset the DTCs against their corporate income tax liability,
including corporate income tax liabilities of group associated
entities, as the case may be.
All four systemic banks have made use of the DTC mechanism
following approval at their respective shareholders' general
meetings held at the end of 2014.
In terms of the grandfathering structure for the
de-recognition of DTAs, the grandfathering period for DTAs
existing prior to January 1 2014 extends to 2023 with a 10%
progressive de-recognition rate being applicable each year.
13. Regulatory intervention
In recent years (2012-2014), because of the Greek financial
crisis, the BoG exercised its regulatory intervention powers
with respect to a number of Greek banks and cooperatives.
The BoG used mainly two resolution tools to deal with
failing institutions, i.e. the bridge bank tool (applied to
Hellenic Postbank and Proton Bank) and the transfer of business
tool (applied to Agricultural Bank, T-Bank, First Business
Bank, Pro-Bank and most of the cooperatives).
Both of these structures involve the transfer of assets and
liabilities from the credit institution to another bank
(whether existing or set up to that effect as bridge entities)
and the initiation of a winding-up process for the transferor
The power to initiate this process lies with the BoG, but
the funds required to complete the transfers, in the form of a
mandatory sale and purchase transaction, come from the DIGF or
HFSF. The HFSF (on behalf of the Deposits and Investments
Guarantee Fund (DIGF), for as long as the DIGF didn't have, in
practice, available funds) covers the funding gap between the
transferred assets and liabilities and maintains a preferential
ranking privilege over the creditors of the transferor credit
institution for such amount.
The HFSF was the sole shareholder of the bridge banks
established in the context of such resolution measures and
provided to such banks the capital required to meet the
relevant regulatory thresholds.
Implementation of the measures led to a significant
consolidation of the Greek banking sector. The four systemic
banks (Alpha Bank, Eurobank Ergasias, National Bank of Greece
and Piraeus Bank) acquired assets of failing institutions or
the shares of bridge banks and used the relevant HFSF funding
to enhance their capital position.
To date, the winding-up of the credit institutions placed in
liquidation is not yet completed. A series of practical issues
were raised during the liquidation process, the most material
of which being the management of the non-performing loan
portfolios left with the liquidators.
As mentioned above, the BRRD has yet to be transposed into
Greek law. Given the extensive application of resolution
measures in Greece prior to the entry into force of the BRRD
one may not expect many of the tools under the BRRD to be
applied in practice in the near future. However, supervision
and monitoring processes may change in view of the requirement
to transpose the SRM framework.
14. Stress tests
In 2014 Greek systemic banks (Alpha Bank, Eurobank Ergasias,
National Bank of Greece and Piraeus Bank) participated in two
stress tests: a domestic one by the BoG as an update of a
similar exercise in 2012, and the EBA/ECB test and AQR, the
results of which were announced in late October 2014.
The BoG domestic stress test completed in March 2014 and
thus preceded the EBA/ECB one, triggering capital raising
processes for all four participating banks. They were
recapitalised by the end of H1 2014. Both the BoG and the ECB
have made test results and methodology available on their
15. Tax treatment
Tax on interest payments
Interest on debt instruments paid by issuers subject to
Greek tax (Greek residents or foreign entities with a permanent
establishment in Greece) is taxed as follows:
- Interest payments to foreign individuals
or to foreign legal entities which do not maintain a
permanent establishment in Greece for tax purposes are
subject to Greek withholding tax of 15%, subject to more
favourable provisions of any applicable double tax treaty and
- Interest payments to Greek
tax residents are subject to a 15% income tax which exhausts
their tax liability for this type of income. For interest
payments made through a Greek paying or other similar agent
the tax will be withheld by the agent. Assuming no Greek
paying agent is involved the 15% tax is remitted under the
annual income tax return filed by the individual.
- Interest payments to legal
entities that are Greek tax residents or maintain a permanent
establishment in Greece for tax purposes are subject to a 15%
withholding tax which does not exhaust their tax liability.
Such income will be treated as part of their annual income
and will be taxed at the prevailing corporate income tax
rates (flat 26% if the entity maintains double entry books,
or at a tax scale if it has single entry books). The tax
withheld will be offset against the income tax due. If
interest payments are made through a Greek paying or other
similar agent, the tax will be withheld by the agent in which
case the tax liability of the recipient will not be exhausted
for the specific income.
Capital gains tax
Gains realised from the sale of bonds issued by Greek
issuers as well as by issuers which have their seat in a
European Union, European Economic Area, or the European Free
Trade Association jurisdiction are exempted from Greek capital
Tax on write down
Greece has no provisions for the tax treatment of write down
of bank capital instruments and there are no precedents from
which guidance can be drawn. Furthermore, the tax treatment of
the instruments may be affected by their accounting treatment
under IFRS (debt or equity classification), although tax and
accounting treatment are not always aligned in Greece.
If the write down is treated by the tax authorities as
realised gains , it will be taxed at the standard income tax
rate for banks of 26%. If the debt instrument is converted into
shares for the nominal value of the debt issued, the conversion
should be tax neutral. If the instrument is converted into
shares for a lower than the nominal value of the debt
instrument, the bank could be considered as having realised a
gain, which would in principle be taxable at the general tax
income rate (26%).
According to recent legal literature, income tax should not
apply to corporates placed in insolvency processes where the
supervising authority (ie the court) orders write down of debt.
One would envisage a similar approval for write downs ordered
by the banking regulator.
16. Mutuals and Sifis
To date the BoG has not issued guidelines or other acts
qualifying domestic credit institutions as G-SIIs, O-SIIs, or
Mutuals fall in the scope of the CRD law which includes a
series of provisions to that effect, but no secondary
legislation has been issued specifically with respect to
Partner, Kyriakides Georgopoulos
main: +30 210 817 1500
direct: +30 210 817 1630
fax: +30 210 685 6657
Christina's main areas of practice are debt and
equity capital markets, bank financing, securitisation
and structured finance and regulation of financial
Christina has led the KG team on various securities
offerings by banks and other companies listed on the
Athens Exchange as well as on accelerated bookbuildings
and similar transactions.
She has advised clients on securitisation and
covered bond transactions launched by Greek
originators. She provides advice to financial
institutions regarding their day-to-day operations and
specialised projects with emphasis on transactions
where international partners are involved.
Associate, Kyriakides Georgopoulos
main: +30 210 817 1500
direct: +30 210 817 1635
fax: +30 210 685 6657
Kely's area of practice is focused on banking and
finance. She has been involved in a number of
structured and project finance transactions, equity and
debt offerings, as well as corporate restructurings.
Kely provides day to day advice on securities law and
banking regulation and has an academic background on
trusts and comparative tax law.
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