## EXECUTIVE SUMMARY ## Source details **Canonical URL:** [EXECUTIVE SUMMARY](https://www.imf.org/-/media/files/publications/cr/2026/english/1grcea2026003.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2026/english/1grcea2026003.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2026/english/1grcea2026003.pdf.json) --- ### Macrofinancial context and structure - Financial system dominated by four systemically important (SI) banks following significant consolidation since the Greek Sovereign Crisis. - Major asset cleanups through securitization and sales of non-performing loans (NPLs) since 2019; Hellenic Asset Protection Scheme (HAPS) pivotal in reducing NPLs to 3.3 percent as of September 2025. - Credit servicers manage approximately 2.9 million loans from 2.4 million borrowers out of a population of 10.4 million people. - Other non-bank financial institutions (NBFIs) play only a limited role; mortgage and SME lending markets remain limited, constraining diversification beyond large non-financial corporates (NFCs). - Greece regained investment grade status by early 2025; structural challenges, concentration, and correlation risks persist. ### Sovereign–bank nexus and capital quality - Direct Greek sovereign securities held by banks: 9.2 percent of total assets as of December 2025; including state-guaranteed assets exposure rises to 19.3 percent. - Key contingent liabilities: - DTCs: €11.5 bn, equivalent to 43.4 percent of CET1 capital (consolidated basis as of Dec.2025); DTCs equal 3.1 percent of total assets. - State-guaranteed senior bonds from HAPS securitization schemes: 4.5 percent of total assets; HAPS state guarantee initially granted for €21.5 billion, with €16.8 billion outstanding as of September 2025 (equivalent to 6.8 percent of Greece 2025 GDP). - Other guarantees to banks: 0.6 percent of total assets. - Combined indirect exposures represent 36.4 bn (or 14.6 percent of Greece 2025 GDP). - Preferred policy: codify in Greek law an accelerated amortization timing of DTCs aligned with the voluntary prudential amortization scheme (full amortization projected under voluntary scheme by 2031–33 versus 2041 under current legal calendar). ### Solvency and stress testing outcomes - Solvency stress-test perimeter: four SIs representing 95 percent of banking sector assets (cutoff June 2025; horizon three years). - Adverse scenarios (first two years key macro outcomes): - Recessionary scenario: Real GDP cumulative -8.4 percent; Unemployment rises to 15.5 percent; Inflation declines to -0.15 percent; Short-term rates decline by 2.2 percentage points; Long-term rate increases to 6.6 percent; Term spreads widen by up to 4.5 percentage points. - Geopolitical scenario: Real GDP cumulative -6.8 percent; Unemployment increases to 13 percent; Inflation accelerates to 4.9 percent; Short-term rates increase by 1.4 percentage points; Long-term rate increases to 5.8 percent. - Stress-test results: - CET1 ratio declines: recessionary scenario down by 1.4 percentage points at trough; geopolitical scenario down by 0.7 percentage points at trough. - All SIs remain comfortably above regulatory capital buffer requirements across scenarios. - Aggregate net profit falls from €4.7 billion at the starting point to €0.7 billion in year 1 of the recessionary scenario; in the geopolitical scenario profit decreases to €2.2 billion in year 1. - Provisions more than double in year 1 of the recessionary scenario; net interest income (NII) supports profits, particularly in the geopolitical scenario. - Stress tests incorporate estimated legal and voluntary DTC amortization; senior HAPS securities assumed unimpaired under adverse scenarios. ### Concentration and interconnectedness risks - Ten largest common exposures to NFCs equal 81 percent of aggregate Tier 1 capital of SI banks (net of credit risk mitigation). - Systemic banks' large exposures: about 200 percent of Tier1 Capital (gross) and 122.3 percent after mitigation measures (CRM). - Top 10 common exposures to non-financial corporates: 121.6 percent of Tier 1 capital before CRM and 81 percent after CRM. - SI banks follow similar funding and investment strategies; distress of one or more large NFCs could have serious implications sector-wide. - Corporate sector shows resilience in stress tests; households vulnerable to negative real income shocks and higher interest rates. ### Liquidity and liquidity stress testing - System liquidity indicators (Dec.2025 / Aug.2025): - Liquidity Coverage Ratio (LCR): 198.8 percent (Dec.2025). - Net Stable Funding Ratio (NSFR): 136.4 percent (Dec.2025). - Asset encumbrance ratio: 8.6 percent (Dec.2025). - HQLA heavily concentrated in domestic sovereign debt: 63 percent of HQLA invested in central government securities. - Standard liquidity metrics comfortably above regulatory requirements and ahead of European peers; only under aggressive simultaneous market and funding stress scenarios do some SIs fall below the 30-day hurdle rate. - Cashflow-based liquidity stress tests (multiple scenarios SC1–SC9) show resilience but under most severe combined scenarios (SC6/SC7) one or two banks fall under the hurdle rate; under SC7 liquidity surplus briefly falls below 20 percent of the initial CBC stock for one bank across 2–6 month buckets without outright shortage. ### Liquidity–solvency interaction and sovereign bond liquidation sensitivity - Three-month horizon analysis: under recessionary (geopolitical) assumptions, 5-year Greek yields rise by 461.5 (382.2) basis points and 10-year yields by 475.9 (363.4) basis points. - Additional capital depletion from liquidation of Greek government bonds ranges: - From 1.9 (1.4) percentage points in scenario S3 to 6.5 (5.1) percentage points in scenario S7 under recessionary (geopolitical) assumptions. - Results highlight importance of the sovereign–bank nexus and need for caution in interpreting liquidation likelihood given alternatives (repo with ECB, market repo). ### Macroprudential framework, supervision, and governance - BoG is designated macroprudential authority covering around 95 percent of financial system assets; Financial Stability Committee (FSC) re-established; Financial Stability Directorate supports cooperation. - Recent CCyB actions: - BoG raised the CCyB rate from 0.25 to 0.5 percent in October 2025 (effective October 2026). - Current PN CCyB target rate: 0.5 percent. - Recommendations: - Formalize Systemic Stability Council (SSC) with regular meetings and subcommittees (systemic risk; crisis preparedness); SSC to issue recommendations and enhance interagency coordination. - Update 2015 macroprudential policy strategy to incorporate borrower-based measures (BBMs), articulate use of PN CCyB and BBMs over the cycle, and clarify indicators for CCyB release. - Strengthen quantitative foundations for calibrating the PN CCyB and develop an in-house macroprudential stress-testing toolkit. - Enhance BoG outreach and consolidate macroprudential information on a dedicated landing page. ### Supervision of LSIs and supervisory resourcing - LSIs comprise about 5 percent of the banking sector; BoG’s LSI supervision described as thorough, systematic and intrusive. - BoG staffing for ICT/cyber and credit-servicer supervision requires augmentation: current credit-servicer supervision has only 8 FTEs. - Recommendations: - Augment supervisory resources for current needs and emerging risks (credit servicers, cyber). - Heighten supervision of governance for larger and riskier LSIs, including more high-quality independent directors. ### Crisis preparedness, resolution, and safety nets - BoG is the national resolution authority with a standing Resolution Measures Committee (RMC); Greece relies on resolution powers broadly consistent with FSB Key Attributes. - Recommendations: - Operationalize combinations of resolution tools (Sale-of-Business, bridge institution, asset separation) and ensure readiness to implement alternative resolution strategies at point of failure. - Prevent judicial reversal of good-faith resolution decisions and indemnify BoG staff defending resolution actions within statutory protections. - Revise BoG institutional setup so the Resolution Unit does not report to the Director General in charge of Prudential Supervision to avoid policy conflicts. - ELA: grant BoG discretionary authority to require pre-positioning of illiquid collateral; run regular simulation exercises; develop policies for prospective solvency determination for banks subject to ELA in resolution. - TEKE: increase target size to withstand concurrent payout of covered deposits for the 2–4 largest banks earmarked for liquidation and provide a public backstop recoverable ex-post from the industry; exclude Hellenic Banking Association representatives from TEKE board and reduce BoG representation. ### Insolvency, creditor rights, and credit servicers - Insolvency and creditor-rights regime strengthened but implementation inefficiencies lengthen resolution times. - Mortgage enforcement bottlenecks: borrower objections, delays in payment orders, statutory seven-month waiting period between confiscation and first auction, lack of auction competition, delays in transfer and registration, and five-year post-auction guarantee requirement. - Recommendations to streamline enforcement: - Resolve backlog of borrower objections; accelerate adjudication ideally in a single decision. - Shorten statutory period between seizure and first auction. - Remove five-year guarantee post-auction requirement. - Corporate insolvency: - Introduce a formal court-supervised reorganization process to complement rehabilitation and better enable rescue and rehabilitation of businesses, particularly large corporates. - Credit servicers: - Scope: service c. 2.9 million loans from c. 2.4 million borrowers; loans serviced equivalent to 31 percent of 2024 Greece GDP; credit-servicer-managed NPLs: €72.6bn original par value as of September 2025 (half €37.6bn related to HAPS; half €35.0 bn from direct bank sales). - Performance concerns: slow resolution, missing borrower information for ~one-third of borrowers, low-powered incentives, long HAPS note maturities reducing owner incentives to invest in capacity. - Supervisory recommendations: - BoG should increase supervision of credit servicers’ performance and capacity. - Require regularly updated business plans and enhance supervisory reporting and transparency. - Formalize and intensify coordination via the working group with other agencies. - Increase on-site supervision intensity, including on accuracy of penalty charges. - Increase supervisory resources (currently 8 FTEs). ### Financial integrity (AML/CFT) - AML/CFT legal framework improved since the 2019 FATF mutual evaluation; National Risk Assessment being updated with focus on legal entities and VASPs. - Recommendations: - BoG to ensure adequate frequency of on-site AML/CFT inspections of banks and payment institutions commensurate with risk. - HCMC to deepen risk understanding of virtual asset service providers and conduct more risk-driven on-site inspections. - Digitalize general registration records of shipping companies to improve transparency and connect to the Beneficial Ownership (BO) Register. ### Sensitivity analyses: ongoing war in the Middle East and other shocks - Tourism and manufacturing exposures: 6.3 and 8.9 percent of Greek bank loans respectively; shipping exposure 8.2 percent of loans. - Even if tourism and manufacturing losses were 3 times larger than modeled in the severe recessionary scenario, additional loss would be less than 1 percentage point of bank capital, leaving banks above capital requirements. - DTCs under stress: - Under the recessionary scenario total DTCs for the four SIs would be €1.5 billion higher by 2028 than currently projected by banks. - Under the geopolitical scenario total DTCs would be €0.4 billion higher by 2028 than currently projected by banks. - Competition/digitalization sensitivity: lower fees/commissions and higher funding costs could reduce CET1 ratios by 19 to 32 basis points depending on assumed market concentration reductions. - Liquidity–solvency interactions and sovereign liquidation sensitivity indicate potential additional capital depletion (see figures in liquidity–solvency interaction section) but likelihood of outright liquidation is low given repo/collateral options. ### Key statistics and selected policy recommendations (timing) - Key statistics: - Credit servicers manage approximately 2.9 million loans from 2.4 million borrowers. - Population: 10.4 million people. - Distressed assets managed by credit servicers: 37.4 percent of 2025 Greece GDP. - NPLs: 31.2 percent of 2025 Greece GDP (credit-servicer-managed NPLs original par value €72.6bn as of September 2025 = 30.5 percent if remained on bank balance sheets). - Ten largest common exposures to NFCs: 81 percent of aggregate Tier 1 capital of SI banks (net of CRM). - DTCs equal €11.5 bn and represent 43.4 percent of CET1 capital (consolidated basis as of Dec.2025). - System total domestic assets: €376.8 billion as of September 2025 (152 percent of Greece 2025 GDP); four SIs hold €293 billion (92.7 percent of total banking assets). - Profitability (Dec.2025): ROA 1.3 percent; ROE 12 percent; cost-to-income ratio 37.0 percent. - Capital (Dec.2025): CET1 ratio 15.5 percent; total capital ratio 21.5 percent; leverage ratio (fully phased-in) 7.7 percent. - Liquidity (Dec.2025): LCR 198.8 percent; NSFR 136.4 percent; asset encumbrance 8.6 percent. - Selected policy recommendations and timing (ST = short term; I = immediate; MT = medium term; I/ST mixed): - Accelerate legal amortization of DTCs to align with the voluntary prudential amortization scheme. Authority: MoEF. Timing: ST. - Further enhance monitoring of large corporate exposures. Authority: BoG. Timing: ST. - Augment supervisory resources for credit servicers and cyber risk. Authorities: BoG, HCMC. Timing: MT. - Formalize the Systemic Stability Council (SSC) and establish sub-committees for systemic risk and crisis preparedness. Authorities: MoEF, BoG, HCMC, TEKE. Timing: I. - Implement independent reporting of the resolution function to BoG’s Board. Authority: BoG. Timing: ST. - Strengthen quantitative foundations for calibrating the positive neutral CCyB. Authority: BoG. Timing: MT. - Heighten supervision of governance for larger and riskier LSIs. Authority: BoG. Timing: ST. - Improve enforcement framework (streamline borrower objections; reduce completion times; remove full guarantee requirement for five years post-auction). Authorities: MoEF, MoJ. Timing: I/ST. - Introduce a formal reorganization process for rescue and rehabilitation of businesses. Authority: MoEF. Timing: ST. - Specialize judges in commercial matters and resource courts. Authority: MoJ. Timing: ST. - Improve supervision of credit servicers and require regular business plans. Authorities: BoG, MoEF. Timing: I. - Produce an annual HAPS report certified by the national public auditor and establish a public HAPS website. Authority: MoEF. Timing: I. - Prepare and operationalize resolution tool combinations and ensure non-reversibility of resolution decisions. Authorities: BoG, MoEF. Timing: ST. - Improve ELA arrangements: grant BoG authority to require prepositioning of credit claims; run regular simulations; develop internal ELA-in-resolution policies. Authority: BoG. Timing: ST. - Enhance deposit insurance: revised target level to cover insured deposits of top 2–4 banks earmarked for liquidation and a public backstop. Authorities: BoG, MoEF, TEKE. Timing: MT. - Ensure all banks are subject to risk-appropriate frequency of AML/CFT in-field testing and increase on-site inspections of payment institutions. Authority: BoG. Timing: ST. *Executive Summary, 1grcea2026003 - EXECUTIVE SUMMARY.* ### EXECUTIVE SUMMARY ____________________________________________________________________________ 7 ### EXECUTIVE SUMMARY ### Macrofinancial context and structure - Greek financial system dominated by four systemically important (SI) banks following significant consolidation since the Greek Sovereign Crisis. - Major asset cleanups through securitization and sales of non-performing loans (NPLs) since 2019. - Credit servicers manage approximately 2.9 million loans from 2.4 million borrowers out of a population of 10.4 million people. - Other non-bank financial institutions (NBFIs) play only a limited role. - Mortgage and SME lending markets remain limited, constraining diversification of lending beyond large non-financial corporates (NFCs). - Greece has regained investment grade status, but structural challenges and concentration and correlation risks persist. ### Sovereign-bank nexus and capital quality - Sovereign-bank nexus is moderate in direct exposures but sizeable in contingent government liabilities. - Key contingent liabilities: deferred tax credits (DTCs) originating from the Greek crisis, and state-guaranteed tranches from NPL securitizations through Hellenic Asset Protection Schemes (HAPS). - DTCs hamper the quality of banks’ capital; accelerated prudential and legal phaseout of DTCs recommended to strengthen capital quality and reduce the nexus. ### Solvency and stress testing - Bank solvency stress tests under considered macro scenarios (an inflationary geopolitical shock and a severe recession) show banks remain well above regulatory capital buffer requirements. - Profits supported by strong net interest income (NII), which offsets higher credit impairments and lower net fees and commissions in scenarios. - Sensitivity analyses reflecting a potential extended war in the Middle East do not change resilience conclusions. ### Concentration and interconnectedness risks - Ten largest common exposures to NFCs account for 81 percent of aggregate Tier 1 capital of SI banks (net of credit risk mitigation). - SI banks follow similar funding and investment strategies, raising monitoring needs: distress of one or more large NFCs could have serious implications for the entire banking sector. - Corporate sector shows resilience in stress tests; households are vulnerable to negative shocks to real income and higher interest rates. ### Liquidity and liquidity stress testing - Standard liquidity metrics for Greek banks remain comfortably above regulatory requirements and well ahead of European peers. - Only under aggressive, less probable simultaneous market and funding stress scenarios do any SIs fall below the 30-day hurdle rate. - Granular cashflow-based liquidity stress tests, supported by abundant liquidity buffers beyond HQLA, demonstrate resilience. ### Macroprudential framework and supervision - Institutional arrangements within the Banking Union Framework are sound; Bank of Greece (BoG) is active and effective as designated macroprudential authority. - Interagency cooperation is largely informal; recommendation to formalize through regular meetings of the national Systemic Stability Council (SSC). - Analytical toolkits should be strengthened for more sophisticated risk assessment and calibration of macroprudential tools. - Supervision of Less Significant Institutions (LSIs) is generally effective; BoG’s LSI supervision is thorough, systematic and intrusive, benefiting from robust independence and staff capacity. - Need for medium-term resource planning and focused resourcing on emerging risks such as ICT and cyber. - BoG’s analysis and supervisory actions around credit risk and problem assets are generally effective. ### Crisis preparedness, resolution, and safety nets - Greece’s crisis experience has built strong expertise; authorities should formalize and strengthen arrangements to align with best practices. - Recommendations: prepare and operationalize combination of resolution tools; ensure readiness to implement alternative resolution strategies at point of failure; prevent judicial reversal of good-faith resolution decisions. - Institutional arrangements at BoG should prevent potential policy conflicts between supervisory and resolution functions. - BoG should have discretionary authority to require pre-positioning of collateral and complement this with regular simulation exercises; develop policies for prospective solvency determination for banks subject to ELA in resolution. - Hellenic Deposit and Investment Guarantee System (TEKE) should have a public backstop and an increased target size to withstand concurrent payout of covered deposits for the 2–4 largest banks earmarked for liquidation. ### Insolvency, creditor rights, and credit servicers - Insolvency and creditor rights regime strengthened but still requires efficiency and effectiveness improvements given long resolution times. - Enforcement process improvements needed: streamline borrower objections; reduce completion times for different steps; remove requirement for a full guarantee post-auction for five years. - Introduce a formal reorganization process dedicated to rescue and rehabilitation of businesses, particularly for large corporates. - Strengthen judicial capacity via specialized judges and well-resourced courts. - Credit servicers manage distressed assets equivalent to 37.4 percent of 2025 Greece GDP, the majority of which are NPLs (31.2 percent of 2025 Greece GDP). - BoG should increase supervision of credit servicers with focus on performance and capacity, require regularly updated business plans, and enhance supervisory reporting and transparency. - BoG should formalize the working group with other agencies on credit servicers. - Authorities should produce an annual HAPS report certified by the National Public Auditor and facilitate access to up-to-date information about HAPS via a website. ### Financial integrity (AML/CFT) - AML/CFT legal framework enhanced since the 2019 FATF mutual evaluation, though further progress warranted. - BoG should ensure adequate frequency of on-site AML/CFT inspections of banks and payment institutions commensurate with risks. - General registration records of shipping companies should be digitalized to improve transparency. - Hellenic Capital Market Commission (HCMC) has started registration and supervision of virtual asset service providers and should deepen risk understanding to enable risk-driven supervision. ### Relevance after geopolitical shock - Much of the FSAP work was completed prior to the outbreak of the war in the Middle East; given the FSAP’s medium-term focus, key findings and recommendations remain pertinent. - The report incorporates key developments and policy changes since the mission and includes illustrative assumptions to quantify possible implications of a deepening war on banking solvency. ### Key statistics and thresholds - Credit servicers manage approximately 2.9 million loans from 2.4 million borrowers. - Population: 10.4 million people. - Distressed assets managed by credit servicers: 37.4 percent of 2025 Greece GDP. - NPLs: 31.2 percent of 2025 Greece GDP. - Ten largest common exposures to NFCs: 81 percent of aggregate Tier 1 capital of SI banks (net of credit risk mitigation). - 30-day hurdle rate used in liquidity stress testing. - Deposit insurance target to cover concurrent payout for the 2–4 largest banks earmarked for liquidation. ### Selected policy recommendations and timelines (from Table 1) - Accelerate the legal amortization of DTCs to align with the voluntary prudential amortization scheme. Authority: MoEF. Timing: ST. - Further enhance monitoring of large corporate exposures. Authority: BoG. Timing: ST. - Augment supervisory resources for current needs and emerging risks, particularly credit servicers and cyber risk. Authorities: BoG, HCMC. Timing: MT. - Formalize the Systemic Stability Council (SSC) and establish sub-committees for systemic risk and interagency crisis preparedness and coordination. Authorities: MoEF, BoG, HCMC, TEKE. Timing: I. - Implement independent reporting of the resolution function to BoG’s Board. Authority: BoG. Timing: ST. - Strengthen quantitative foundations for calibrating the positive neutral CCyB. Authority: BoG. Timing: MT. - Heighten supervision of governance for larger and riskier LSIs, including more high-quality independent directors. Authority: BoG. Timing: ST. - Enhance enforcement framework: streamline borrower objections, reduce completion times, remove full guarantee requirement for five years post-auction. Authorities: MoEF, MoJ. Timing: I/ST. - Introduce a formal reorganization process for rescue and rehabilitation of businesses. Authority: MoEF. Timing: ST. - Specialize judges in commercial matters and resource courts. Authority: MoJ. Timing: ST. - Improve supervision of credit servicers and require regular business plans; enhance supervisory reporting and transparency. Authorities: BoG, MoEF. Timing: I. - Produce an annual HAPS report certified by the national public auditor and establish a public HAPS website. Authority: MoEF. Timing: I. - Prepare and operationalize resolution tool combinations and ensure non-reversibility of resolution decisions. Authorities: BoG, MoEF. Timing: ST. - Improve ELA arrangements: grant BoG authority to require prepositioning of credit claims; run regular simulations; develop internal ELA-in-resolution policies. Authority: BoG. Timing: ST. - Enhance the deposit insurance fund: revised target level for coverage of insured deposits of top 2–4 banks earmarked for liquidation and a public backstop. Authorities: BoG, MoEF, TEKE. Timing: MT. - Ensure all banks are subject to risk-appropriate frequency of AML/CFT in-field testing and increase on-site inspections of payment institutions. Authority: BoG. Timing: ST. *Italic source attribution: Executive Summary, 1grcea2026003 - EXECUTIVE SUMMARY.* ### 1. The 2026 FSAP for Greece takes place against a macroeconomic backdrop that was ### 1. The 2026 FSAP for Greece takes place against a macroeconomic backdrop that was ### Macroeconomic backdrop and fiscal position - Post-COVID recovery shows a strong rebound in growth and an unemployment rate steadily declining to single digits, though end-2025 inflation remained above the ECB’s target. - Housing prices have risen rapidly from the trough in 2017 despite still-weak mortgage lending. - Public debt-to-GDP reduced from 210 percent in 2020 to 146 percent in 2025, and further reduction is expected. - The medium-term risk of sovereign stress is assessed as moderate (Annex II of 2025 AIV staff report), thanks to prudent fiscal policymaking and the favorable public debt structure. - The country had regained an investment grade rating from all major rating agencies by early 2025, with a sovereign spread currently in line with euro area peers. - Structural challenges weighing on medium-term growth prospects: low investment and labor participation, the declining role of NextGeneration EU (NGEU) funds in financing domestic investment, adverse demographic trends, and sluggish productivity growth. ### Inflation and growth indicators (Figure 1 highlights) - Post-2020 Real GDP Recovery indexed to 2020Q4=100 (seasonally and workday adjusted) shows a strong rebound (percentiles and median presented relative to European Union members). - Inflation decomposition (Year-Over-Year, Percentage Points) components shown: Non-energy & non-food goods; Food; Energy; Services; Headline. - Note: Data sources include Eurostat; Haver Analytics; and IMF staff calculation. ### Fiscal consolidation and public debt composition (Figure 1 highlights) - Scale of Fiscal Consolidation illustrated in In Percent of GDP (post-2020 policy). - Public Debt Creating Flows, 2025 presented In Percent of GDP. - Public Debt by Maturity (In Percent of GDP) shows residual maturity: 19 years and maturity buckets ≤ 1 year, 1-5 years, > 5 years. - Current account deficit remains elevated but stabilized, driven primarily by trade deficit (components shown In Percent of GDP). - Sources: Greek authorities and IMF staff calculation. ### Banking sector recap since bailout exit - Since the 2018 exit from the bailout programs, banks raised their capital levels and saw a substantial reduction in nonperforming loan (NPL) risk. - NPLs peaked at 49 percent in September 2017. - Hellenic Asset Protection Scheme (HAPS) started in 2019 and played a crucial role in the sizeable reduction of banks’ NPLs (3.3 percent as of September 2025). - Under HAPS, NPLs were written down and put into securitization structures; banks retained the senior tranches which were government guaranteed, thereby removing the risk from their balance sheets. ### Credit developments and composition (Figure 2 highlights) - Prolonged deleveraging led to a sustained decline in the credit-to-GDP ratio, which remains well below pre-crisis levels and the euro-area average. - The credit-to-GDP gap remains deeply negative, which could constrain long-term growth. - By September 2025 credit growth reached 11 percent year over year; however, the nominal volume of outstanding loans remains well below its pre-crisis peak, driven by very low household levels. - The credit recovery has been driven mostly by loans to large corporations. - As of June 2025, the largest 10 corporate exposures represent 122 percent (10 percent) of banks’ T1 capital (total assets). - Household credit growth has been more subdued, with mortgage lending remaining sluggish due to lack of demand and legacy NPLs. ### NPLs outside banks and credit-servicer activity - NPLs outside banks’ balance sheets managed by credit servicers totaled €72.6bn (original par value) as of September 2025 (which would be equivalent to a 30.5 percent NPL ratio if they had remained on bank balance sheets). - Half of them (€ 37.6bn) are related to HAPS while the other half (€35.0 bn) originated from direct sales by banks. - Households and corporates (predominantly SMEs with personal guarantees and housing collateral) with outstanding NPLs managed by credit servicers are largely seen as “nonbankable” from a risk perspective, limiting the universe of potential banking clients. - Credit servicers are specialized nonbank financial institutions whose primary activities are payment collection, debt restructuring, and collateral liquidation. - Credit servicers do not hold these loans on their own balance sheets but are funded by fees based on assets under management. - Assets managed by credit servicers are largely controlled by foreign investment firms (approximately €81bn out of €93bn total); these foreign firms do not have other significant connections to the Greek economy. ### Financial sector structure and balance-sheet features (Figure 3 highlights) - Total domestic system assets stand at €376.8 billion as of September 2025 (152 percent of Greece 2025 GDP), considerably below its past peak. - Banks account for 84 percent of these assets, with non-bank financial institutions (NBFIs) holding the remaining 16 percent. - Significant NBFIs: insurance companies (5.8 percent) and collective investment undertakings (5.3 percent). - Following post crisis-consolidation, the four Significant Institutions (SIs) hold €293 billion in assets (92.7 percent of total banking assets). - As of December 2025, loans to non-MFIs comprise about 43 percent of total assets, with loans to non-financial corporations accounting for 68 percent of private-sector loan portfolios, housing loans 21 percent, and consumer loans 7 percent. - Securities make up 29 percent of assets; 60 percent of these are government securities, with over half in Greek sovereign bonds, primarily held to maturity and accounted for at amortized cost. - Foreign sovereign bonds are mainly EU and G10 issuers. - Banks have diversified income sources via acquisitions, syndicated loans across Europe, bancassurance-style insurance businesses, and new fintech products (such as neobanks). ### Funding and deposit structure - Banks’ funding relies on retail and wholesale deposits that comprise around 90 percent of liabilities. - Household deposits make up 64 percent of deposits. - High banking sector concentration limits deposit competition, allowing banks to maintain relatively low deposit rates even during the rising rate environment. - Deposits largely remained within the banking system during the rising rate environment, indicating limited appetite for higher-yielding alternatives. ### International operations and diversification - By June 2025, foreign subsidiaries and branches accounted for €57.3 billion (13.4 percent of consolidated assets), mainly in Cyprus and Bulgaria, with loans representing 48 percent of these assets. - International operations contributed 16.5 percent to group profits in the first half of 2025. ### Profitability, efficiency, and capital (Figure 4 highlights) - Since 2022, Greek banks experienced notable improvement in profitability driven by favorable net interest margins, declining loan-loss provisions, and lower non-interest expenses. - As of December 2025: - Return on Assets (ROA) stood at 1.3 percent. - Return on Equity (ROE) stood at 12 percent. - EU averages: ROA 1.0 percent and ROE 11.7 percent. - Cost-to-income ratio: 37.0 percent compared to the EU average of 49.7 percent. - Profitability is expected to moderate as net interest margins ease; maintaining earnings will depend on cost discipline, fee-based income growth, continued improvements in asset quality, and prudent credit expansion. - As of December 2025, Common Equity Tier 1 (CET1) ratio reached 15.5 percent (EU average 17.7 percent). - Total capital ratio converged to around the EU level at 21.5 percent. - Deferred Tax Credits (DTCs) represent 43.4 percent of CET1 capital (consolidated basis as of Dec.2025), indicating weaker capital quality relative to peers. - NPL ratio declined from 43.5 percent in June 2019 to 3.3 percent in September 2025 (supported by HAPS) but remains above the EU average of 1.6 percent as of December 2025. - Leverage ratio (fully phased-in definition) at 7.7 percent in December 2025, above the EU average of 7.1 percent. ### Liquidity and asset encumbrance (Figure 5 highlights) - As of December 2025, system-wide liquidity indicators: - Liquidity Coverage Ratio (LCR): 198.8 percent. - Net Stable Funding Ratio (NSFR): 136.4 percent. - Asset encumbrance ratio: 8.6 percent. - Greek banks’ liquidity buffers are heavily concentrated in domestic sovereign debt, with 63 percent of high-quality liquid assets (HQLA) invested in central government securities—a significant exposure compared to European peers. *Source: IMF staff compilation from the 2026 FSAP chapter for Greece (figures and data as presented).* ### 13. The sovereign-bank nexus is sizable due to notable contingent government liabilities ### 13. The sovereign-bank nexus is sizable due to notable contingent government liabilities ### Sovereign exposures and contingent liabilities - Greek banks hold Greek sovereign securities amounting to 9.2 percent of total assets as of December 2025. - Including state-guaranteed assets, exposure rises to 19.3 percent. - Additional contingent liabilities of the Greek state on bank balance sheets: - DTCs: 3.1 percent (of total assets) - State-guaranteed senior bonds from HAPS securitization schemes: 4.5 percent - Other guarantees provided to banks: 0.6 percent - Combined indirect exposures represent 36.4 bn (or 14.6 percent of Greece 2025 GDP). - The Greek government holds equity stakes in two banks through HCAP: - 8.4 percent in one systemically important (SI) bank - 36.2 percent in one less-systemically important (LSI) bank - HCAP absorbed in 2024 the Hellenic Financial Stability Fund (HFSF) created to recapitalize banks. ### DTCs and bank capital quality - Legislation enacted in 2014 allowed conversion of Deferred Tax Assets (DTAs) into Deferred Tax Credits (DTCs). - DTCs are not deducted from regulatory capital because they can be exchanged for a government equity infusion if banks record losses. - DTC magnitude and implications: - DTCs equal €11.5 bn, equivalent to 43.4 percent of CET1 capital as of Dec. 2025. - In June 2025, DTCs still represent 66% of DTAs. - High relative size of DTCs overstates underlying solvency and heightens the sovereign-bank nexus via potential sovereign capital injections that would dilute private investors. - Amortization arrangements: - Four SIs agreed with the Single Supervisory Mechanism (SSM) on a voluntary accelerated prudential amortization scheme of DTCs in proportion to annual dividend payouts. - Current projections: DTCs would be fully amortized by 2031–33, compared to 2041 under the current legal amortization calendar. - Preferred policy: codify in Greek law an accelerated amortization timing aligned with the voluntary prudential amortization scheme to apply across all banks. ### HAPS securitizations, NPLs, and fiscal risk - Under HAPS, banks securitized NPLs (mainly originated before 2019), retaining all senior tranches and a minority stake (five percent) in junior and mezzanine tranches. - Non-bank investors acquired the majority of mezzanine and junior tranches. - Senior securitization notes held by banks benefit from a state guarantee, conferring a zero-risk weight for capital purposes; guarantee fee is paid by the securitization vehicle. - Assumption: sovereign guarantee remains in place and non-bank investors are international and equity-funded, implying residual risk to banking sector and domestic financial system could be considered low. - HAPS fiscal exposure and risks: - State guarantee initially granted for €21.5 billion, with €16.8 billion outstanding as of September 2025 (equivalent to 6.8 percent of Greece 2025 GDP) — reflecting slower than expected NPL resolution and worse than expected recoveries. - HAPS senior notes are non-tradeable, lack fixed principal payment schedules, and are held to maturity on banks’ balance sheets; underperformance in NPL recoveries could cause a shortfall at maturity and trigger calls on the sovereign guarantee. - If HAPS securities were classified as stage 3 under IFRS 9, EUROSTAT may require the guaranteed amount be incorporated into Greek government debt statistics; near-term probability of that appears low given long maturities (often exceeding 30 years) and lack of fixed principal payments. ### Financial sector structure and interconnectedness - The Greek financial sector centers around banks; banks focus on deposit taking and lending to the domestic private sector with limited linkages to NBFIs. - Key balance-sheet and sectoral figures (as of 2025Q3 / September 2025): - Banks’ domestic funding mainly from households and non-financial corporations (NFCs) in the form of deposits; government deposits remain small. - Banks’ assets: loans to NFCs and households (together close to 50 percent of GDP); securities portfolio including domestic government bonds (over 10 percent of GDP) and rest-of-world official and private sector securities (over 20 percent of GDP). - NBFIs equal about one-fifth of the financial sector by assets; investment funds and insurance corporations each around 5-6 percent of total financial assets. - Insurance sector: gross written premiums (GWP) equal 2.3 percent of GDP versus European average of 7.4 percent of GDP. - Outstanding NFC securities: 2.8 percent of GDP. ### Systemic risk and macro-financial scenarios used for stress testing - FSAP solvency stress test: - Covered the four SIs, which account for 95 percent of banking sector assets as of June 2025. - Cutoff date: June 2025; horizon: three years. - Scenarios: baseline consistent with October 2025 WEO, and two adverse scenarios (recessionary and geopolitical). - Adverse scenarios (key macro outcomes over the first two years): - Recessionary scenario: - Real GDP: cumulative -8.4 percent - Unemployment: rises to 15.5 percent - Inflation: declines to -0.15 percent - Short-term rates: decline by 2.2 percentage points - Long-term rate: increases to 6.6 percent - Term spreads widen by up to 4.5 percentage points - Geopolitical scenario: - Real GDP: cumulative -6.8 percent - Unemployment: increases to 13 percent - Inflation: accelerates to 4.9 percent - Short-term rates: increase by 1.4 percentage points - Long-term rate: increases to 5.8 percent - Context: - Scenarios are more severe than contemporaneous WEO forecasts and assume a two-year GDP contraction; severity remains materially lower than the Global Financial Crisis and the Greek sovereign debt crisis. ### Stress-test results and bank resilience - Aggregate solvency outcomes for the four SIs: - CET1 ratio declines: - Recessionary scenario: declines by 1.4 percentage points at the trough. - Geopolitical scenario: declines by 0.7 percentage points at the trough. - Drivers: - Recessionary scenario: higher loan losses, weaker non-interest income (notably fees and commissions), and market losses. - Geopolitical scenario: higher loan losses and reduced non-interest income, but NII benefits from rising interest rates and a robust deposit base. - All SIs remain comfortably above regulatory capital buffer requirements across scenarios. - Analysis incorporates estimated legal and voluntary DTC amortization; senior HAPS securities assumed to remain unimpaired under both adverse scenarios. - Profitability and income impacts: - Aggregate net profit falls from €4.7 billion at the starting point to €0.7 billion in the first year of the recessionary scenario (primarily due to increased loan and market losses). - In the geopolitical scenario, profit decreases to €2.2 billion in the first scenario year as higher interest income and lower credit and market losses soften the impact. - Other dynamics: - Net interest margin declines in the recessionary scenario and rises in the geopolitical scenario. - Provisions more than double in the first year of the recessionary scenario. - Non-interest income declines in both adverse scenarios, more pronounced in the recessionary scenario. - Market risk losses are more pronounced in the recessionary scenario due to higher sovereign stress shocks. ### Policy recommendation highlighted - Codify in Greek law an accelerated amortization of DTCs to align timing with the voluntary prudential amortization scheme agreed by the four SIs and the SSM, as a preferred solution to address DTC-related capital quality across all banks. *International Monetary Fund — Chapter 13, "The sovereign-bank nexus is sizable due to notable contingent government liabilities."* ### 25. Additional sensitivity analyses were undertaken to consider the potential impact of the ### 1grcea2026003 - 25. Additional sensitivity analyses were undertaken to consider the potential impact of the ### Impact of the ongoing war in the Middle East - Under a prolonged and severe elevation of oil prices and geopolitical uncertainty, main impact on the Greek financial system is likely via higher bank losses in loans to the tourism and manufacturing sectors due to elevated travel and energy costs. - Tourism and manufacturing represent 6.3 and 8.9 percent of Greek bank loans, respectively. - Banks’ exposure to shipping is 8.2 percent of loans; the globally diversified nature of shipping and idiosyncratic nature of shipping loans makes large war-driven losses there unlikely. - Even if tourism and manufacturing industries both suffered losses 3 times as large as those modeled in the (more severe) recessionary scenario, this would result in an additional loss of less than 1 percentage point of bank capital, with banks remaining well above their capital requirements. - Spillovers that affect shipping or broader sectors would still leave banks with a large margin of safety. - An energy shock would stress vulnerable households; this could be partially offset by well-targeted fiscal support. - Household loans comprise a relatively small portion of bank balance sheets in comparison to other eurozone countries. - Higher inflation from a prolonged war would have an uncertain impact on bank profits as higher loan-to-deposit spreads might be offset by rising credit losses and more costly wholesale financing. ### Deferred Tax Credits (DTC) amortization - DTC amortization is materially weaker in the recessionary scenario than in current bank projections. - Under the recessionary scenario, total DTCs for the four SIs would be €1.5 billion higher by 2028 than currently projected by bank. - Under the geopolitical scenario, total DTCs would be €0.4 billion higher by 2028 than currently projected by bank. - This underscores the importance of accelerating DTC amortization during periods of stronger profitability. ### Competition and digitalization sensitivity - High concentration of the banking system prompted assessment of sensitivity to stronger competition from fintechs, neobanks, and cross-border providers driven by digital adoption and EU initiatives (open banking, instant payments). - Potential effects include compression of fees and commission income and increase in interest expenses. - Sensitivity analysis of lower fees/commissions and higher funding costs on CET1 ratios suggests a modest CET1 decline ranging from 19 to 32 basis points, depending on assumed reduction in market concentration from 96 percent to 86 percent, 80 percent, or 76 percent. - Results should be interpreted with caution due to model uncertainty and lack of historical precedents for rapid structural transformation. ### Large exposures and concentration risk - Systemic banks' large exposures are high at about 200 percent of Tier1 Capital (gross) and 122.3 percent after mitigation measures (CRM). - Exposures are mainly in utilities, manufacturing, and financials sectors. - Cross section of large exposures shows little variation across banks, implying limited diversification and highly correlated solvency risk. - The top 10 common exposures to non-financial corporates across banks amount to 121.6 percent of Tier 1 capital before CRM and 81 percent after CRM. - If the war caused simultaneous distress in more than one of these firms, it could generate significant strains in the banking system. ### Bank liquidity stress tests (NSFR, LCR, cashflow analysis) - Liquidity stress testing combined NSFR and LCR with a cashflow analysis; Greek banks compare strongly with peers on standard LCR and NSFR metrics. - Standardized tests at 30-day and one-year horizons are insufficient to measure all dimensions of liquidity; cashflow analysis considers multiple shocks at multiple horizons, generally more severe than Basel calibration and including market and funding shocks, with aggressive scenarios combining both. - As of August 2025, under the regulatory scenario (SC1), all banks maintain solid liquidity buffers. - Under more severe market stress (SC2) and higher losses on marked-to-market sovereign holdings (SC3), LCR ratios would remain elevated. - Severe outflows (SC4), overlaid with lower inflows from defaulting counterparts (SC5), push banks closer to the hurdle rate without outright liquidity shortages. - Under aggressive scenarios combining market and funding shocks (SC6) with sovereign stress (SC7), one and, respectively, two banks fall under the hurdle rate. - Lower inflows due to defaults on maturing loans (SC8, SC9) do not materially alter LCR test results. - Cashflow analysis finds no maturity mismatches under scenarios consistent with LCR-based tests (SC1-7) prior to the 30-day horizon or beyond it. - Under the most severe scenario (SC7), the liquidity surplus briefly falls below 20 percent of the initial CBC stock for one bank across the 2 to 6-month maturity buckets, without any outright liquidity shortage. ### Liquidity–solvency interaction and sovereign bond liquidation sensitivity - Sensitivity analysis assessed additional impact on SIs’ capital from liquidity–solvency interactions assuming banks liquidate Greek government bonds held at amortized cost when other components of counterbalancing capacity are insufficient. - Analysis based on a three-month horizon assumes Greek government bond yields increase in line with market shocks from adverse solvency stress-test scenarios. - Market losses estimated using modified duration approach with residual duration proxied by residual maturity; existing hedges assumed ineffective for conservatism. - Under the recessionary (geopolitical) scenario, 5-year Greek sovereign bond yields rise by 461.5 (382.2) basis points, while 10-year yields increase by 475.9 (363.4) basis points. - Results indicate liquidity–solvency interactions could lead to significant additional depletion in banks’ capital ratios under both moderate and severe cash-flow stress scenarios. - Additional capital depletion ranges from 1.9 (1.4) percentage points in scenario S3 to 6.5 (5.1) percentage points in scenario S7 under the recessionary (geopolitical) market-shock assumptions. - Findings underscore importance of sovereign–bank nexus but should be interpreted with caution given limitations in estimating market losses and the low likelihood banks would liquidate these securities rather than use them as collateral in repo operations with the ECB or in market repo transactions. ### Corporate and household risks - Both NFCs and households have undertaken deleveraging since the sovereign debt crisis but a significant share remain burdened by legacy NPLs. - In aggregate, debt held by firms with interest coverage ratios (ICRs) below one remains sizable at 20 percent of total NFC debt. - According to HFCS 2021, a sizable amount of household debt is held by vulnerable households. - The ongoing war in the Middle East could exacerbate vulnerabilities: NFC profitability could be affected by weaker external or domestic demand, higher borrowing costs, and higher input costs; higher energy prices would worsen household cost-of-living pressures. - Stress tests show remaining NFCs are resilient: severe shocks calibrated for bank solvency stress tests would raise PDs only temporarily to moderate levels. - The recessionary scenario causes the debt-weighted average PD to more than triple its 2025 level. - Households are vulnerable to negative income shocks and, to a lesser extent, higher interest rates. - Vulnerable households defined by DSTI above 0.4, and cost-of-living pressures defined as DSTI augmented by expenses on food and utilities exceeding 0.7. - Debt servicing vulnerabilities are more pronounced under the geopolitical scenario’s higher short-term rates, while the recessionary scenario is more challenging for households due to loss of real income. ### Emerging risks: NBFIs, crypto, and market developments - NBFI penetration and bank-NBFI interconnectedness remain low but may increase in coming years. - Local corporate bond market issuance has been growing; private credit and equity activity have expanded though Greek investment opportunities are often below scale required by international investors. - Recent acquisition of a major insurance company by an SI bank suggests a potential pivot to bancassurance business, though capital advantages under the Danish Compromise are not applicable given minimum asset size thresholds. - Greek equity market performed strongly over the past four years with increased local and international investment; Euronext’s November 2025 acquisition of a majority stake in the Athens stock exchange (ATHEX) is likely to improve liquidity. - Crypto market is nascent in Greece but expansion is anticipated in the medium term. MiCAR has been fully applicable in Greece since December 2024. - No crypto asset issuers for EMT or ART based in Greece; issuance concentrated in major EA jurisdictions. - Bank of Greece (BoG) has a small team dedicated to Digital Finance Supervision; needs likely to increase as interest grows and provision of crypto-services by local financial entities (especially banks) is likely. - Supervisors focus on monitoring exposures and risks through close collaboration with EU supervisory authorities given lack of Greek crypto entities. *Source: IMF staff report (content unit 1grcea2026003).* ### 41. Cyber risks are a major area of focus across Greek financial regulators and beyond, ### 41. Cyber risks are a major area of focus across Greek financial regulators and beyond, ### Cyber risks and supervisory resourcing - The implementation of the EU’s Digital Operational Resilience Act (DORA) in January 2025 has created a strong framework for cyber risk supervision and coordination across the relevant authorities, which include the BoG, the HCMC, and the National Cybersecurity Authority (NCSA). - Staff resources: - The BoG has a dedicated team of 17 staff for supervision of regulated entities. - The HCMC has only 5 dedicated IT specialists. - Interactions and coordination: - Regular cooperation across agencies is based on an MoU covering ICT Risk supervision, coordination on DORA Oversight Forum and TLPT issues. - Semi-annual meetings have been established with the BoG, the NCSA and the Chief Information Security Officers of the major Greek banks. - The EU Systemic Cyber Incident Coordination Framework facilitates communication and coordination among EU authorities, liaises with key international stakeholders, and serves as a coordinating body in case of a major cyber incident. - Talent constraints: - All national authorities report difficulties in attracting and retaining qualified talent in cybersecurity, given strong demand from the private sector and relatively low public sector compensation. ### Supervisory and resolution resources — findings and recommendations - Findings: - Supervisory and resolution function resources should be enhanced where needed, particularly regarding legacy issues and emerging risks. - The authorities need to assess the capacity and skills of their staff and bring reinforcements as considered necessary. - Particular emphasis on supervision of credit servicers (current team is comparatively small given the scope of the issue) and protection against cyber risks (new challenges and regulatory requirements). - Recommendations: - Enhance resources for supervisory and resolution functions where necessary. - Assess staff capacity and skills and recruit or reallocate staff to address legacy and emerging risks. ### Interagency cooperation and the Systemic Stability Council (SSC) - Current status: - The SSC is a high-level interagency body comprising eight members, including the Minister of Finance as Chair, the BoG Governor, and the HCMC President, with a mandate to monitor and analyze system-wide interactions to prevent crises. - Since its establishment in 2010, the SSC met only sporadically to address crisis issues. - Recommendations: - The SSC should be fully operationalized as the national coordination platform on financial stability, including systemic risk; it should meet regularly, for example semi-annually around FSR publications. - Establish a systemic risk subcommittee to support system-wide risk monitoring and management and provide input to the FSR. - Empower the SSC to issue public or private recommendations to member institutions and support timely policy responses, with regular communication through press releases after meetings. - Establish a subcommittee on system-wide crisis management framework to complement the bank-by-bank resolution framework; include representation from TEKE; meet regularly for crisis preparedness and to run crisis simulations and table-top exercises. - Set objectives, principles, and processes for dealing with financial distress in special MoUs between relevant authorities. ### Macroprudential framework: institutional roles and transparency - Institutional arrangements: - The BoG is the designated macroprudential authority with a broad remit covering around 95 percent of total financial system assets. - The BoG’s mandate, objectives, and functions for macroprudential policy are clearly enshrined in legislation. - The Financial Stability Committee (FSC) was re-established as a dedicated body for macroprudential and financial stability issues. - The Financial Stability Directorate (FSD) supports effective interdepartmental cooperation. - Accountability and transparency: - Accountability and transparency arrangements are reasonably strong, reflected in regular flagship reports and statutory reporting to Parliament. - The BoG has strong legal powers over a well-defined set of macroprudential instruments, broad information collection powers, and responsibility for designating systemically important banks; the HCMC has designation powers for relevant NBFIs. - Recommendations: - Update the 2015 macroprudential policy strategy to incorporate borrower-based measures (BBMs), articulate the use of (PN) CCyB and BBMs over the cycle, and clarify indicators for CCyB release. - Enhance outreach and public buy-in: BoG should hold a press conference or briefing around the publication of the FSR and major macroprudential decisions and consolidate macroprudential information and data on its website into a dedicated landing page. ### Risk surveillance, data, and stress testing - Strengths: - The BoG draws on a wide range of data to support systemic risk assessment and macroprudential policymaking. - Implementation of the Central Credit Register on financial debt of natural persons and legal entities is critical to advance analysis of household and real estate risks and enable effective calibration, monitoring, and enforcement of BBMs using granular loan-level data. - Gaps and recommendations: - While the BoG regularly conducts supervisory solvency stress tests for LSIs, it relies on EBA/ECB’s stress tests for solvency analysis of SIs. - Establish an in-house macroprudential stress-testing toolkit to enable more flexible and targeted assessments of banking sector resilience. ### Macroprudential instruments and buffer settings - Recent actions and context: - O-SII buffers became fully phased-in in 2023, followed by an early and gradual buildup of the CCyB. - Recent activation of BBMs during a period of subdued mortgage lending. - Specific numeric developments: - The BoG raised the CCyB rate from 0.25 to 0.5 percent in October 2025 (effective October 2026). - The current PN CCyB target rate stands at 0.5 percent. - Recommendations: - Closely monitor emerging pockets of vulnerability in the corporate and household sectors and remain ready to adjust the macroprudential toolkit as risks evolve. - Monitor concentration to common obligors and, if concentration amplifies cyclical risks, consider measures such as the broad-based CCyB or a sectoral systemic risk buffer. - Refine BBMs to address potential leakages and introduce a maturity limit to enhance BBM effectiveness. - Strengthen quantitative foundations for calibrating the PN CCyB over the medium term; calibration could be based on bank solvency stress tests and should reflect best practices, bank profitability, and availability of voluntary capital buffers. ### Less Significant Institutions (LSI) supervision - Coverage and supervisory approach: - LSIs comprise about 5 per cent of the banking sector. - BoG’s approach to LSI supervision is thorough, systematic and intrusive, anchored in the Supervisory Review and Evaluation Process (SREP) adapted for Greece. - Risks are clearly identified and reflected in supervisory actions and Pillar 2 capital add-ons. - Capacity and resourcing: - BoG benefits from robust independence and staff with desired skills and experience, but needs medium-term resource planning and vigilance on emerging risks (e.g., ICT and cyber). - Credit risk and provisioning: - Credit risk remains the most important risk for Greek LSIs. - Despite decline in NPL ratios, some legacy NPLs remain outstanding in LSIs and new NPLs have been increasing. - ECB’s Guideline for the application of the prudential backstop to LSIs is leading to a more conservative approach to provisioning coverage for NPLs. - Creditors in Greece often encounter significant delays in the judicial process; realization of collateral often takes a very long time. - Governance: - Governance and risk management remain an area of continued focus given inherent governance challenges faced by small LSIs. - Supervisory actions should be comprehensive, proactive, forceful and targeted (e.g., improve number and quality of independent directors, enhance board accountability, foster strong risk culture). - BoG supervisors should prioritize governance matters, especially for larger and riskier LSIs. ### Crisis preparedness, resolution, and financial safety net - Allocation of responsibilities: - Greece is part of the EU and the EA; the financial safety net is a shared responsibility within the European framework. - The BoG is the national resolution authority (NRA), directly responsible, under Single Resolution Board (SRB) oversight, for the resolution of non-cross-border LSIs. - The BoG’s standing Resolution Measures Committee (RMC) is entrusted with all resolution-related decisions. - Institutional and legal recommendations: - The Greek judiciary should not be able to reverse decisions taken in good faith by the resolution authority within its legal power. - Revise BoG institutional set-up so the Resolution Unit would not report to the Director General in charge of Prudential Supervision to prevent potential policy conflicts. - Develop a policy for indemnification of legal costs incurred by BoG staff defending resolution actions that are in scope of statutory protections. - Resolution tools and preparedness: - Greece relies on a set of resolution powers broadly consistent with the FSB KA. - The BoG has published an operational document outlining implementation of the bail-in mechanism in Greece and has advanced on the Sale-of-Business (SoB), the bridge institution, and asset separation tools; law introduced possibility to use government financial stability tools in exceptional cases. - The BoG should prepare for and operationalize combinations of resolution tools and ensure readiness to implement resolution at the point of failure. - For SIs, although bail-in is preferred, BoG should operationalize SoB and bridge bank and combinations of tools; for LSIs (preferred strategy: liquidation under normal insolvency proceedings), BoG should ensure resolution readiness if liquidation cannot be implemented at point of failure. - Formalize and document procedures to assess need to impose MREL add-ons on LSIs. - Emergency Liquidity Assistance (ELA): - Any provision of ELA is BoG’s responsibility (within ECB framework). - BoG has capabilities to assess credit risk and accept wide range of collateral. - Recommendations: authority to require banks to preposition illiquid collateral on a discretionary basis; complement with regular simulation exercises; develop policies and procedures for provisioning of ELA to banks in resolution, including written policies to guide prospective solvency determination; augment ELA manual and formalize cooperation between BoG divisions. - TEKE (Deposit Insurance Fund): - Operational capabilities are well established; conducts stress testing exercises on a three-year cycle including simulations with supervisory and resolution authorities. - TEKE’s target size should be large enough to withstand concurrent payout of covered deposits for the 2–4 largest banks earmarked for liquidation. - TEKE should have a public backstop up to the amount needed to ensure protection of covered deposits (recoverable from the industry ex-post, if used). - TEKE should exclude Hellenic Banking Association (HBA) representatives from its board and reduce number of BoG representatives to contain policy conflicts. ### Insolvency, creditor rights, and credit servicers - Mortgage enforcement: - Enforcement has significantly improved compared to a decade ago, but persistent challenges lengthen enforcement times and increase costs: prevalence of borrower objections at different stages, delays in issuance of payment orders by courts, a statutory waiting period of seven months between confiscation and the first auction, lack of competition at auctions, delays in distribution of auction proceeds and transfer and registration of ownership following an auction, and lingering costs post-auction due to requirement to maintain a guarantee for a period of five years. - Recommendations to improve enforcement process: - Resolve backlog of borrower objections and streamline process for objections, accelerating adjudication, ideally in one single decision. - Shorten the statutory period required between seizure and the first auction. - Remove the requirement for a five-year guarantee post-auction as security against challenges to the ranking table. - Corporate insolvency toolkit: - Greece has a modern legal toolkit for resolution of enterprise distress, but a formal reorganization process is lacking. - Rehabilitation is the only procedure available for restoration of failed businesses; there is no option for a formal reorganization with closer judicial oversight, which is inconsistent with the international insolvency standard. - Recommendation: consider introducing a court-supervised reorganization procedure to complement rehabilitation and fill the gap in the toolkit, particularly important given concentration of bank lending to large corporates and related financial stability risks. *Source: IMF staff assessment as presented in the provided chapter content.* ### 63. It is imperative that the implementation of the insolvency and creditor rights regime ### 1grcea2026003 - 63. It is imperative that the implementation of the insolvency and creditor rights regime ### Insolvency and creditor-rights implementation - Implementation should be supported by a specialized judiciary and a well-resourced court system. - Institutional framework recommendations: - Set up commercial courts to enable judges to specialize in commercial matters on a permanent basis. - Provide regular and tailored training programs on insolvency and financial matters for specialized judges. - Establish a progressive career path for specialized judges. - Ensure courts are well-resourced to handle complexity, urgency, and discretion inherent in insolvency cases. ### Credit servicers and NPL resolution - Scope and scale: - Credit servicers service c. 2.9 million loans (mostly NPL debt) from c. 2.4 million borrowers in Greece. - Population cited: 10.4 million. - Loans serviced by credit servicers are equivalent to 31 percent of 2024 Greece GDP. - Performance and constraints: - Resolution of NPLs by credit servicers has been slower than anticipated. - Credit servicers have been very slow in resolving NPLs and lack key information for around a third of borrowers. - Two resolution channels: restructuring and liquidating NPLs. - Underperformance relative to initial business plans, primarily due to slower-than-anticipated liquidations resulting from inefficiencies in the judicial process. - Low-powered financial incentives and long maturities on HAPS notes may lead owners of credit servicers to underinvest in capacity (including staff and information technology). - Increase in real estate prices over recent years presents an opportunity to advance NPL resolution. ### Supervision of credit servicers (policy recommendations) - The Bank of Greece (BoG) should increase supervisory focus on credit servicers’ performance and capacity to deal with large numbers of borrowers. - The BoG should require credit servicers to regularly update their business plans to: - Better benchmark their annual performance reports. - Explain deviations in execution and changes in strategy. - Help banks with classification of HAPS senior bonds under IFRS 9. - Formalize and intensify coordination via the recently established working group with other government agencies to improve NPL resolution by credit servicers. - Increase intensity and impact of onsite supervision, including on accuracy of penalty charges imposed by credit servicers. - Increase supervisory resources: currently only 8 FTEs are devoted to the supervision of credit servicers. ### Transparency and public information on HAPS and credit servicers (policy recommendations) - Given HAPS includes a fiscal guarantee by the Hellenic Republic: - The HAPS committee should create a website to provide public information about the various HAPS schemes and their evolution; information should be regularly updated (at least quarterly). - The national public auditor should certify an annual report about the evolution of HAPS. - The BoG should introduce targeted enhancements on supervisory reporting and transparency of credit servicers and augment its published reports to reflect on credit servicers’ performance. ### Financial Integrity (AML/CFT) - Developments since 2019: - Greece’s AML/CFT framework has been strengthened since the Financial Action Task Force (FATF) 2019 mutual evaluation report. - Greece has strengthened its AML/CFT legal framework and is updating its National Risk Assessment for money laundering and terrorist financing, with a focus on legal entities and virtual assets service providers (VASPs). - Supervisory roles and gaps: - The BoG and HCMC should continue efforts to improve risk-based AML/CFT supervision of banks, payment institutions and VASPs, respectively. - The BoG has strengthened AML/CFT resources and supervisory strategy and tools; thematic reviews have been effective, but frequency of general on-site inspections—especially for payment institutions—remains low. - HCMC began registering VASPs in 2022 and has started supervision; future efforts should deepen entity-level risk understanding and conduct more risk-driven on-site inspections. - Beneficial ownership and shipping companies: - Central Register of Beneficial Ownership (BO Register) operationalized in 2019 improved ownership transparency, but concerns remain regarding shipping companies. - Shipping companies’ registration records with the Ministry of Shipping and Island Policy remain paper-based and inaccessible electronically, hindering timely access and verification. - Bearer shares were legally abolished in 2018, but the status of bearer shares issued by shipping companies (not registered with GEMI) is unclear. - Authorities should prioritize digitalizing the Register of Shipping Companies to enable direct connection with the BO register to facilitate verification. ### Authorities’ views and recent macrofinancial indicators - Authorities’ assessment and actions: - Authorities valued the FSAP engagement and cooperative discussions; they broadly agreed with the systemic risk assessment. - They agreed with FSAP stress test findings that the banking system is resilient to severe but plausible macro-financial shocks from solvency and liquidity perspectives. - Support for recommendations to streamline the insolvency framework, enhance supervision of credit servicers, and promote efficient workouts of distressed debtors; they view these as macro-critical issues. - Support acceleration of legal amortization of DTCs, with caution that an overly rapid schedule may be challenging. - Support for operationalizing the SSC to cover inter-agency systemic risks and crisis interagency coordination and preparedness; they consider current cyber risk coverage sufficient but will monitor and augment resources as needed. - Recent credit growth data (authorities’ view, latest data for January and February 2026): - Overall credit expansion: +7.4% year-over-year in February (from +7.6% in January). - NFC sector: +10.3% (from +10.9%). - Sole proprietors: -1.8% (from -1.6%). - Household sector: +2.6% (from +2.4%). - Consumer credit: +7.0% (unchanged). - Housing loans: +1.1% (from +0.9%). - Macroprudential stance: authorities assess current stance as appropriate and will monitor conditions and consider additional buffers if risks grow. ### Stress testing framework and scenarios (overview) - Banking sector top-down solvency stress test: - Perimeter: The four SIs represent about 95 percent of banking sector assets. - Cut-off date: June 2025. - Stress test horizon: 2026–2028 (three years). - Data sources: supervisory data (FINREP, COREP), BoG data, Moody’s Expected Default Frequency, ECB IRRBB data, corporate data from Moody’s Orbis and CreditEdge, household HFCS 2021 microdata. - Methodology highlights: - PDs estimated via corporate and household stress tests; corporate PDs use CreditEdge one-year ahead EDPF as proxy with Bayesian model averaging. - Provisioning modeled using IFRS9 transition matrix approach. - Structural model of bank NII based on repricing ladder and estimated betas. - Static balance-sheet approach with re-issuance of maturing loans at current market rates. - Traded risk via modified duration or bank-specific sensitivities for FVPL and FVOCI instruments. - Main stress test results include DTCs as part of capital, consistent with ECB approach; legal and voluntary DTC amortization estimated and incorporated. - Tail shocks / scenarios: - Baseline aligned with October 2025 World Economic Outlook projections. - Two adverse scenarios: - "Recessionary scenario": synchronized global slowdown amplified by sovereign debt distress in the euro area, widening credit spreads, term premium decompression, confidence losses; accommodative monetary policy partially mitigates demand impact. - "Geopolitical scenario": escalation of geopolitical conflicts, heightened commodity price volatility, disrupted global production chains, adverse trade/price/tariff shocks ("trade wars"); fiscal policy support partially offsets demand losses, but inflationary effects force monetary tightening. - Adverse scenarios rely on GFM, a structural macro econometric model disaggregated into 40 national economies. - Risks covered: credit (loans and debt securities), market (valuation impact of debt instruments and net open positions), and IRRBB. - Behavioral assumptions: - Static balance sheet: size of portfolios (gross of NPLs) remains constant; no write-offs allowed. - Maturing assets replaced by exposures of the same type and risk. - Interest income from nonperforming loans not accrued. - Dividends paid by banks that remain profitable and adequately capitalized. - Banks can only accumulate capital through retained earnings. - No prompt corrective action assumed if banks’ capital ratios fall below regulatory minimum during stress horizon. - Regulatory parameters: - Baseline hurdles include regulatory minimum plus P2R, Capital Conservation Buffer (CCoB), countercyclical Capital Buffer (CCyB) and Other Systemically Important Institutions Buffer (O-SII). - In adverse scenarios, banks are allowed to deplete the CCoB and the CCyB; other requirements remain in place. - Hurdle rates based on CET1, tier-1, and total capital ratios. - Liquidity stress testing (top-down): - Cut-off date: August 2025. - Horizon: 30 days for LCR-based tests, 1 year for NSFR-based tests, up to 12 months for cashflow analysis. - Methodology: LCR- and NSFR-based tests using regulatory parameters with more severe scenarios; cashflow-based liquidity stress test. - Behavioral assumptions: central bank liquidity not considered; buffers include banks’ capacity to generate liquidity from inflows and assets under stress (counter-balancing capacity). - Regulatory hurdle for LCR and NSFR set at 100 percent at aggregate currency level (per Basel III and domestic regulation). - Reporting outputs: Average LCR, NSFR, Net Liquidity Position and survival period; number of institutions with LCR/NSFR below regulatory limits. *Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1grcea2026003.pdf* --- _Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1grcea2026003.pdf_