## _cr0606 ## Source details **Canonical URL:** [_cr0606](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0606.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0606.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0606.pdf.json) --- ### Executive Summary — Overview: systemic position and main findings - Greek financial system benefited from strong economic growth, financial liberalization, and integration into the EU and euro area. - Banking sector has expanded credit and enjoyed increased profitability; capital markets and the insurance industry have not gained proportionally. - Capital markets are deepening but remain relatively illiquid and play only a limited role in the economy. - Insurance sector remains small by EU standards; financial condition of many insurance firms is weak. - No immediate systemic stability threat perceived; challenges from rapid credit expansion, structural cost disadvantages, and limited nonbank intermediation. ### I. Macroeconomic risks (key findings) - Output growth averaged some 4½ percent each year since 2000. - Drivers of boom: monetary easing by the ECB, significant fiscal expansion, and the Olympic Games. - National savings: 28 percent of GDP in 2004. - Inflation exceeded euro area average by 1–2 percentage points since 2000. - Unit labor costs rose 7 percentage points faster than the euro area average. - Growth expected to slow as Olympics stimulus ends, fiscal consolidation proceeds, euro adoption stimulative effects wear off, and interest rates rise from current low levels. - Downside risks: high oil prices and the euro appreciation. ### II. Financial exposures — key findings and exact figures - Household indebtedness and credit growth: - Average annual credit growth to households exceeded 30 percent between 2000 and 2004. - Household indebtedness: 33 percent of GDP in 2004 (euro area: 50 percent of GDP). - Enterprise indebtedness: - Total enterprise debt increased by an average of 11 percent per year between 2000 and 2004, rising to 53 percent of GDP (euro area: 62 percent). - Table 1 selected figures (Corporates / Households / Total) - Corporates (billions of euros): 2000: 57.9; 2001: 67.7; 2002: 72.1; 2003: 80.5; 2004: 87.9. - Corporates to domestic financial institutions (billions of euros): 2000: 42.2; 2001: 49.2; 2002: 52.9; 2003: 59.3; 2004: 66.2. - Corporates to rest of world (billions of euros): 2000: 13.9; 2001: 15.6; 2002: 15.6; 2003: 16.5; 2004: 16.1. - Households (billions of euros): 2000: 17.3; 2001: 24.4; 2002: 32.2; 2003: 41.2; 2004: 53.8. - Households—short-term loans (billions of euros): 2000: 4.8; 2001: 5.8; 2002: 6.5; 2003: 8.2; 2004: 11.4. - Households—housing loans (billions of euros): 2000: 11.3; 2001: 15.7; 2002: 21.2; 2003: 26.5; 2004: 33.1. - Total (billions of euros): 2000: 75.3; 2001: 92.1; 2002: 104.3; 2003: 121.8; 2004: 141.7. - Growth (percent) — Corporates: 2001: 16.9; 2002: 6.5; 2003: 11.7; 2004: 9.1. - Growth (percent) — Households: 2001: 40.6; 2002: 32.0; 2003: 28.1; 2004: 30.5. - Debt (percent of GDP) — Corporates: 2000: 47.6; 2001: 51.6; 2002: 50.9; 2003: 52.5; 2004: 53.2. - Debt (percent of GDP) — Households: 2000: 14.3; 2001: 18.6; 2002: 22.7; 2003: 26.9; 2004: 32.6. - Households—short-term loans (percent of GDP): 2000: 3.9; 2001: 4.4; 2002: 4.6; 2003: 5.3; 2004: 6.9. - Households—housing loans (percent of GDP): 2000: 9.3; 2001: 11.9; 2002: 15.0; 2003: 17.3; 2004: 20.0. - Total (percent of GDP): 2000: 61.8; 2001: 70.1; 2002: 73.6; 2003: 79.3; 2004: 85.7. - Memorandum: Euro area households (percent of GDP): 2000: 45.2; 2001: 45.9; 2002: 47.0; 2003: 48.4; 2004: 50.4. - Source for Table 1: Bank of Greece. ### III. Banking sector — strengths and medium‑term challenges - Financial system scale and composition: - Total assets of the financial system: 170 percent of 2004 GDP. - Benchmarks: France: 250 percent (2003); Spain: 320 percent (2004); Germany: 380 percent (2002). - Composition of financial assets: Commercial banks 76 percent; Insurance companies 3 percent; Pension funds 7 percent; Other institutional investors 11 percent. - Market concentration and size: - Top five banks: 65 percent of assets, 67 percent of loans, 65 percent of deposits in 2004. - Herfindahl index: Greece 1,069; euro area 600. - Capital adequacy and profitability (selected indicators) - Aggregate CAR (risk-weighted, consolidated) end-2004: 12.8 percent. - Risk-weighted CAR (solo and consolidated) for all banks: 13.5 and 12.8 respectively. - Net interest income/gross income: 74.9 percent (All Banks); euro area comparator: 53.5 percent. - Net interest income/assets plus provisions: 2.7 percent (All Banks); euro area: 1.3 percent. - Post-tax ROA: 0.5 percent (All Banks); euro area: 0.3 percent. - Post-tax ROE: 7.5 percent (All Banks); euro area: 7.9 percent. - NPL ratio (All Banks): 7.0 percent; euro area comparator: 3.4 percent. - Coverage ratio (percent of NPLs covered by provisions): 51.1 percent (All Banks); large private banks: 59.8 percent. - Noninterest expense/net interest income: 82.6 percent (All Banks). - Costs/average assets: 5.0 percent (All Banks). - Liquidity: - Bank liquidity declined to 17 percent of total assets in 2004. - Strengths: - Generally well capitalized, profitable, adequate liquidity; reduced state ownership from over 50 percent in late 1990s to 21 percent by end-2004. - Risks and challenges: - Rapid credit expansion to SMEs and consumers; potential weaknesses in risk analysis for new client segments. - NPLs stabilized at levels higher than European averages and likely to rise as economy slows. - Structural impediments: inflexible labor practices; fee and tax structures; relatively slow deposit growth; changing asset maturity pushing banks to costlier funding. ### Banking credit, asset quality, and funding (selected figures) - Total credit outstanding (2004): €117.4 billion. - Credit to enterprises: €76.1 billion (64.9 percent of total lending). - Credit to households: €41.2 billion (35.1 percent of total lending). - Housing: €25.4 billion (21.7 percent of total lending). - Consumer credit: €15.8 billion (13.5 percent of total lending). - Credit as percent of GDP: Total 71.0; Enterprises 46.1; Households 24.9; Housing 15.4; Consumer 9.6. - Annual percent change in total credit: 2000: 27.8; 2001: 17.8; 2002: 16.4; 2003: 15.5; 2004: 17.8. - Average annual growth (2000–04): Total credit 19.1 percent; Enterprises 14.1 percent; Households 34.1 percent; Housing 32.0 percent; Consumer 38.5 percent. - NPL ratio time series: 2000: 9.9; 2001: 8.2; 2002: 7.3; 2003: 7.0; 2004: 7.0. - Corporate NPLs 2004: 7.8 percent. - Housing NPLs 2004: 4.6 percent. - Consumer NPLs 2004: 7.2 percent. - Excluding ABG, NPL ratio 2004: 5.4 percent. - NPLs net of provisions as percent of own funds: 2003: 27.0; 2004: 26.6. Excluding ABG: 2003: 16.1; 2004: 16.4. - NPL coverage with provisions: about 51 percent overall; about 60 percent for large private banks. - Funding diversification and issuance (large private banks NBG, Alpha, EFG Eurobank, Emporiki, Piraeus; amounts in millions of euros) - Hybrid tier 1: 2001: 0; 2002: 300; 2003: 350; 2004: 690; 2005: 1,030. - Subordinated debt: 2001: 100; 2002: 1,275; 2003: 380; 2004: 1,350; 2005: 668. - Medium-term notes (approximate): 2001: 0; 2002: 1,000; 2003: 0; 2004: 17,500; 2005: 8,500. - Securitization: 2001: 0; 2002: 0; 2003: 250; 2004: 750; 2005: 1,500. - Note: 2005 figures accumulated to mid-June; some double counting possible. ### Stress tests — methodology and results (selected figures) - Sample: five largest and two medium-sized commercial banks representing 74 percent of commercial banking sector assets (excluding specialized institutions). - Credit risk scenarios: - Two-year economic slowdown with zero growth in the second year. - External crisis where euro area nominal interest rate reaches 5 percent during a two-year period. - Initial scenario (i) generated a 36 percent deterioration in NPLs; subsequently assumed a 60 percent deterioration in NPLs and PDs increased by 60 percent. - Credit shock caused one small bank to fall below minimum CAR; bank recapitalized after exercise. - Market risk scenarios: - Interest rate +200bp parallel shift: 5.9 percent reduction in CAR. - Equity risk: simultaneous fall in equity prices of 30 percent (mature markets) and 50 percent (emerging markets) led to 7.7 percent fall in CAR. - Sovereign spread increase by 50 bp: 2 percent reduction in CAR. - Stress-test impacts on CAR (In Percent): - CAR before shock: 12.81 - Credit risk: Average 11.69; Maximum 13.40; Minimum 6.07 - Interest rate (+200bp): Average 12.05; Maximum 14.60; Minimum 6.87 - Interest rate (curve steepening): Average 12.15; Maximum 14.97; Minimum 7.27 - Equity (-30 percent–50 percent): Average 11.82; Maximum 14.62; Minimum 6.91 - Exchange rate (-30 percent): Average 12.51; Maximum 14.89; Minimum 7.00 - Key observation: largest adverse effect was domestic macroeconomic shock producing a 9.9 percent decline in regulatory capital; aggregate CAR remained above regulatory minimum with only one small bank falling below minimum. ### IV. Nonbank financial sector — scale and challenges - Insurance sector - Insurance sector <4 percent of financial sector assets. - Premiums per capita: under €300 (EU average €2,100). - Market penetration: gross domestic premium income 2.2 percent of GDP in 2004 (EU: 9 percent). - Number of companies at end-2004: 97. - Industry pretax results: 2002 pretax loss -202.0 (mns euros); 2003 pretax profit 104.5 (mns euros). - ROE: -16.6 percent in 2002; 7.8 percent in 2003. - Selected indicators (In billions of euros): - Gross written premium: 2002 = 2.9; 2003 = 3.2; Growth 11.7. - Assets: 2002 = 8.4; 2003 = 9.6; Growth 14.3. - Equity: 2002 = 1.2; 2003 = 1.5; Growth 33.1. - Capital/assets (percent): 2002 = 13.8; 2003 = 16.1. - Capital markets - ASE market capitalization 2004: 55.7 percent of GDP. - Turnover ratio 2004: 36 (comparators: Milan 123; Madrid 128; London 184). - 360 listed securities; 4 most active accounted for 46.6 percent of turnover by value in 2004. - Debt securities (percent of GDP, 2004): Greece 159.1; Euro Area 165.6; Public: Greece 141.7. - Corporate bond outstanding (In Millions of Euros): 1999 = 1,059; 2000 = 4,821; 2001 = 4,996; 2002 = 4,974; 2003 = 5,862; 2004 = 7,804. - Total (Long-Term + Short-Term) (In Millions of Euros): 1999 = 1,101; 2000 = 4,838; 2001 = 5,012; 2002 = 4,998; 2003 = 5,889; 2004 = 7,838. - Stock market fundraising and derivatives - Average raised 2001–2003: €1.2 billion; 2004: €680 million. - Derivatives trading volumes low; banks use interest rate swaps and currency futures; no significant credit derivatives activity. ### V. Accounting standards and disclosure challenges - Greece adopted IFRS effective 2005; listed corporations must prepare quarterly financial statements according to IFRS beginning in 2005. - Approximately 70 percent of Greek companies are not listed on the ASE and are not required to report under IFRS. - IFRS will reveal extent of unfunded pension liabilities; only listed companies obliged to report under IFRS, creating differing disclosure requirements. - BoG and other supervisors developing prudential filters to phase in IFRS effects on regulatory capital. ### VI. Supervision, regulation, and institutional assessment - Bank supervision - Basle Core Principles (BCP) assessment: fully compliant with 22 criteria; largely compliant with eight; materially noncompliant with one. - Identified priorities include legal protection for BoG staff, more specific credit and provisioning guidelines, enhanced liquidity supervision, and expanded on-site resources. - Selected BoG responses: Governor’s Act 2565/11.10.2005 on loan loss provisions; Governor’s Act 2560/01.04.2005 on liquidity requirements; preparation of manuals and contingency planning arrangements; recruitment for supervision departments. - Insurance supervision (IAIS/ICP) - ISC created December 2004; expected operational transition by mid-2006. - Recommendations: strengthen on-site inspections, require realistic valuation of technical provisions, establish solvency control levels, enhance governance and fit-and-proper rules, and ensure ISC operational independence and resourcing. - Securities regulation (IOSCO) - HCMC characterized as active and energetic; high degree of compliance with IOSCO principles. - Key recommendations: increase operational independence over staffing/resources, implement surveillance and compliance programs for IFRS and international audit standards, and formalize forward programs of work. - Safety net, crisis management, and deposit insurance - BoG can provide emergency liquidity assistance within ESCB framework; lacks published criteria and internal procedures for safety net activation. - TEK vulnerabilities: 80 percent of TEK’s assets invested with participating banks; TEK does not know insured deposits by bank; no contingent financing from BoG or MoF if fund exhausted. - Recommendations: compile contingency planning manual; make insured deposit data available to TEK; establish backup funding procedures for TEK. - Payments and securities settlement - HERMES connected to TARGET; DIAS and ACO handle retail transactions. - ACO lacks clear rules for member failures; recommendation to establish clear rules and qualifications for emergency credit access. ### AML/CFT — findings, deficiencies, and recommended actions - Key findings and deficiencies - Some essential AML/CFT components in place but much remains to be done; compliance with 2nd EU Directive overdue. - Institutional arrangements fragmented; resources limited; AML/CFT not uniformly perceived as a priority. - DNFBPs not covered by AML Law; FIU lacks full-time analytical staff and operational independence weaknesses exist. - Money laundering criminalization narrow; FT criminalization under Law 3251/2004 not fully compliant with international standards. - Vulnerabilities and exposures - Geopolitical location, long coastal borders, many islands, and large cash economy increase vulnerability. - Use of government bonds for money laundering observed. - Unlicensed bureaux de change and informal remittance channels identified. - Priority recommended actions (selected, preserved verbatim where presented) - Enact bill amending Law 2331/1995 to expand coverage of ML offense to all serious offenses and include all “designated categories of predicate offenses”. - Ensure FT is defined as an autonomous offense covering funding of a terrorist, a terrorist group, or terrorism, whether or not a terrorist act has occurred. - Provide for enhanced immediate freezing provisions and enable temporary conservation measures (possibly administrative) to avoid dissipation while awaiting court order. - Restructure FIU so only government officials are employed; committee members should be full time; employ permanent professional analytical staff and provide direct access to commercial and governmental databases. - Develop risk-based AML/CFT supervision across BoG, HCMC, and new insurance regulator; extend AML coverage to DNFBPs, including insurance agents and brokers. - Require FIs to implement a more risk-based approach to CDD, lower EUR 15,000 thresholds for wire transfers, require full originator information for five years, and obligate STR filing whenever suspicious activity is detected. - Enhance sanctions and enforcement powers for competent authorities; provide explicit sanctioning authority in AML Law. - Conduct a comprehensive AML interagency enforcement program based on a national risk assessment. - Recommended preventive measures for financial institutions (selected) - Require enhanced CDD for higher risk customers and politically-exposed persons (PEPs). - Clarify/adjust thresholds for wire transfer CDD (suggested reduction from EUR 15,000 to e.g., EUR 1,000). - Require record retention for five years for wire transfer originator information. - Mandate reporting of attempted suspicious transactions and specify STR content and timeframes. - Require AML internal audit, compliance, and group-wide application of AML policies including overseas branches. - DNFBPs and NPOs - Extend AML coverage to DNFBPs and NPOs; conduct a review of NPO sector for FT risk. - Tighten casino licensing requirements and introduce CDD guidance for lawyers, notaries, and company formation agents. - Authorities’ response - Authorities concur on need to strengthen AML/CFT and have drafted amendments to Law 2331/1995; enactment faces opposition from legal and accounting associations. - Authorities emphasize steps already taken: BoG strengthened AML unit; HCMC effective AML audit programs (three special AML audits carried out up to July 2005); licensing regime for money remitters made obligatory in late 2001 with implementation steps thereafter. ### Corporate governance, insurance corporate governance and internal control — recommendations (selected) - Require insurers to calculate technical provisions on a realistic basis with margins for adverse deviation and require actuary opinions on adequacy. - Establish a solvency control level in excess of minimum solvency margin; implement EU Solvency II when finalized. - Require insurers to have risk management, strategic underwriting, pricing, reinsurance, and investment policies approved and reviewed by the board. - Strengthen supervision of intermediaries; require licensing/registration and on-site inspections of intermediaries and implement consumer protection measures including alternative dispute resolution mechanisms. *IMF staff report — Executive Summary and selected sections from _cr0606 (IMF FSAP materials and assessments as provided).* ### Executive Summary ...................................................................................................... ### Executive Summary ### Overview: systemic position and main findings - The Greek financial system has benefited overall from strong economic growth, financial liberalization, and integration into the EU and euro area. - The banking sector has expanded credit and enjoyed increased profitability; capital markets and the insurance industry have not gained proportionally. - Capital markets are deepening but remain relatively illiquid and play only a limited role in the economy. - The insurance sector remains small by EU standards, and the financial condition of many insurance firms is weak. - No immediate threat to systemic stability is perceived, but the financial sector faces challenges from rapid credit expansion, structural cost disadvantages, and limited nonbank intermediation. ### I. Macroeconomic risks (key findings) - Greece experienced a sustained economic boom since 2000: output growth averaged some 4½ percent each year. - Drivers: monetary easing by the ECB, significant fiscal expansion, and the Olympic Games. - Private consumption and investment buoyed by strong real wage growth, wealth effects from rising real estate prices, gains in employment, and financial sector deregulation. - National savings remained at 28 percent of gross domestic product (GDP) in 2004. - Inflation exceeded the euro area average by 1–2 percentage points since 2000, contributing to an erosion of competitiveness. - Unit labor costs have risen 7 percentage points faster than the euro area average. - Growth is expected to slow somewhat as Olympics-related stimulus ends, fiscal consolidation proceeds, euro adoption stimulative effects wear off, and interest rates rise from current low levels. - Downside risks include high oil prices and the euro appreciation. ### II. Financial exposures (key findings and exact figures) - Household indebtedness increased steadily following financial deregulation and a rapid fall in interest rates. - Average annual credit growth to households exceeded 30 percent between 2000 and 2004. - Household indebtedness was 33 percent of GDP in 2004 compared with 50 percent of GDP in the euro area. - Enterprise indebtedness increased more slowly and remains relatively low by EU standards. - Total enterprise debt increased by an average of 11 percent per year between 2000 and 2004, rising to 53 percent of GDP. - Enterprise exposure is low compared with 62 percent for the euro area. - Debt-to-equity ratios for enterprises have increased sharply in recent years (Figure 1). - Table 1: Household and Nonfinancial Corporate Debt (selected figures preserved) - Corporates (in billions of euros): 2000: 57.9; 2001: 67.7; 2002: 72.1; 2003: 80.5; 2004: 87.9. - Corporates to domestic financial institutions (in billions of euros): 2000: 42.2; 2001: 49.2; 2002: 52.9; 2003: 59.3; 2004: 66.2. - Corporates to rest of world (in billions of euros): 2000: 13.9; 2001: 15.6; 2002: 15.6; 2003: 16.5; 2004: 16.1. - Households (in billions of euros): 2000: 17.3; 2001: 24.4; 2002: 32.2; 2003: 41.2; 2004: 53.8. - Households—short-term loans (in billions of euros): 2000: 4.8; 2001: 5.8; 2002: 6.5; 2003: 8.2; 2004: 11.4. - Households—housing loans (in billions of euros): 2000: 11.3; 2001: 15.7; 2002: 21.2; 2003: 26.5; 2004: 33.1. - Total (in billions of euros): 2000: 75.3; 2001: 92.1; 2002: 104.3; 2003: 121.8; 2004: 141.7. - Growth (percent): Corporates: 2001: 16.9; 2002: 6.5; 2003: 11.7; 2004: 9.1. - Growth (percent): Households: 2001: 40.6; 2002: 32.0; 2003: 28.1; 2004: 30.5. - Debt (percent of GDP): Corporates: 2000: 47.6; 2001: 51.6; 2002: 50.9; 2003: 52.5; 2004: 53.2. - Debt (percent of GDP): Households: 2000: 14.3; 2001: 18.6; 2002: 22.7; 2003: 26.9; 2004: 32.6. - Households—short-term loans (percent of GDP): 2000: 3.9; 2001: 4.4; 2002: 4.6; 2003: 5.3; 2004: 6.9. - Households—housing loans (percent of GDP): 2000: 9.3; 2001: 11.9; 2002: 15.0; 2003: 17.3; 2004: 20.0. - Total (percent of GDP): 2000: 61.8; 2001: 70.1; 2002: 73.6; 2003: 79.3; 2004: 85.7. - Memorandum: Euro area, percent of GDP—Households: 2000: 45.2; 2001: 45.9; 2002: 47.0; 2003: 48.4; 2004: 50.4. - Source for Table 1: Bank of Greece. ### III. Banking sector: strengths and medium-term challenges - Strengths - The banking sector strengthened since EU integration: generally well capitalized, profitable, with adequate liquidity. - Growth in lending to the private sector and reduced state ownership (from over 50 percent in the late 1990s to 21 percent by end-2004). - Risks and challenges - Rapid credit expansion, particularly to new clients in SME and consumer lending sectors, exposes banks to uncertainties in risk analysis. - Nonperforming loans (NPLs) have stabilized at levels higher than European averages; while largely provisioned, they are high given economic growth and are likely to rise as the economy slows. - Structural impediments: inflexible labor practices, fee and tax structures limiting scope for reducing costs and interest rate spreads. - Relatively slow deposit growth and changing maturity structure of bank assets are pushing banks to develop new, more costly sources of funding. - Access to euro area capital markets may be limited by small size and relatively low credit ratings. - Risk management capabilities are being strengthened, but assessments may be optimistic due to lack of full-cycle data. ### IV. Nonbank financial sector: scale and challenges - The nonbank sector is small and plays a limited role in financial intermediation. - Insurance sector - Greece remains relatively underinsured compared with EU averages. - The insurance industry shows poor and volatile profitability; the financial condition of many insurance firms is weak. - Capital markets - Stock market capitalization is in line with European averages, but markets are relatively illiquid and limited in mobilizing resources. - Medium-term challenge: strengthen efficiency, integrate more fully into the wider financial market, and adopt adequate risk management techniques. ### V. Accounting standards and disclosure challenges - Introduction of International Financial Reporting Standards (IFRS) will strengthen transparency and financial statement quality. - IFRS will reveal the extent of banks’ unfunded pension liabilities and implications for capital; resolution of this issue remains under discussion. - Only listed companies will be obliged to report under IFRS, creating differing financial disclosure requirements across firms and a challenge for capital market development. ### VI. Supervision, regulation, and institutional assessment - Bank supervisory authorities have been largely effective in responding to new challenges and tightening the prudential framework. - The Basle Core Principles (BCP) assessment found a high degree of compliance; authorities are acting on recommendations (e.g., strengthening legal protections for BoG staff, dedicating additional resources to on-site inspection). - Capital market regulation strengthened; HCMC is playing an increasing oversight role. - The IOSCO assessment found a relatively high level of compliance and recommended development of work programs for inspection and surveillance. - Insurance sector supervision is weaker; basic legal framework exists and a new supervisory body (funded with industry resources) is being established. ### Main recommendations (priorities and key structural actions) - Priority issues - Close monitoring on a timely basis of credit risk, particularly lending to new clients and in new regions, given rapid credit growth. - Develop a more integrated monitoring and reporting system of banks’ risk management techniques. - Bring the Insurance Supervisory Commission (ISC) to operational readiness as soon as possible by completing selection of professional staff. - Develop a more risk-focused, forward-looking approach to financial supervision, including (i) expanding on-site inspection; and (ii) developing supervisory capacity to assess risks. - Key structural issues — Banking system - Intensify cooperation with regional supervisors and increase on-site inspections of Greek banks’ subsidiaries in Southeastern Europe. - Address tax and legal restrictions that create competitive disadvantages (e.g., the 60 basis point charge subsidizing interest rates on housing loans and labor market rigidities). - Streamline the legal process for settling disputes concerning debt recovery to align dispute resolution periods with EU averages. - Key structural issues — Safety net - Develop more detailed internal Bank of Greece (BoG) procedures for crisis resolution. - Strengthen the deposit insurance system by (i) establishing backup funding procedures in case of need; and (ii) ensuring that adequate information on insured deposits is available. - Strengthening supervisory arrangements — All supervisory institutions - Strengthen legal protection for all financial sector supervisors. - Develop expertise among supervisory staff in rapidly evolving market practices (e.g., risk management techniques and use of capital market funding instruments). - Establish procedures for effective cooperation among different regulatory bodies. - Bank of Greece (specific) - Align more closely provisioning policy with respective credit risk exposures. - Compile all internal crisis management procedures into a manual for Contingency Planning Arrangements. - Insurance Supervisory Commission (specific) - Ensure operational independence of the ISC by isolating staff making decisions that affect the financial condition of insurance firms from industry or political influence. - Hellenic Capital Markets Commission (specific) - Ensure wide adoption of, and compliance with, IFRS by all companies listed on the Athens Stock Exchange (ASE). *IMF staff report — Executive Summary (selected sections).* ### 6. The Greek financial system is small by European standards and is dominated by ### _cr0606 - 6. The Greek financial system is small by European standards and is dominated by banks ### Financial system overview - Total assets of the financial system are estimated at 170 percent of 2004 GDP. - Comparative benchmarks cited: - France: 250 percent (2003) - Spain: 320 percent (2004) - Germany: 380 percent (2002) - Composition of financial assets: - Commercial banks: 76 percent of total financial assets (Figure 2) - Insurance companies: 3 percent - Pension funds: 7 percent - Other institutional investors (such as mutual funds): 11 percent ### Commercial banks — structure and performance - Market concentration and size: - Top five banks accounted for 65 percent of assets, 67 percent of loans, and 65 percent of deposits in 2004 (Table 2). - Herfindahl index: 1,069 in Greece and 600 in the euro area. - Capital adequacy and profitability: - Aggregate CAR (risk-weighted, consolidated) at end-2004: 12.8 percent of risk-weighted assets (Table 3). - Risk-weighted CAR (solo and consolidated) for all banks: 13.5 and 12.8 respectively (Table 3). - Net interest income/gross income: 74.9 percent (All Banks); euro area comparator: 53.5 percent. - Net interest income/assets plus provisions: 2.7 percent (All Banks); euro area: 1.3 percent. - Post-tax return on average assets (ROA): 0.5 percent (All Banks); euro area: 0.3 percent. - Post-tax return on average equity (ROE): 7.5 percent (All Banks); euro area: 7.9 percent. - NPL ratio (All Banks): 7.0 percent; euro area comparator for NPL ratio: 3.4 percent. - Coverage ratio (percent of NPLs covered by provisions): 51.1 percent (All Banks); large private banks: 59.8 percent. - Noninterest expense/net interest income: 82.6 percent (All Banks). - Costs/average assets: 5.0 percent (All Banks). - Liquidity: - Bank liquidity declined to 17 percent of total assets in 2004, noted as somewhat below EU averages. - Observations: - A decline in CAR from 2000 to 2002 (shift from zero risk-weighted government bonds to commercial credit) was reversed in the last two years due to supervisory requirements. - Bank profitability in 2004 sustained by rapid lending growth; ROA and ROE estimated at 0.5 percent and 7.5 percent, respectively, in 2004 compared with 0.3 percent and 7.9 percent in the euro area. - Key challenges identified: - (i) managing credit risks; - (ii) managing competitive pressures; - (iii) diversifying funding sources; - (iv) limiting state influence on the banking system; - (v) strengthening risk management. ### Credit risk and lending trends - Credit expansion: - Total credit outstanding (2004): €117.4 billion. - Credit to enterprises: €76.1 billion (64.9 percent of total lending). - Credit to households: €41.2 billion (35.1 percent of total lending), including: - Housing: €25.4 billion (21.7 percent of total lending) - Consumer credit: €15.8 billion (13.5 percent of total lending) - Credit as percent of GDP: Total 71.0; Enterprises 46.1; Households 24.9; Housing 15.4; Consumer 9.6. - Annual percent change in total credit: - 2000: 27.8 - 2001: 17.8 - 2002: 16.4 - 2003: 15.5 - 2004: 17.8 - Average annual growth (2000–04): Total credit 19.1 percent; Enterprises 14.1 percent; Households 34.1 percent; Housing 32.0 percent; Consumer 38.5 percent. (Table 4) - Client base and risk assessment: - Expansion into consumer credit and SMEs brought clients with limited credit histories and limited experience managing economic slowdowns. - Loan pricing and risk management techniques may not fully capture risks from newer client segments. - Borrowers can remove their name from the credit bureau’s records (with removal noted), which may marginally limit credit risk management. - Geographic expansion and cross-border risks: - Large commercial banks expanded into Southeastern Europe; immediate risks considered probably small and manageable but may increase as lending shifts to local firms and individuals. - Branch/subsidiary assets and contributions (2004, large banking groups NBG, Alpha, EFG Eurobank, Emporiki, Piraeus): - Romania: €2,574.1 million; 1.8 percent of group assets; 2.1 percent of group own funds; 3.0 percent of group profits. - Bulgaria: €2,153.3 million; 1.5 percent of group assets; 1.8 percent of group own funds; 3.3 percent of group profits. - Former Yugoslav Republic of Macedonia: €527.4 million; 0.4 percent of group assets; 0.6 percent of group own funds; 0.1 percent of group profits. - Albania: €578.5 million; 0.4 percent of group assets; 0.3 percent of group own funds; 0.4 percent of group profits. - Serbia Montenegro: €232.7 million; 0.2 percent of group assets; 0.5 percent of group own funds; -0.5 percent of group profits. - Total Southeastern Europe: €6,066.0 million; 4.1 percent of group assets; 5.3 percent of group own funds; 6.4 percent of group profits. - Cyprus: €3,347.8 million; 2.3 percent of group assets; 2.1 percent of group own funds; 0.9 percent of group profits. - Combined total: €9,413.8 million; 6.4 percent of group assets; 7.4 percent of group own funds; 7.3 percent of group profits. (Table 5) - Mortgage and housing market: - Share of mortgage lending to total assets in the banking system averages 25 percent. - Housing price increases stabilized since 2002 (Figure 3); no clear housing price bubble identified. - Preponderance of floating rate mortgages could increase banks’ exposure to interest rate risk, but supervisors monitor debt servicing capacity; banks report conservative loan-to-value and debt-service-to-income ratios. - Banks’ ownership of real estate is small. - Related-party and foreign-currency exposures: - Lending to related parties is a significant portion of bank capital and largely reflects parent lending to financial subsidiaries in Southeastern Europe. - Lending to Board Directors represented 4.7 percent of own funds in September 2004. - Foreign currency lending to domestic residents has declined and remaining exposure is largely to the shipping industry. - Nonperforming loans: - NPL ratio: 2000: 9.9; 2001: 8.2; 2002: 7.3; 2003: 7.0; 2004: 7.0 (Table 7). - Corporate NPLs: 2004: 7.8 percent. - Housing NPLs: 2004: 4.6 percent. - Consumer NPLs: 2004: 7.2 percent. - Excluding Agricultural Bank of Greece (ABG), NPL ratio 2004: 5.4 percent. - NPLs net of provisions as a percent of own funds: 2003: 27.0; 2004: 26.6. Excluding ABG: 2003: 16.1; 2004: 16.4. - NPL coverage with provisions: about 51 percent overall; about 60 percent for large private banks. ### Competitive pressures and operational efficiency - Market dynamics: - Adoption of the single currency, lower competitive barriers, and harmonization with EU directives increased financing alternatives for major borrowers and opened asset management services to foreign firms. - Labor and cost structure constraints: - Legal limitations and institutional factors (including strong unions) hinder staffing adjustments; efforts underway to introduce more flexible labor practices. - Staff and operating costs as a percent of assets higher than EU averages; loans per employee lower than EU counterparts. - Selected operational metrics (2003–2004 comparisons, Table 8): - No. of employees per 100,000 inhabitants: Greece 2003: 554; 2004: 541; Euro Area: 710; EU 15: 725; Ireland: 901; Portugal: 516; Spain: 597. - Assets per branch (€ mns): Greece 2003: 64.6; 2004: 67.6; Euro area comparator: 112.7; EU 15: 140.6; Ireland: 622.5; Portugal: 64.1; Spain: 37.9. - Cost to income ratio: Greece 2003: 60.8; 2004: 61.9; Euro Area: 64.5; EU 15: 60.4. - Staff costs (percent of assets): Greece 2003: 1.3; 2004: 1.3; Euro Area: 0.9. - Assets per employee (€ mns): Greece 2003: 3.5; 2004: 3.9; Euro Area: 8.6; EU 15: 9.4; Ireland: 16.1; Portugal: 6.5; Spain: 6.2. - Loans per employee (€ mns): Greece 2003: 1.8; 2004: 2.2; Euro Area: 3.9; EU 15: 4.1; Ireland: 5.8; Portugal: 3.4; Spain: 3.6. - Pricing and regulatory factors affecting spreads: - Restrictions on fees and commissions for arranging loans force banks to cover fixed administrative costs through interest rates. - A 60 basis point annual charge on the outstanding amount on any credit facility (with some exemptions) is levied; revenues used to subsidize interest on housing loans and loans for restitution of damages from natural disasters. - Interest rate spreads and income: - Net interest income equivalent to 2.7 percent of assets in 2004 versus 1.3 percent in the euro area in 2003. - Net interest income represented 75 percent of gross income in Greece (2004) versus 53 percent in the euro area. - Interest rate spreads are high in retail business, particularly household lending; spreads expected to remain higher than in the euro area but decline as market matures and credit growth slows. ### Risks from diversification of funding - Funding needs and instruments: - Bank credit is growing more rapidly than deposits; maturity of loan portfolios lengthening as mortgage lending increases (Figure 5). - Banks are issuing bonds, medium-term notes, structured products, and securitizing receivables to raise funds and mitigate duration mismatches. - Cost and market constraints: - New funding sources are relatively costly given the small size and low credit ratings of Greek issues. - Smaller banks may face particular difficulties accessing capital markets; increasing reliance on short-term sources could create significant maturity mismatches. - Issuance by large private banks (NBG, Alpha, EFG Eurobank, Emporiki, Piraeus) — amounts in millions of euros (Table 9): - Hybrid tier 1: 2001: 0; 2002: 300; 2003: 350; 2004: 690; 2005: 1,030. - Subordinated debt: 2001: 100; 2002: 1,275; 2003: 380; 2004: 1,350; 2005: 668. - Medium-term notes (approximate; includes senior and subordinated tranches): 2001: 0; 2002: 1,000; 2003: 0; 2004: 17,500; 2005: 8,500. - Securitization: 2001: 0; 2002: 0; 2003: 250; 2004: 750; 2005: 1,500. - Note: 2005 figures accumulated to mid-June; some double counting possible between medium-term notes and subordinated debt. *Source: IMF staff report excerpt, drawing on Bank of Greece, European Central Bank, and other cited sources in the chapter.* ### 20. In response, banks are turning to securitization (see Table 9). Although issuance ### In response, banks are turning to securitization ### Securitization - Issuance has been relatively limited so far, but several additional securitizations are planned for the next two years. - Mortgage-backed issues have been the most commonly used. - Credit card and car loan receivables have also been securitized. - The minimum issuance for securitization to be cost effective may limit the scope of small banks; alternatively they might choose to develop mechanisms to pool receivables and issue jointly. ### State ownership of banks - State presence in the banking sector fell from 63.2 percent of total assets at the end of 1998 to 25.6 percent in 2004. - Majority government control remains in: - ABG (8.3 percent of banking system assets) - Postal Savings Bank (4.6 percent) - Loans and Consignments Fund (3.6 percent) - The state also has ownership in three small specialized development banks, representing 4.7 percent of system assets. - The state retains influence in NBG and Emporiki (about 30 percent of system assets) through minority shareholdings of state pension funds. - Government influence does not currently appear to affect financial decisions, but in 2004 the new government used influence to change bank management in ABG, NBG, and Emporiki—practices that could raise market uncertainties about these institutions during adverse economic periods. - Postal Savings Bank transition: - Moving from a specialized to a universal bank; has applied for a full banking license. - BoG will require compliance with all prudential requirements and adequate risk management capabilities, but staff capacity may lag. - The bank’s full deposit guarantee will be rescinded but the public may still perceive deposits as being fully guaranteed. ### Risk management framework - Internal risk management systems are improving but remain limited. - Independent risk management departments are relatively new and generally are not integrated into banks’ decision-making processes (for example, risk-based capital allocation is not widely applied). - Credit risk models are still new or being developed; lack of historical data over a full credit cycle may bias probability of default (PD) estimates downwards. - Financial reporting standards constrain effective risk management. - Introduction of IFRS will improve disclosure, but only listed companies and banks (about 30 percent of all companies) will report according to IFRS. - Unlisted institutions will continue to report according to Greek Generally Accepted Accounting Principles (GAAP), limiting overall transparency. - Legal framework is considered adequate and largely uncorrupt but slow. - Seizure of collateral averages four years, compared with only half the time on average in the EU. - Creditors are eligible for compensation only after all claims have been met, increasing the cost of loan enforcement. - Commercial laws are reported to be prodebtor. ### Stress tests: methodology and results - Sample: five largest and two medium-sized commercial banks, representing 74 percent of commercial banking sector assets (excluding specialized institutions). ABG was subjected to all shocks except credit risk stress tests. - Credit risk scenarios: - (i) Two year economic slowdown with zero growth in the second year (exogenous shocks). - (ii) External crisis where the euro area nominal interest rate reaches 5 percent during a two-year period. - Initial results suggested scenario (i) generated a 36 percent deterioration in NPLs; subsequently assumed a 60 percent deterioration in NPLs due to data structural breaks and IMF study findings. - A one to one relation was assumed between deterioration in NPLs and PDs, so PDs were also increased by 60 percent. - The credit shock caused one small bank to fall below the minimum CAR; this bank recapitalized after the exercise. - Risks from exposure to Southeastern Europe and specific sectors were examined; doubling the NPLs of subsidiaries in Southeastern Europe had an impact of only 1.1 percent of regulatory capital. - Market risk scenarios: - Interest rate shocks tested by parallel shifts, steepening, and flattening; the 200 basis point parallel shift had the largest impact (a 5.9 percent reduction in the banks’ CAR). - Equity risk tested by a simultaneous fall in equity prices of 30 percent for mature markets and of 50 percent for emerging markets, leading to a 7.7 percent fall in CAR (76 percent of this impact was concentrated in the banking book). - Exposure to Greek sovereign bonds tested by increasing the spread over Bunds by 50 bp resulted in a 2 percent reduction in CAR. - Exchange rate risk had on average only a relatively small impact. - Stress-test impacts on Capital Adequacy Ratio (CAR) (In Percent): - CAR before shock 12.81 - Credit risk: Average 11.69; Maximum 13.40; Minimum 6.07 - Interest rate (+200bp): Average 12.05; Maximum 14.60; Minimum 6.87 - Interest rate (curve steepening): Average 12.15; Maximum 14.97; Minimum 7.27 - Equity (-30 percent–50 percent): Average 11.82; Maximum 14.62; Minimum 6.91 - Exchange rate (-30 percent): Average 12.51; Maximum 14.89; Minimum 7.00 - Key observations: - The largest adverse effect was a domestic macroeconomic shock (modeled as a sharp decline in consumption and investment, leading to GDP growth of zero during a one-year period), resulting in a 9.9 percent decline in regulatory capital. - Aggregate CAR remains well above the regulatory minimum in this scenario, with only one small bank falling below the minimum capital requirement (largely because of its relatively high initial NPL ratio). Since completion of the stress tests, the bank increased its capital ratios. - Market risk stress tests highlighted the importance of interest rate and equity price risk; interest rate shock impacts stemmed mostly from positions on the banking book, suggesting suboptimal interest rate risk management. - Banks maintain structural long positions in interest rate risk, with unhedged exposures concentrated at the long end of the curve. - Use of derivatives is growing, but is still low given the size and complexity of the banking books. - Relative impact of equity risk is due to the significant size of strategic equity participations held by the Greek banks. ### Liquidity and interbank exposures - BoG revised the supervisory regime for bank liquidity, establishing mandatory liquid assets and mismatch ratios (BoG Governor’s Act 2560/1.4.2005). - Ratios were calculated based on end-2004 data (before the new ratios became binding); results raised concerns about the ability of some of the larger banks to meet the ratios. - Affected banks made appropriate adjustments; the liquidity ratios became mandatory in July 2005. - Gross interbank exposures are estimated at only 1.2 percent of the banking system’s assets and are with high quality counterparties concentrated among the largest Greek banks and in the euro area, indicating limited interbank contagion channels. ### Insurance sector - Size and penetration: - Insurance sector is small, with less than 4 percent of financial sector assets. - Greece remains relatively underinsured: premiums per capita under € 300 compared with the EU average of € 2,100. - Market penetration: gross domestic premium income equal to 2.2 percent of GDP in 2004, compared with 9 percent in the EU. - Sector composed of 97 companies at end-2004; most are very small and premium generation is concentrated in the five largest firms. - Performance and structure: - Industry profitability has been poor and volatile, reflecting intense competition and poor supervision. - Inadequate supervision and enforcement allowed aggressive competitors to underprice the market by failing to constitute adequate technical reserves, often resulting in failures. - The industry reported pretax loss of -202.0 (mns euros) in 2002 and pretax profit of 104.5 (mns euros) in 2003. - ROE (percent): -16.6 in 2002; 7.8 in 2003. - Selected indicators (In billions of euros; unless otherwise stated): - Gross written premium: 2002 = 2.9; 2003 = 3.2; Growth 11.7 - Life: 2002 = 1.3; 2003 = 1.4; Growth 9.5 - Nonlife: 2002 = 1.6; 2003 = 1.8; Growth 13.5 - Retention ratio (percent): 2002 = 83.8; 2003 = 84.0 - Assets: 2002 = 8.4; 2003 = 9.6; Growth 14.3 - Equity: 2002 = 1.2; 2003 = 1.5; Growth 33.1 - Capital/assets (percent): 2002 = 13.8; 2003 = 16.1 - Reserves: 2002 = 5.6; 2003 = 6.2; Growth 10.6 - Life reserves: 2002 = 3.6; 2003 = 3.9; Growth 9.1 - Nonlife reserves: 2002 = 2.0; 2003 = 2.2; Growth 13.2 - Efficiency and bancassurance: - The small market size slows development of a well-trained labor force and impedes scale efficiencies; premium generation per employee is well below European averages. - Direct gross premium per employee (In millions of euros): - Greece: 2000 = 0.27; 2001 = 0.28; 2002 = 0.30; 2003 = 0.34 - EU 15: 2000 = 0.88; 2001 = 1.00 - OECD: 2000 = 0.80; 2001 = 0.91 - Ireland: 2000 = 1.38; 2001 = 1.37 - Spain: 2000 = 0.96; 2001 = 0.98 - Bancassurance is a small but profitable and rapidly growing portion of premium generation: seven commercial banks—including the five largest—have an active presence in the insurance market through subsidiaries or strategic alliances. - About half of mutual fund industry assets are in money market funds invested principally in government bonds. - Supervisory risks: - Failure to establish effective supervision in a timely manner could allow more insurance company failures through under-reserving, generate scope for regulatory arbitrage, and limit long-term market potential. ### Capital markets - Market size and liquidity: - Market capitalization of the ASE is 55.7 percent of GDP in 2004, similar to European stock exchange averages. - Turnover ratio for 2004 was 36 compared with 123 in Milan, 128 in Madrid, and 184 in London. - Of 360 listed securities, the 4 most actively traded accounted for an average of 46.6 percent of turnover by value in 2004. - Market structure: - The Greek capital market has a limited range of products; core product is the ordinary share. - There are no convertible or preference shares in any volume. - Few corporate bond issues and almost no secondary market transactions; the market does not provide instruments for development of asset management and pension funds. - The mutual fund industry is relatively small and dominated by the banks. - Size of capital markets (In percent of GDP, 2004): - Stock market capitalization: Greece 55.7; Euro Area 61.5; EU 15 75.5; Ireland 62.7; Portugal 44.0; Spain 90.3 - Debt securities: Greece 159.1; Euro Area 165.6; EU 15 157.0; Ireland 133.2; Portugal 165.2; Spain 139.5 - Public: Greece 141.7; Euro Area 65.7; EU 15 59.2; Ireland 24.5; Portugal 75.2; Spain 48.5 - Private: Greece 17.4; Euro Area 99.9; EU 15 97.8; Ireland 108.6; Portugal 90.0; Spain 91.0 - Trading dynamics: - Market capitalization and trading volume recovered from sharp declines in 2001 and 2002, but liquidity remains low. - Turnover ratio defined as value of trading in shares as a percent of market capitalization (data from HCMC annual reports). - Corporate bond market: - Small but growing. Total outstanding value of long-term securities issued by nonfinancial firms: - 1999 = 1,059 (In Millions of Euros) - 2000 = 4,821 - 2001 = 4,996 - 2002 = 4,974 - 2003 = 5,862 - 2004 = 7,804 - Long-term securities as percent of total debt: - 1999 = 42 - 2000 = 17 - 2001 = 16 - 2002 = 24 - 2003 = 27 - 2004 = 34 - Total (Long-Term + Short-Term) (In Millions of Euros): - 1999 = 1,101 - 2000 = 4,838 - 2001 = 5,012 - 2002 = 4,998 - 2003 = 5,889 - 2004 = 7,838 - Total as percent of debt: - 1999 = 2.4 - 2000 = 8.4 - 2001 = 7.4 - 2002 = 6.9 - 2003 = 7.3 - 2004 = 8.9 - Only five bonds were listed on the ASE in 2004, reflecting increasing use of European markets; short-term securities issuance is insignificant. *Source: IMF staff report (text as provided).* ### 36. The stock market has a limited role mobilizing resources. An average of only ### _cr0606 - 36. The stock market has a limited role mobilizing resources. An average of only ### Stock market and derivatives - An average of only € 1.2 billion was raised during 2001–2003, falling to € 680 million in 2004. - Derivative markets are limited: - Trading volumes in futures and options (traded on the Athens Exchange Derivatives Market) are low. - Banks use interest rate swaps and currency futures to hedge exposures, but are not active in credit derivatives markets. - Greek insurance companies are not active in derivatives markets. ### Capital markets disclosure and IFRS implementation - Approximately 70 percent of Greek companies are not listed on the ASE and, therefore, are not required to report under IFRS. - Consequences: - Balance sheets are not comparable between companies using IFRS and those not using it. - Authorities do not believe uneven IFRS introduction will create incentives to delist or remain unlisted, but the consequences of leaving some companies reporting under Greek GAAP should be monitored. ### Pension funds — structure, investments, and supervision - Structure and size: - The Greek pension system is mostly made up of defined benefit schemes, funded on a pay-as-you-go basis. - There are 95 funds, comprising 26 primary and 69 auxiliary funds. - Funds provide coverage for retirement, disability, life insurance, and health care. - Total expenditure by the pension system is estimated at the equivalent of 12 percent of GDP. - Investment practices: - Securities investments are largely in Greek government bonds, a significant proportion of which are managed by the BoG on behalf of the pension funds. - Since 2003, pension funds operate as partially self-governed nonprofit legal entities, separate from the sponsoring entity. - Funds can freely invest one quarter of funds received; currently there is no oversight of such investments. - Supervision and risks: - No single body is responsible for regulation, supervision, or oversight of pension fund investments. - Supervision is exercised by the ministry of employment and social protection; reporting requirements are minimal and cover some statistical reports only. - The BoG committee overseeing pension fund investments has been inactive since 2004. - The lack of comprehensive pension fund supervision and regulation poses an important risk for the pension system, which will grow as private pension funds (second pillar funds) are introduced and expand. ### Market infrastructure and systemic liquidity - Use of euro-area markets: - Greek banks use euro area interbank, repo, and foreign exchange markets for liquidity management. - Net placements by Greek banks in the European interbank markets represent almost 70 percent of total interbank placements of the Greek banking system. - BoG liquidity provision: - The BoG provides liquidity with instruments and rules defined in the operational framework of the European System of Central Banks (ESCB). - Banks participate in standard open market operations and can access overnight liquidity through standing facilities (e.g., marginal rate facility) on acceptable collateral. - The only Greek securities currently eligible as collateral are Greek government bonds; the BoG has yet to define any securities eligible as Tier II collateral. - Domestic securities markets: - The BoG manages a liquid market for government bonds, but the secondary market for Greek corporate bonds is small and illiquid. - Beginning in 2002, corporations began issuing bonds purchased by banks rather than borrowing directly for tax purposes; these bonds are held to maturity and not traded actively. - A 2003 law facilitated issuance of corporate bonds but issuance of complex instruments, such as convertible bonds, remains restricted. - Banks have begun to use securitization to mobilize resources and reduce maturity mismatches, but activity to date has been limited. ### Payments and securities settlement systems — key metrics and issues - Integration and systems: - The payment system in Greece is fully integrated into the EU-wide system. - HERMES is a real-time gross settlement system, connected to TARGET. - The Athens Clearing Office (ACO) handles retail and large value paper checks; DIAS (bank-owned) handles electronic retail transactions. - Selected ratios of Transactions Value to GDP (Table 15 excerpts): - TARGET systems — Greece (HERMES) 1/: 1999 2.9; 2000 32.4; 2001 18.4; 2002 19.0; 2003 21.8; 2004 22.4 - Other Greek payment systems — ACO 2/: 1999 6.6; 2000 2.0; 2001 1.5; 2002 1.3; 2003 1.2; 2004 1.1 - DIAS: 1999 0.3; 2000 0.4; 2001 0.5; 2002 0.5; 2003 0.5; 2004 0.6 - Greek securities settlement systems — BOGS (Government debt exchange): 1999 4.4; 2000 8.8; 2001 13.4; 2002 20.8; 2003 25.8 - ASE-Central Securities Depository S.A. (CSD) (Stock exchange): 1999 1.4; 2000 0.8; 2001 0.3; 2002 0.2; 2003 0.2; 2004 0.2 - Operational vulnerabilities and risk mitigation: - Lack of clear rules if a member fails to settle on the ACO creates potential vulnerability; the BoG currently maintains full discretion and nonsettling members would not necessarily be excluded the next day. - Recommendation: establish clear rules and qualifications to eliminate uncertainty about access to emergency credit from the BoG. - Securities clearing and settlement: - Securities transactions are cleared and settled through the CSD of the ASE; derivatives functions are undertaken by the Athens Derivatives Clearing House. - Trading, clearance and settlement, and registration of title are fully dematerialized. - Risks are partially constrained by the Athens Exchange Members’ Fund (AEMF); all investment securities firms must join the AEMF. An auxiliary fund covers settlement risk for brokers. ### Accounting framework and prudential implications - IFRS adoption and challenges: - Effective 2005, Greece adopted IFRS. - Listed corporations must prepare quarterly financial statements according to IFRS beginning in 2005. - Many chartered accountants have had limited exposure to IFRS and are not yet positioned to advise audit clients. - Only companies and banks listed in the ASE will report in accordance with IFRS; unlisted institutions will report according to Greek GAAP, limiting transparency. - Impact on regulatory capital: - IFRS implementation may reduce banks’ regulatory capital due to: - Tightening of loan loss provisioning through a more comprehensive assessment of impaired assets. - Introduction of rules on valuing financial instruments and hedging activities. - Recognition of employee benefits including pension liabilities in balance sheets. - The BoG, with other European supervisors, is developing prudential filters to phase in changes in the calculation of regulatory capital due to IFRS adoption. ### Strengths and challenges of the stability framework — regulation and supervision - Overall assessment: - Financial sector regulation is uneven: bank supervision is strong; insurance supervision and, to a lesser extent, capital market supervision have weaknesses. - Bancassurance growth potential raises the possibility of regulatory arbitrage. - Banking supervision: - Framework is generally strong but improvements are desirable: - Strengthen legal protection against suit for the BoG and its staff (current law interpreted as providing some protection but not explicit). - Expand overall risk assessment to cover noncredit risks (market risk, liquidity risk, operational risk). - Monitor evolving market practices and new risk management methodologies. - Data and transparency: - Publication of banks’ financial statements has been delayed, partly due to IFRS introduction. - Frequency of some data received by the BoG should be reviewed; harmonize supervisory and economics department data. - Insurance supervision: - Supervision constrained by limited resources; historically focused on off-site solvency assessments and licensing compliance rather than full risk assessment. - Limited on-site inspections began only in 2003. - Minimum legal requirements are in place, but supervisory guidance on implementation is absent or inadequate. - Reform underway: - A new supervisory agency—the ISC—should be operational by early 2006. - Concerns noted: - Agency will take time to become fully effective; adequate staffing and resources are needed. - Composition of the ISC Board raises concerns about independence; current composition may not free the agency from political and industry interference. - The ISC will report to the MoF rather than the MoDV; a clear delineation of responsibilities between the ISC and the MoF is warranted. - Securities regulation: - Securities regulation and supervision is considered sound; the HCMC has adequate powers to monitor market institutions and practice. - Recommendations to strengthen HCMC oversight include: - Establish procedures and programs for surveillance and compliance with IFRS and international audit standards. - Make the HCMC more independent in planning staff and resource allocation within an overall budget. - Subject appointment of all members of the executive committee (not just the chairman) to some form of public scrutiny. - Implement a code of conduct for staff covering disclosure and management of conflicts of interest. ### Safety nets, crisis management, and deposit insurance - Flexibility and procedures: - The safety net and crisis management system provides a large degree of flexibility (BoG can provide emergency liquidity assistance, appoint a commissioner, extend repayment periods, or revoke licenses without a legally prescribed course of action). - BoG has not established criteria to guide these decisions; absence of clear internal procedures for activating and applying the safety net. - Emergency liquidity assistance: - BoG can provide emergency liquidity assistance within ESCB operational framework. - Decision to grant assistance is made by the governor on recommendation of the Banking and Credit Committee and within ECB framework. - If insufficient collateral, presumption is BoG would not provide liquidity; the general council can authorize a broader range of collateral in extraordinary cases. - Criteria for determining systemic importance have not been made public; disclosure in general terms could strengthen market understanding. - Crisis management and bank resolution: - Banking and Credit Committee (governor, two deputy governors, six directors) discusses banking problems and can take remedial measures. - A crisis management committee has been appointed. - Recommendation: identify key aspects of contingency planning (information requirements, critical steps, contact lists, communication issues, principles including role of public funding). - Deposit insurance (TEK) — strengths and vulnerabilities: - TEK is founded on EU directives and is generally sound. - Potential vulnerabilities: - 80 percent of TEK’s assets are invested with the participating banks; failure of one bank would reduce available resources for payouts and potentially put liquidity pressure on other banks. - The deposit insurance agency does not know amounts of insured deposits by bank; this information is maintained by the bank. - The deposit insurance fund does not have access to special financing (from the BoG or MoF) if the fund is exhausted; it would be expected to raise funds from banks through extraordinary premiums. - Recommendations: - Make information on insured deposits by bank available to TEK to improve payout efficiency and reduce fraud risk. - Establish a contingent line of credit for TEK to strengthen credibility of the deposit insurance framework. ### Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) - Current status: - Greece has some essential components of an AML/CFT framework, but further refinements are needed to meet international standards. - Legal and supervisory arrangements based on the Anti-Money Laundering (AML) Law (Law 2331/1995) cover the traditional financial sector, but implementation and coverage issues remain. - Designated nonfinancial businesses and professions (DNFBPs) are not covered; compliance with obligations is uneven; supervisory practices vary. - Greece’s Financial Intelligence Unit (FIU) does not currently have the structure, powers, and skills required under the FATF standard. - Some successes in prosecuting money laundering, but judicial practice has only recently clarified aspects of the offense. - Definition of financing of terrorism does not fully meet international standards. - Key areas for improvement (identified): - Development of a coordinated institutional framework. - Transparency and governance in certain key economic sectors. - Enhancing awareness of money laundering and terrorism financing risks in all sectors. - Early development and implementation of measures to combat financing of terrorism in the financial sector. - Implementation of AML/CFT measures in the DNFBP sector. - Enhanced supervision for compliance with AML/CFT standards, particularly in the insurance and securities sectors. - General improvement in efficiency in key public sectors, notably the judiciary and law enforcement. *Source: _cr0606 - 36. The stock market has a limited role mobilizing resources. An average of only (IMF PDF chapter/section content provided).* ### 63. The Greek authorities are taking steps to address some aspects of these ### _cr0606 - 63. The Greek authorities are taking steps to address some aspects of these ### Anti‑Money Laundering / Combating the Financing of Terrorism (AML/CFT) - The Greek authorities have drafted legislation to amend the primary AML Law to: - strengthen the existing preventive measures, - develop a framework for combating the financing of terrorism, - implement AML/CFT policies in the DNFBP sector, - strengthen the role of the FIU. ### Basel Core Principles for Effective Banking Supervision — General preconditions - Legal environment: broadly satisfactory; enforcing contracts (realization of collateral) requires recourse to courts and is time-consuming. Plans exist to introduce remedies and replace the current Companies Law. - Accounting and auditing: regime being upgraded; banks have just started using IFRS; full economy-wide introduction likely in some five years. No Greek auditing standards currently; international ones intended to apply by 2007. Interim caution required by banks when evaluating customers’ financial information. - Payment systems: satisfactory and fully linked into the EU system. - Deposit protection scheme: in conformity with the relevant EU directive. ### Basel Core Principles — Main findings and assessment approach - Assessment basis: two assessors (Christo Wiese and Peter Phelan), self-assessment by Greek authorities, review of laws/regulations, discussions with supervisors, lawyers, accountants, and banks. - Greece chose assessment against both essential and additional BCP criteria (international best practice appropriate for an EU member). - Compliance summary: - fully compliant with 22 criteria, - largely compliant with eight criteria (including the overall assessment for BCP 1), - materially noncompliant with one criterion. - Assessors’ remark: received full cooperation from all parties. ### Basel Core Principles — Specific areas - Objectives, autonomy, powers, and resources (BCP 1) - BoG is sole banking supervisor in Greece (apart from EU passport supervision). - BoG has necessary powers (including authorization and license revocation), is appropriately resourced and independent, and cooperates effectively domestically and internationally. - Identified problem: BoG and staff may lack legal protection against lawsuits for actions taken in good faith and without negligence. - Licensing and structure (BCPs 2–5) - Banking laws provide robust regime: control on the use of term ‘bank’, control over ownership changes, BoG approval for major investment decisions, comprehensive authorization regime. - Prudential regulations and requirements (BCPs 6–15) - Capital adequacy: BoG’s regime is Basel compliant with minimum ratio for commercial banks of 8 percent, increased to 9 percent or 10 percent in certain cases. All cooperative banks must meet a 10 percent ratio. - Supervisory requirements for country and market risks appropriate to current development stage. - Adequate regulations/controls over connected lending and lending concentrations. Supervision of internal controls effective. - Credit and provisioning supervision broadly satisfactory; need for more detailed supervisory guidelines and clarity on portfolio vs line-by-line treatment. - Operational risk supervision requires more work; liquidity risk supervision needs strengthening with better bank-level information and introduction of mismatch guidelines (some measures underway). - AML supervision generally sound but FATF latest recommendations not yet incorporated into Greek law. - Methods of ongoing supervision (BCPs 16–20) - BoG obtains adequate information; on-site and off-site staff work well together. - Recommendation: spend more time with directors as well as management; increase on-site resources and frequency of internal control reviews; establish a more structured regime for contacts with external auditors. - Information requirement (BCP 21) - BoG’s information requirements cover necessary items, but data frequency should be reviewed. Analysis sometimes too narrowly focused. - Formal powers of supervisors (BCP 22) - BoG’s formal powers are fully adequate and used effectively. - Recommendation: develop contingency plans for resolving problem situations including scenario simulations. - Cross-border banking (BCPs 23–25) - Legal environment and practice: fully satisfactory. ### Main recommendations (Table 1) - CP1.5 Legal Protection: The BoG and its staff should have legal protection against lawsuits when carrying out their duties in good faith and without negligence. - CP 7 Credit Policies: Current guidelines for supervision are too general and should be made more specific. - CP 8 Provisioning Policies: A robust provisioning regime, in the context of the IFRS framework, needs to be developed. - CP 12 Market Risk: More frequent reporting on portfolios subject to market fluctuations should be developed. - CP 13 Other Risks: Enhanced guidelines on operational risk should be developed as well as an improved liquidity supervisory regime. - CP 14 Internal Controls: The roles of chairman and chief executive officer should be split. - CP 16 On-site and off-site Supervision: More resources should be devoted to on-site supervision. - CP 22 Remedial Measures: Contingency planning for resolving problem bank situations should be introduced. ### Authorities’ response (Bank of Greece) - BoG expresses thanks for the cooperative spirit and objectiveness of the IMF mission. - Recognition that Greek supervisory regime is largely compliant with the BCPs and progress in legal framework and prudential regulations. - BoG will address identified shortfalls with measures already undertaken or planned. - Specific responses to IMF recommendations: - BCP 1.5: BoG submitted second draft proposal on legal protection to the ministry of finance to provide protection to supervisors against legal actions for measures adopted in good faith and without negligence. - BCP 7: BoG preparing manuals (on- and off-site) to provide formal guidelines and procedures for consistent control of banks’ credit risks; will incorporate forthcoming CEBS’ guidelines for Basel II convergence. - BCP 8: BoG issued Governor’s Act 2565/11.10.2005 on adequacy of loan loss provisions; amended supervisory treatment of mortgage loans regarding calculation of provisions: - (a) reduced provisional supervisory coefficients no longer apply for mortgage loans past due for more than a year; - (b) banks required to incorporate additional criteria in internal control and risk management for loan approval, notably relationship between monthly installments and level of disposable income ranging between 30 percent and 40 percent. If not used, BoG will require additional specific provisions/reserves. - BCP 13: BoG issued Governor’s Act 2560/01.04.2005 on liquidity requirements introducing compulsory liquidity and asset mismatch ratios and formalizing liquidity monitoring; provides guidelines for sound liquidity management and monitoring of maturity transformation. - BCP 14: BoG revising/complementing Governor’s Act 2438/06.08.1998 on internal control systems to be more targeted; will explicitly mention compliance functions, conflicts of interest, and guidelines on specific risk areas. Consultation with banks expected to be completed by end of 2005. - BCP 16: Newly hired personnel appointed to on- and off-site supervision departments. - BCP 22: BoG compiling internal crisis management procedures into a Contingency Planning Arrangements manual; a large part has already been prepared. ### International Association of Insurance Supervisors (IAIS) — Insurance Core Principles (ICP) - Assessment context: - Report summarizes observance of IAIS ICP (dated October 2003) in Greece. - Insurance supervision by Directorate of Insurance Enterprises and Actuaries (ID) of the MoDV. - Assessment conducted during a mission to Greece from April 4 to 18, 2005, based on laws/regulations/policies/practices at that time. - Prospective changes in supervisory structure were not considered; recommendations included for strengthening supervision. - Information sources and consultations: - Questionnaire responses to IMF, translations of legislation, background information from ID and Association of Insurance Companies. - Extensive meetings with ID management/staff and a wide range of stakeholders including Association of Insurance Companies, head of the new ISC, MoF, Hellenic Actuarial Society, SOEL, Panhellenic Association of Experts, Association of Assessors, Hellenic Association of Insurance Brokers, auditing firms, and senior executives of insurers. - Institutional and macroprudential overview (key statistics and market structure) - Premium increases: about 12 percent in 2003 and 12 percent in 2004. - Market penetration: gross domestic premium income 2.12 percent of GDP in 2003 (EU average close to 9 percent). - Total assets of insurance companies: 4.54 percent of GDP in 2003. - Licenses at year-end 2003: 19 licensed life insurance companies, 65 licensed nonlife insurance companies, 13 composite companies (life and nonlife). These figures include 30 branches of foreign companies (primarily in nonlife). - Industry concentration: - largest 5 life companies accounted for 63 percent of sector premiums in 2003; - largest 10 life companies accounted for 89 percent of sector premiums in 2003; - largest 5 nonlife companies wrote 43 percent of premiums in 2003; - largest 10 nonlife companies wrote 58 percent of premiums in 2003. - Ownership: some largest companies predominantly owned by banks. - Distribution channels: company-owned networks of branches and tied agents remain principal, with small but growing bancassurance. - Products and profitability - Life products: traditional and unit-linked policies. - Health insurance: growing class, has been unprofitable for many insurers. - Motor insurance: one of main nonlife products, has been unprofitable and led to failure of many of the 45 companies whose licenses were withdrawn in past 20 years. A guarantee fund exists to cover motor claims of failed insurers or third-party claims involving uninsured motorists. - Other nonlife products: overall profitable. - Supervisory structure developments - Current supervisor: ID. - Independent supervisory authority ISC created in December 2004. - Presidential Decree enabling transfer of responsibilities from ID to ISC expected by mid-2005; actual transfer expected by mid-2006. ### IAIS — Main findings and recommendations - Supervision has been constrained by limited resources; conduct largely off-site assessment of solvency and licensing compliance. - A limited on-site inspection program (with external assistance) initiated in 2003. - Market participants uniformly indicated the need to significantly strengthen supervision; government created the ISC in response. - Observance of ICP: mixed. Ongoing legislative and supervisory initiatives have potential to materially improve observance. - Recommended supervisory improvements: - Strengthen implementation where basic frameworks exist (e.g., more rigorous off-site analysis of financial information, regular on-site inspections, move to more dynamic valuation of liabilities, establish and communicate a solvency control level). - Issue more complete and explicit requirements/guidance where legal requirements or supervisory guidance are absent or high-level (e.g., governance, risk management, internal controls). ### Conditions for effective insurance supervision and supervisory system - Greece largely meets conditions for effective insurance supervision. - Enhancements suggested: harmonization of accounting standards and development of an alternative dispute resolution mechanism. - Changes underway present opportunity to: - clarify and formalize objectives and responsibilities of supervisory authorities, - increase resources devoted to insurance supervision, - expand documentation and publication of supervisory policies and procedures for greater transparency. *IMF staff report extract contained in the source PDF.* ### 93. More explicit legislation and guidance on corporate governance and internal control ### _cr0606 - 93. More explicit legislation and guidance on corporate governance and internal control ### Observed weaknesses and recommended focus areas - More explicit legislation and guidance on corporate governance and internal control would improve observance. - Key supervisory and regulatory areas highlighted: on-going supervision; prudential requirements; markets and consumers; anti-money laundering/combating the financing of terrorism (AML/CFT). ### On-going supervision (paragraphs 94; Table 2: CP 11–17) - Develop a risk-focused methodology to facilitate more proactive and effective supervision. - Increase information available to supervisors through: - Active market analysis. - Quarterly financial returns (recommendation: All insurers should be required to file basic supervisory returns quarterly). - Strengthen off-site monitoring of insurers’ financial condition and performance, including: - Developing or expanding industry benchmarks for key financial ratios. - Monitoring results against benchmarks and investigating significant variances. - Requiring insurers to report promptly material changes that might affect supervisory evaluation of their financial condition. - Implement a regular program of on-site inspection (full-scale and focused) that is risk-focused rather than solely compliance-focused. - Assign responsibility for gathering quantitative and qualitative market information, including regular meetings with other Greek financial sector supervisors and industry/professional associations. - In cases of noncompliance with a written supervisory request regarding a material concern by the stated deadline, issue a formal ministerial directive to comply immediately. - Develop and publish: - How risk profiles of insurers will be assessed. - Nature of supervisory actions and sanctions corresponding to various risk levels. - Broaden powers to impose sanctions to cover situations where the interests of policyholders are at significant risk. - Require the ISC to retain staff resources necessary to implement risk-focused supervision and regular on-site inspections. - Enhance information exchange with Greek banking and securities supervisors where insurers are part of financial groups. ### Prudential requirements (paragraph 95; Table 2: CP 18–23) - Require more explicit legislation and guidance on risk management issues to improve observance. - Improve assessment of insurers’ financial condition by requiring consistent and realistic valuation approaches for technical provisions. - Insurers should calculate technical provisions on a basis more closely related to a realistic evaluation of the liabilities, but with margins for adverse deviation. - The responsible actuary should be required to provide an explicit opinion on the adequacy of the technical provisions, including claims provisions. - The supervisory authority should regularly review adequacy of technical provisions, with outside actuarial assistance if necessary, and require prompt correction of deficiencies. - Strengthen solvency requirements, for example: - Establish a solvency control level in excess of the minimum solvency margin. - Implement results of the EU Solvency II project once finalized. - Enact legislation to empower the supervisory authority to require a solvency restoration plan if the solvency margin is currently satisfied but policyholders nevertheless appear to be at risk. - Require insurers to have risk management policies and systems appropriate to the nature and scope of their activities and publish supervisory guidance regarding risk management. - Supervisory authority should regularly assess the quality of each insurer’s risk management through off-site monitoring and on-site inspections (including review of annual business plans). - Require insurers to have strategic underwriting, pricing, and reinsurance policies approved and reviewed regularly by the board. - Enact legislation to require insurers to set adequate premiums for all classes of business and give supervisory authority powers to prohibit sale of products or require additional technical provisions where products are unfair or pose significant solvency risk. - Enact legislation to require appropriate reinsurance and develop supervisory guidance; regularly assess adequacy through off-site and on-site inspections, including selective review of reinsurance contracts and accounting. - Enact legislation to allow insurers to take credit for reinsurance of life insurance business, subject to criteria established by the supervisory authority. - Require each insurer to have an overall strategic investment policy approved and reviewed annually by the board; publish guidance on investment policy elements and asset–liability matching. - Supervisory authority should assess adequacy of investment policies, risk management and controls via off-site and on-site work and review samples of investments and receivables. - Require insurers to have investment contingency plans. - Ministers of development and finance should publish a decision in accordance with Article 8 of the Independent Authority regarding the use of derivatives by insurers; supervisory authority should publish guidance on use and control of derivatives and regularly assess related policies and controls. - Enact legislation to require annual stress tests of assets, liabilities and solvency by each insurer’s responsible actuary and require communication of results to the board and supervisory authority; supervisory authority should develop guidance on tests and reporting and, in the meantime, review stress testing already being performed by insurers. ### Markets and consumers (paragraph 96; Table 2: CP 24–27) - Supervision of insurance intermediaries and consumer protection aspects should be strengthened. - Harmonize accounting requirements applicable to insurers under Greek GAAP with those of IFRS should be considered. - Establish an alternative dispute resolution mechanism (e.g., an independent ombudsman) to handle insurance consumer complaints (or for all financial sector consumers). - Enact legislation to require licensing, registration and supervision of all insurance intermediaries operating in Greece, regardless of corporate form and country of domicile. - Allow brokers to be compensated through commissions, fees or a combination, with such compensation disclosed to clients. - Conduct random on-site inspections of intermediaries to ensure prompt remittal of premium payments and collect/analyze financial statements of licensed intermediaries. - Enact legislation to explicitly require insurers and intermediaries to act with due skill, care and diligence and to seek appropriate consumer information before advising or concluding contracts. - Enact legislation to require insurers to handle claims and complaints effectively, fairly and promptly; provide that unreasonable delays or a pattern of unfair settlements may be grounds for license revocation. - Supervisory authority should conduct on-site market conduct inspections (especially claims handling) and impose corrective measures and sanctions where appropriate. - Enact legislation to empower the supervisory authority to require insurers to disclose information on their financial situation and risks; disclosures should, to the extent practical, be consistent with those required of listed companies. - Enact legislation to require all insurers operating in Greece to produce annual audited financial statements and make them available to stakeholders. - Supervisory authority should publish more information provided in insurer returns, including year-end and interim data, as soon as possible after each reporting period and make it accessible over the Internet. - Require insurers and intermediaries to implement procedures and controls against fraud and assess their effectiveness periodically. - Rules on protection of personal information should specifically permit exchange of information between insurers (including databases) to facilitate fraud detection; insurers should be encouraged, if not required, to report significant occurrences of fraud to law enforcement. ### Anti-money laundering/combating the financing of terrorism (paragraph 97; Table 2: CP 28) - Legislation is under development to update AML/CFT requirements to make them consistent with current international standards; enactment of this legislation is recommended. - Insurance supervisory authority should inspect and assess adequacy of insurers’ controls for detecting money laundering and the financing of terrorism as part of on-site inspection activities. - Inspection of AML/CFT controls by the insurance supervisor is recommended. ### Institutional and governance recommendations (Table 2: CP 1–10 and cross-cutting) - Clearly define principal objectives of insurance supervision in connection with establishment of the ISC. - Modify the ISC funding mechanism to include more flexibility and provide for recovery of all ISC costs through industry fees and assessments. - Prohibit individuals currently active in the industry from having direct input into supervisory decisions regarding specific licensees or potential licensees (e.g., licensing/granting/withdrawal). - Clearly delineate responsibilities between ISC, MoDV and the Ministry of Finance; establish mechanisms for regular communication among parties; maintain active and open communication between ISC and ID on transitional issues including staffing. - Provide ISC authority to hire, compensate and manage staff consistent with insurance industry practices in Greece and authority to hire or contract external specialists as needed. - Protect those involved in insurance supervision against lawsuits for actions taken in good faith while discharging duties (through law or liability insurance/indemnification). - Document rules and procedures in writing and publish significant elements. - Consider substituting peer review of some decisions and correspondence for current review by section heads and the Director. - Document, publish and observe supervisory consultation processes to the extent possible. - Enact legislation to align stated deadlines for licensing decisions with practice and explicitly state that a license will not be granted automatically if a deadline is breached. - Consider alternatives to awaiting receipt of a solvency certificate when assessing financial condition of license applicants to minimize process delays. - Enact legislation to empower the supervisory authority to assess fitness and propriety of auditors and actuaries, establish criteria (qualifications, professional proficiency, practical experience, updated knowledge, membership in professional bodies), relying on SOEL and the Hellenic Actuarial Society where appropriate. - Enact legislation to forbid individuals from simultaneously holding two positions that could result in a material conflict (e.g., chief executive and actuary). - Require insurers to notify supervisory authority if circumstances relevant to fitness and propriety of key functionaries arise and enable supervisory authority to require replacement of individuals or disposal of controlling interests if fit and proper requirements are not met. - Define fit and proper requirements broadly to include competence, soundness of judgment, diligence, and protection of policyholder interests. - Document and publish criteria applied in assessing proposed changes in control and portfolio transfers; consider requiring an independent actuary report on risks to policyholders of transfer/transferor and transferee. - Provide explicit guidance on governance practices expected of insurers and require documentation of significant policies, procedures and responsibilities. - Require direct access to the board by the actuary and, as with auditors, require the actuary to perform a whistle-blowing function with legal protection from liability. - Require insurers to maintain an ongoing internal audit function appropriate to their business and supervisory review of internal auditors’ reports. - Supervisory authority should meet regularly, confidentially and with legal protection for participants, with heads of internal audit, responsible actuary, and external auditor without management present. *Source: _cr0606 - 93. More explicit legislation and guidance on corporate governance and internal control* ### 98. The authorities were happy with the assessment and had no comments. ### _cr0606 - 98. The authorities were happy with the assessment and had no comments. ### Information and methodology used for assessment - Assessment prepared in the IMF FSAP for Greece in February/March 2005. - Assessor: John Farrell (formerly with the New Zealand Securities Commission). - Assessment based on: - Rules of law and practice about regulation of securities and investments. - Constitution, functions and powers of the securities regulator, the HCMC. - Regulatory and surveillance arrangements adopted by the HCMC. - Market activity and procedures adopted by firms and institutions. - Best practice and the IOSCO Objectives and Principles of Securities Regulation. - Background documents reviewed included: - IOSCO self-assessments prepared by the HCMC. - Annual reports and other publications of the HCMC and the ASE. - Annual reports and offer documents of listed companies and others. - Reports on market activity. - Selected Greek laws, presidential decrees, rules, and codes of conduct (as available in English in unofficial translation). - IOSCO reports, resolutions, and news releases. - Assessment conducted in accordance with the IOSCO implementation methodology. - Meetings and discussions included HCMC Board members and officers; representatives of listed companies; firms licensed to undertake securities and investment business including members of the ASE and derivatives markets; the Central Depository Company; the Members’ Guarantee Fund; the Derivatives Clearing House; the BoG; registered banks; mutual fund management companies; and independent professional advisers (chartered accountants and lawyers). - The mission did not meet with consumer groups or independent commentators. ### Institutional and market structure - HCMC is a statutory single regulator for securities markets and market participants in Greece; member of IOSCO. - HCMC regulatory scope includes: investment firms, mutual funds management firms, portfolio investment companies, the ASE (stock and derivative markets and a derivatives clearing house), the Central Depository Company and Guarantee Fund, and listed companies. - ASE markets regulated by HCMC: - (i) main market; - (ii) parallel market; - (iii) new market; - (iv) market of emerging capital markets; - (v) fixed income instruments market; - (vi) derivative instruments market. - Markets are fully owned either directly or indirectly by Hellenic Exchanges S.A. (HELEX). Principal markets: ASE main market (ASEMM) and ASE derivative instruments market (ASEDM). - There is a wholesale government bond market (electronic secondary securities market) operated, regulated, and supervised by the BoG. - Key market statistics and structure (preserve original numeric values and currency formatting): - ASEMM market capitalization as of December 31, 2004 was euro 92.1 billion, equivalent to 56 percent of GDP, compared with euros 84.6 billion as of December 31, 2003 and euros 65.6 billion on December 31, 2002. - Turnover in 2004 was euros 35.8 billion, compared with euros 34.9 billion in 2003 and euros 24.8 billion in 2002. - Approximately euros 95 million of new capital was raised in 2004, compared with euros 1,468 million raised in 2003 and euros 966 million in 2002. - Central securities depository exists; system is paperless and securities are dematerialized. - ASE members’ guarantee fund and an auxiliary fund exist. - There are 360 listed securities and 80 firms licensed as members of the ASEMM. - On average, in 2004 the four most active securities accounted for 46.6 percent of turnover by value. - ASEDM clearing: average daily volumes of futures and options trades on ASEDM in 2004 were 19,343, compared with 19,708 in 2003 and 14,851 in 2002. - ASEDM membership: 38 clearing members and 29 nonclearing members. - There are five listed corporate debt instruments (bonds) with a market value of euros 209 million. - There were 262 open-ended mutual funds having assets valued at euros 31.6 billion as of December 31, 2004 (265 funds with assets of euros 30.4 at end 2003). - Market features: - No substantial grey market; unlisted companies offering securities to the public are effectively absent. - Registered banks play a significant role: underwriting securities issued to the public, tender offers for listed company shares, custodial services for mutual funds and personal investment companies, and providing access to government bonds for nonbank investors. - Banks collectively hold nearly half the shares in the company that owns and operates the ASE. - Limited range of public market products: core products are ordinary shares and mutual fund interests; few convertible or preference shares; very few corporate bond issues and little trade in corporate bonds. ### General preconditions for effective securities regulation - Greece is an EU member and subject to EU directives relevant here: two directives on undertakings for collective investment schemes; one directive each on market abuse, prospectus, listed company transparency, and investment services. - Greece is a founding member of the EU’s Committee of European Securities Regulators (CESR) and a member of IOSCO (party to the IOSCO resolution of September 1998). - Market culture: - Market participants reported an improvement in culture and increased familiarity with investment risks and rewards. - Legal and judicial preconditions: - Extensive administrative law in place; some questions raised about effectiveness of court action. - Investor education: - Financial press in Athens active; much core information available on the HCMC Web site. - Widespread recognition of the need to commit greater resources to investor education, especially for retail investors. - Taxation neutrality: - Concerns relate to differential effects of investing into Greece from offshore versus within Greece, affecting registration and offers of new prospectuses. - Market access and competition: - Competitive market for investment services. - ASE has a practical monopoly in exchange services, but no restrictions on ASE membership by suitably qualified and authorized firms. - HCMC may issue new exchange licenses and is required to consider applications fairly and reasonably. - Greek citizens are free to invest on exchanges in other countries. ### Overview of assessment - HCMC characterized as active and energetic with extensive powers to monitor market institutions and practice. - Achieved a high degree of compliance with IOSCO principles. - Country engaged in a robust program of review of relevant law and practice with regard to applicable EU directives. - Immediate regulatory challenge: financial reporting implementation - Greece adopted the IFRS and the international audit standards to apply to final or interim statements with balance dates beginning March 31, 2005. - HCMC involved in promoting standards, establishing surveillance and compliance programs. - HCMC acknowledges historically poor quality of published audited financial statements and needs to ensure high standards of compliance. ### Principle-by-principle assessment (summary) - Regulator (Principles 1–5): - Responsibilities of HCMC clear and objectively stated in law. - Some scope to improve operational independence and accountability. - HCMC has adequate powers; adopts clear and consistent regulatory processes. - HCMC staff commitment to high professional standards should be made more explicit. - Self-regulatory organizations (CP 6–7): - SROs used in the regime, subject to HCMC oversight; observe standards of fairness and confidentiality. - Enforcement (CP 8–10): - HCMC has comprehensive inspection, investigation, and surveillance powers and comprehensive enforcement powers with effective and credible use. - Recommendation: prepare an integrated formal program of work for each financial year, monitor progress, and report on performance. - Cooperation (CP 11–13): - HCMC has wide powers to share public and nonpublic information domestically and internationally and established mechanisms for sharing nonpublic information. - Prior to Law 3340/2005, HCMC lacked an explicit general power to undertake inspections or investigations at the request of foreign counterparts; Law 3340/2005 changed this by empowering the HCMC to take “the necessary measures to gather the required information.” - Issuers (CP 14–16): - Law provides for full, accurate, and timely disclosure to shareholders and interest holders in collective investment schemes; policy of fair and equitable treatment of shareholders. - Powers of minority shareholders under company law may be difficult to exercise; takeover laws not always effective for transfer of control. - Some shareholding concentration among listed companies. - Accounting and auditing standards are high and internationally acceptable, but IFRS and international auditing standards were only recently adopted and may present compliance difficulties. - Difficulties noted in administering continuous disclosure rules for listed companies, including ASE power to grant exemptions in individual cases. - Collective investment schemes (CP 17–20): - Regulatory system sets standards for eligibility and regulation of those marketing or operating CIS. - Rules govern legal form and structure of CISs, segregation and protection of client assets, disclosure for investor evaluation, disclosed basis for asset valuation, pricing and redemption of units. - Market intermediaries (CP 21–24): - Regulation provides minimum entry standards; initial and ongoing capital and other prudential requirements reflect risks undertaken. - Standards for internal organization and operational conduct aim to protect client interests and ensure proper risk management. - HCMC lacks a mature integrated system for planning monitoring and surveillance work and assessing performance at the end of the planning period. - Secondary market (CP 25–30): - Trading systems establishment subject to regulatory authorization and oversight; ongoing supervision to maintain trading integrity. - Regulation promotes transparency and is designed to detect and deter manipulation and unfair trading practices; Greece will soon adopt the EU directive on market abuse. - Regulation aims to ensure management of large exposures, default risk, and market disruption. - Clearance and settlement systems subject to regulatory oversight. ### Recommended actions (Table 3 — selected items preserved verbatim) - Principles Relating to the Regulator (CP 1–5) - CP 1 — The HCMC is a member of IOSCO and has subscribed to its Statement of Objectives. Any review of its own statement of objectives should take into account all aspects of the IOSCO statement. - CP 2 — The HCMC should be made more independent in planning the allocation of its staff and resources within an overall budget, subject to the obligation to report to government and parliament on the performance of its functions in accordance with established procedures. - CP 2 — The process of appointment of all members, the members of the very important executive committee in particular, should be subject to some form of public scrutiny, whether through parliament as in the case of the chairman or in some other way. - CP 2 — The HCMC should implement internal rules or code of conduct regulating the disclosure and management of conflicts of the Board members and these should be publicly available. - CP 4 — The HCMC should promote an increased commitment by securities market institutions to investor education with particular emphasis on more prudent and more effective investment by retail investors. - CP 5 — The HCMC should implement a code of conduct for staff establishing general policies and procedures for disclosing and managing conflicts of interest arising in their work. - Principles of Self-Regulation (CP 6–7) - (No additional text in the provided excerpt beyond table header.) - Principles for the Enforcement of Securities Regulation (CP 8–10) - CP 10 — The HCMC should establish a practice of preparing a forward program of work, particularly audit and surveillance work for each financial year, monitoring progress against budget, and reporting on performance at the end of the year. - CP 10 — The HCMC should complete the review of its electronic surveillance systems as a priority. - Principles for Cooperation in Regulation (CP 11–13) - (No additional text in the provided excerpt beyond table header.) - Principles for Issuers (CP 14–16) - CP 14 and CP 16 — The regulators should continue their program of intensive work to complete the necessary legal and institutional arrangements for the supervision and oversight of the new financial reporting system, in particular those relating to the oversight of chartered accountants, and to ensure their reasonable effective implementation in practice. - CP 15 — The HCMC should review the law about tender offers and extend the law to protect investors better in relation to the transfer of control of a listed company. - CP 15 — The HCMC should review the operation of the rules relating to the disclosure of transactions in the listed securities of a company by the directors and other principal officers of the company. - Principles for Collective Investment Schemes (CP 17–20) - CP 15 — See also under principle 4—investor education. - Principles for Market Intermediaries (CP 21–24) - CP 23 — The HCMC should implement its standardized procedures for inspection work as a priority. - Principles for the Secondary Market (CP 25–30) - CP 28 — See under Principle 14—continuous disclosure law. ### Authorities’ response - The authorities were happy with the assessment and had no comments. * _cr0606 - 98. The authorities were happy with the assessment and had no comments._ ### 132. The current AML/CFT regime is not working in a cohesive manner consistent with ### 132. The current AML/CFT regime is not working in a cohesive manner consistent with ### Key findings and priority deficiencies - Greece has put in place some essential components for an AML/CFT framework but much remains to be done, including compliance with the 2nd EU Directive which is long overdue. - AML/CFT is not perceived by all stakeholders as a priority issue. - Institutional arrangements are fragmented. - Resources devoted to AML/CFT activities are limited. - Urgent legal, institutional, and structural issues identified include, inter alia: - (i) the need of a coordinated national AML/CFT strategy and institutional framework to implement the required legislative and institutional reforms; - (ii) improved transparency and governance in key sectors (e.g., gaming and securities); - (iii) enhanced public and private sector awareness of ML/FT risks particularly in the securities, insurance, and DNFBP sectors; - (iv) implementation of measures to combat FT; - (v) implementation of AML/CFT measures in the DNFBP sector; and - (vi) general improvement in efficiency, morale, and effectiveness in certain public sectors, notably the judiciary and law enforcement. ### Authorities’ response and legislative developments - The Greek authorities concur on the need to strengthen AML/CFT compliance in the identified areas and have taken important steps. - Draft legislation to amend the primary AML Law (Law 2331/1995) has been prepared to: - strengthen existing AML measures; - develop a framework for CFT; - impose AML/CFT requirements on the DNFBP sector; and - strengthen the role of the Financial Intelligence Unit (FIU). - Enactment of the draft law is facing strong opposition, particularly from the legal and accounting associations. - Increased awareness and consultation with the private sector would support the authorities’ efforts. ### Situation of money laundering and financing of terrorism (ML/FT) - Greece is vulnerable to ML and terrorist financing due to geopolitical location, long coastal borders, many islands, and a relatively large cash economy. - Vulnerabilities include illegal traffic in human beings, illicit drugs, high-tax commodities, smuggling of cash and monetary instruments, and trading in informal systems. - Investigations revealed use of a wide array of financial institutions in ML operations including banks, investment firms, mutual funds, offshore companies, and bureaux de change. - Common ML schemes involve domestic bank accounts, securities, and real estate; structured domestic and international transactions and use of third parties have been observed. - The use of government bonds for money laundering has been observed. - Greece is perceived by domestic authorities as a low risk country for terrorist financing. - Two domestic terrorist organizations were dismantled but no terrorist related assets or funds were confiscated in these cases. - No assets of international terrorist groups or terrorists have been found in Greece. - There appears to have been no systematic review of FT risks to date. - Licensed money remittance and currency exchange businesses exist, but indications of unlicensed bureaux de change suggest possible abuse for ML/FT. - Unauthorized alternative remittance systems identified mainly involve cross-border cash transfers using tour buses. ### Overview of the financial sector and DNFBPs - AML supervision is not sufficiently risk-based; urgent need to broaden and deepen AML supervision in key areas, including financial conglomerates. - Financial sector dominated by banks, insurance, and securities companies—principal ML/FT risk sectors. - The Bank of Greece (BoG) supervises banks and other financial institutions (other than insurance and securities) and has conducted AML inspections of banks and bureaux de change only. - Money remitters were not subject to a licensing regime until 2003; prior to this they were required only to submit statistical information to the BoG. - Plans to extend BoG AML supervision to money remittance and other credit institutions starting in the latter half of 2005, requiring significant enhancement in staff and AML/CFT training. - The Hellenic Capital Markets Commission (HCMC) is the lead regulator for securities firms and the stock exchanges. - HCMC conducted very few AML inspections in the past year and has no concrete plans to expand AML supervisory capacity. - No AML supervision of insurance companies and brokers; agents are not licensed or supervised. - A new insurance supervisory body has been created but is not yet operational. - DNFBPs are not covered by the AML Law and hence are not required to conduct customer due diligence and report suspicious activity to the FIU—constitutes a major gap. - Financial institutions and DNFBPs are not subject to customer due diligence (CDD) measures for CFT. ### Legal systems, FIU, and asset recovery - Money laundering is criminalized, but scope of the main ML offense is narrow and prosecution has proved difficult. - Judicial practice interprets AML Law 2331/1995 as requiring substantial material proof of a predicate offense to establish proceeds of crime—typically established only upon conviction. - This interpretation places a relatively high burden of proof on prosecutors who focus mainly on the predicate offense. - Most ML cases prosecuted so far were self-laundering cases. - Recommendation: expand coverage of ML offense to all serious offenses and include all FATF “designated categories of predicate offenses”; adopt a more flexible interpretation of the link between ML and predicate offenses to enable autonomous ML prosecutions. - Terrorist financing (FT) criminalized under Law 3251/2004 but not fully compliant with international standards: - Scope limited to financing the “forming or joining” of a terrorist group; does not cover financing of individual terrorists or terrorist acts. - Requires some preparatory acts; definition not consistent with FATF recommendations and relevant United Nations instruments. - Recommendation: make FT an autonomous offense covering funding of a terrorist, a terrorist group, or terrorism, whether or not a terrorist act has occurred or funds were used to finance a particular act. - Suspicious transaction reports (STRs): - Financial institutions are required to file STRs, but filings are often not timely and sometimes only filed regarding suspected ML in relation to a specific predicate offense under Article 1 of the AML Law. - Emphasis should be on creating an enforceable obligation to file an STR with the FIU whenever an FI suspects a transaction is connected to any criminal proceeds, irrespective of the underlying offence. - FIU (Article 7 Committee) shortcomings: - FIU consists of temporary representatives from eight agencies plus a private sector representative (conflict of interest concerns). - None of the committee members are full-time staff; entire analytical process for STRs is conducted by them. - No specialized full-time analytical staff; only five administrative support staff assigned. - Recommendation: restructure FIU so only government officials are employed; members should be full time representatives appointed for sufficient terms; permanent professional staff of experienced financial analysts should be employed; FIU should gain direct access to commercial and governmental relevant databases. - Temporary conservation measures and confiscation: - Law 2331/1995 does not provide for temporary conservation measures by a competent authority; conservation orders must be issued by a court, which may take time. - Recommendation: provide competent authority power to require temporary freeze of property suspected to be subject to confiscation; consider administrative issuance of temporary measures—FIU may be appropriate once operational. - Seizure provisions in Penal Code should require a lower standard of evidence than the current criminal standard. - Administrative sanctions should apply to all legal persons that hold proceeds of crime generated from ML or a predicate offense, not just where the legal entity is part of organized crime. - Confiscation regime: - As a rule, confiscation is conviction-based and is a secondary penalty; not available against legal persons unless they form part of an organized criminal group. - General confiscation governed by Article 76, paragraph 1 of the Penal Code; Law 2331/1995 creates a specific ML regime. - Article 2 (6) of Law 2331/1995 imposes confiscation on property which “is the product of criminal activity or is acquired in any way from a product of such criminal activity or the property which is used, partly or in total, for criminal activity”. - Criminal activity is narrowly defined; confiscation from legal persons is not possible except in organized crime cases. - Bank secrecy and access: - Bank secrecy provisions can only be lifted if sufficient evidence of criminal activity is produced before a magistrate or competent judicial council; process can be lengthy and impede international requests for assistance. - Once lifted, information on a bank account can be accessed and funds may be frozen. - Examining magistrate or Judicial Council may proceed ex parte but order is served on both accused and the financial institution pursuant to Article 5 (1) of the AML Law. - FIU and BoG have access to such information for their own purposes. ### Preventive measures—Financial institutions - Important but limited AML controls implemented mainly in banking and currency exchange sectors. - BoG has formed a specialized, albeit small, team of AML supervisors authorized to conduct onsite AML inspections of banks and other institutions. - Plans to extend AML inspections beyond banks and bureaux de change to money remittance firms (came under BoG supervision in second half of 2004). - Required improvements after proposed new AML/CFT law include, inter alia: - (i) develop and implement requirements for CFT measures in coordination with other supervisory bodies, FIU, and stakeholders; - (ii) develop a more risk-based approach to AML/CFT supervision that addresses key risks identified in the Greek financial system—requiring a systemic review of ML/FT risks in financial and other economic sectors; - (iii) expand scope and depth of AML/CFT supervision to focus on policies and controls at institutional level, including head offices, not only branches; - (iv) develop integrated approach for AML/CFT supervision of financial groups in coordination with HCMC and new insurance regulator; and - (v) review and strengthen industry guidelines and typologies in collaboration with FIU, regulators, and stakeholders. - Need to enhance AML/CFT skills and resources of BoG’s AML unit and other supervisory bodies. - HCMC AML supervision: - HCMC started on-site inspections for AML only in 2004—four inspections with AML elements—as part of general prudential on-site program. - Need to risk-focus examination program and significantly expand AML/CFT examination procedures; closer collaboration with BoG and insurance regulators required for consolidated supervision. - Insurance sector: - Absence of AML/CFT supervision in insurance sector is a significant gap. - Insurance agents and brokers not subject to the AML law; agents are neither licensed nor supervised. - It is estimated that between 80–95 percent of insurance business is generated through agents including high risk areas such as life insurance and investment-linked policies. - Increasing bancassurance integration with banking and mutual funds increases vulnerability. ### Preventive measures—DNFBPs and NPOs - DNFBPs and nonprofit organizations (NPOs) are not included in the AML/CFT regime. - Draft amendments to the AML Law are expected to require these sectors to comply with international standards. - Authorities have not conducted a review of the NPO sector to ascertain vulnerability to ML/FT risk and adequacy of controls. - Casinos: - Need to develop a comprehensive regulatory and supervisory regime to minimize ML/FT abuse in the casino industry. - Reports of at least one major Greek casino starting operations in a neighboring country which could increase risk profile. - Lawyers and notaries: - Special attention needed regarding lawyers and notaries in formation and administration of offshore companies with offices in Greece. - AML/CFT controls and enhanced transparency should be considered for registration of offshore companies to address challenges in CDD on beneficial owners and controllers. ### Legal persons and arrangements - Nonlisted companies can issue bearer shares. - Complicated and lengthy processes to obtain information on shareholders pose constraints on CDD and timely access by law enforcement and competent authorities. ### National and international cooperation - National cooperation: - Policies insufficiently established for cooperation between FIU, law enforcement, supervisors, and other competent authorities. - FIU’s multi-agency composition promotes interagency cooperation among its members but not sufficiently carried through to agencies themselves. - Recommendation: establish effective mechanisms for all relevant authorities to coordinate domestically, including formulation of a comprehensive and coordinated national AML/CFT policy based on a risk assessment of specific vulnerabilities and risks. - International cooperation: - Timeliness and effectiveness of international cooperation is difficult to judge due to lack of data on mutual assistance requests. - Mutual legal assistance based on: (i) bilateral treaties in force with 21 countries; (ii) multilateral conventions; and (iii) relevant provisions of Greek law, notably Articles 457–461 of the Code of Criminal Procedure. - Extradition governed by treaties and domestic law. - While international cooperation has a sound legal basis, delays occur in practice. ### Summary assessment and recommended actions (FATF 40+9 focus) - Overall framework in Greece is extensive but not yet sufficiently effective. - Recommended actions (selected and listed in order of priority as presented): - Criminalization of ML (R.1 & 2): - Enact bill amending Law 2331/1995 to expand coverage of ML offense to all serious offenses and include all “designated categories of predicate offenses” as defined in FATF recommendations. - Provide clarification to ensure a more flexible interpretation of the link between ML and the predicate offense so prosecutors understand ML is not exclusively a phenomenon involving predicate offenders. - Criminalization of terrorist financing (SR.II): - Ensure FT is designated as a predicate offense for ML and expand coverage to include funding a terrorist, a terrorist group, or terrorism, whether or not a terrorist act has occurred and whether or not funds were used to finance a particular act. - Confiscation, freezing, and seizing of proceeds of crime (R.3): - Provide for enhanced immediate freezing provisions, possibly issued on a temporary basis by an administrative body (perhaps the FIU) to avoid dissipation while awaiting a court order. - Provide for seizure provisions to be employed on a lower standard of evidence than the current criminal standard. - Freezing of funds used for terrorist financing (SR.III): - Designate a committee or agency to be the 1373 designation agency to make a prompt and binding determination regarding terrorist targets designated by other countries. - Implement systems to disseminate notification of such designations to parties who may be holding terrorist funds or assets so they can be frozen without delay. - Confirm procedure for freezing and seizing terrorist funds and assets without delay and without a criminal case being instituted in Greece. - The FIU and its functions (R.26, 30, and 32): - Consider restructuring FIU so only government officials are employed and it can perform proper analysis of all STRs received. - Committee members should be full time representatives appointed for a sufficient term and able to devote themselves fully to the committee’s task. - Employ permanent professional staff of experienced financial analysts to assist committee members. - FIU should gain direct access to both commercial and governmental–relevant databases. - Law enforcement, prosecution, and other competent authorities (R.27, 28, 30, and 32): - Prepare a comprehensive AML interagency enforcement program based on a risk assessment of potential ML. - ML and FT investigations should focus more on third party laundering by professional money launderers abusing the financial industry. - Improve coordination between units and agencies; define division of labor and responsibility where authorities overlap. - Cash couriers (SR IX): - Implement a declaration/disclosure system to detect physical cross-border transportation of currency and bearer negotiable instruments related to ML or FT. *IMF staff report excerpt* ### 3. Preventive Measures– ### 3. Preventive Measures– ### Financial Institutions - Risk of ML or FT — Customer due diligence, including enhanced or reduced measures (R.5 to 8) - Require FIs to implement a more risk-based approach for customer identification and due diligence with enhanced procedures for higher risk customers and simplified or reduced procedures where there is proven low risk of ML/FT. - Enhance customer identification and verification guidelines on acceptable forms of customer identification. For example, drivers’ licenses should not be allowed due to the risk of forgery and for verification e.g., copies of utility bills. - Require FIs to obtain, as appropriate, information on the purpose and expected use/turnover of accounts, especially for higher risk clients. - Provide specific guidelines for customer identification and due diligence procedures (including ultimate beneficial owners and controllers, nonresident clients, foreign intermediary clients, and complex corporate/legal structures (e.g., offshore investment vehicles). - Introduce requirements/guidelines where CDD is insufficient or inadequate, especially those involving corporate and offshore clients, and review the adequacy of paragraph 1.3.3 of BoG Circular 16 with respect to offshore companies (e.g., Emergency Law 89/67 companies). - Require FIs to periodically review and update customer data, esp. for higher risk customers. - FIs should consider obtaining from prospective clients, an explicit declaration as to whether they are acting on their own account or on behalf of others. - Enhance guidelines on the timing of verification of CDD and review the adequacy of existing procedures for internet services e.g., banking. - Clarify/specify whether the EUR 15,000 threshold in Article 4.1 of the AML Law and customer identification apply to one-off transactions, and if so, does it require a time period longer than 1 day for aggregating linked transactions below this amount? - Remove any legal impediments/uncertainty to allow inclusion of customer account numbers in cross-border wire transfers without the customers’ consent, and reduce the EUR 15,000 threshold for customer identification in wire transfers to e.g., EUR 1,000. - Require enhanced due diligence of politically-exposed persons (PEPs) and for cross-border correspondent banking accounts, especially on respondent institutions from high risk countries. - Extend the requirement for nonface-to-face customers/transactions to sectors beyond banking. - Third parties and introduced business (R.9) - Review the practice and where necessary, enhance CDD requirements regarding reliance on third parties particularly in the insurance and securities sectors. - Require insurance agents and brokers to comply with the AML Law and guidelines, consistent with FATF Recommendations and review contracting arrangements for AML compliance by insurance companies. - Review compliance arrangements in financial groups where a member of a group can perform CDD procedures for other members, both domestic and overseas. - Financial institution secrecy or confidentiality (R.4) - Create more gateways to allow more cooperation between authorities and authority for the BoG/other supervisors to more adequately supervise their licensees re quality of STRs. - Clarify the legal position that banks and credit institutions which provide the account number on a wire transfer are not in breach of bank secrecy requirements under Law 1059/ 1971. - Record keeping and wire transfer rules (R.10 and SR.VII) - Introduce general and sector-specific record-keeping requirements/guidelines to ensure the sufficiency of records for reconstructing transactions and prompt access by the authorities. - On-site inspection for all sectors should review the adequacy of record keeping. - Clarify the legal requirement for start of the retention period involving business relationships. - Require full originator information including account numbers (where these exist) to be recorded/retained for five years for all wire transfers, especially for cross-border transfers, and remove any restrictions on the inclusion of account numbers requiring customer consent. - Provide requirements/guidelines for the treatment of batch transfers, especially where they contain cross-border transfers by money remittance firms. - Monitoring of transactions and relationships (R.11 and 21) - Issue guidelines requiring FIs, particularly those not under the supervision of the BoG to document/retain for five years the findings of examinations of unusual or complex patterns of transactions and make them available to the proper authorities. - Consider implementing a system that reviews/takes into account the AML/CFT regimes in countries where Greek FIs conduct cross-border business to support the CDD process. - Suspicious transaction reports and other reporting (R.13–14, 19, 25, and SR.IV) - The BoG should update its detailed list of guidelines in the annex to Circular 16. Other regulators should issue sector specific guidelines based on their accumulated experience. - The law should be amended to impose an obligatory duty to report an STR whenever indications of suspicious activity occur and whenever the FI believes the transaction is connected to any offense (including which is not a predicate offense). As FIs very rarely have explicit suspicion regarding a specific predicate offense, FIs should be obliged to report STRs even if they believe their suspicion is related to tax matters. - Ensure that written internal or regulatory guidelines exist regarding the conditions and situations in which a compliance officer may inquire at the branch level (which poses a higher risk of “tipping off”) when requested by the FIU for additional information. - The law should be amended to provide specific requirements for reporting suspicions of FT. - Oblige FI to report attempted transactions that are considered suspicious. - The law/regulations should specify the information that must be included in a STR. This information should include all relevant information obtained in the CDD process (e.g., different telephone numbers and addresses given by the client, names and details of connected persons, and accounts, etc.). The FIs should be required to use a standard format for submitting STRs, which would facilitate electronic and digital reporting. - The Law and regulations should specify the time frame in which FIs must file an STR. - Specific law or regulation should be in place to specifically ensure that the names and personal details of staff of financial institutions that make an STR are kept confidential by the FIU and the other government authorities exposed to the content of these STRs. - The authorities should implement, in law, feasible measures to detect or monitor the physical cross-border transportation of currency and bearer negotiable instruments, as well as measures to establish a systematic collection of data regarding cross border currency transactions, which are rarely randomly examined under current practice. - Consider the feasibility/utility of implementing a currency transaction reporting system. - All relevant authorities should enhance efforts to provide feedback regarding STRs using sanitized cases, examples of good or bad STRs, ML or TF typologies. - The Greek FIU should publish, in addition to its annual report, information on current ML techniques, methods, and trends (typologies), and examples of good and bad reporting, instead of sanitized examples of actual ML cases. The FIU should consider initiating periodical meetings with compliance officers or other forms of training to improve the quality of STRs. - Internal controls, compliance, audit, and foreign branches (R.15 and 22) - CDD policies, procedures, and controls should be risk-based requiring for example, enhanced CDD for higher risk customers and activities. - Examination procedures should cover a review of the adequacy AML policies formulated by the Board of Directors and on their effective implementation. - Introduce for all sectors consistent requirements for AML internal audit, compliance, employee recruitment, and training programs. - Consider requiring that FIs apply AML policies, controls, and procedures on a group-wide basis including overseas branches and subsidiaries. - Require FIs to inform their Greek supervisors when they are unable to adequately implement their AML systems in their overseas operations and amend the AML Law to reflect this. - Review whether Greek FIs with overseas operations are able to adequately comply/implement the Greek AML requirements and internal systems in any of the countries they operate. - Shell banks (R.18) - NA - The supervisory and oversight system–competent authorities and SROs (R. 17, 23, 29, and 30) - Introduce sanctions for breaches of AML Law provisions under Article 4.9–4.13. - Provide explicit sanctioning authority in the AML Law to the regulatory authorities for violations of AML requirements by covered entities. The regulators should have the authority to impose administrative sanctions directly without the need for ministerial involvement. - The sanctioning role (recommendation) of the FIU contained in Article 4.8 of the AML Law should be reconsidered if the FIU is not to have a supervisory role. - Review the adequacy of sanctions under the AML Law and regulatory laws for consistency and whether they are sufficiently dissuasive and proportional the offence or breach. - Introduce an explicit provision in the regulatory laws providing clear authority to the relevant regulators to both supervise for AML/CFT and sanction FIs covered for breaches of AML/CFT legal and regulatory requirements. - Define an explicit role in the AML Law for the “competent authorities” (the BoG, HCMC, and ministry of finance/new insurance regulatory agency) to supervise and enforce compliance with AML/CFT requirements. Review the relevant regulatory laws to ensure compatibility with this requirement and that there is a clear link to their general supervisory powers. - Insurance agents and brokers should be covered by the AML Law and related circulars to enable proper supervision and enforcement for AML purposes. - The BoG should commence, as early as possible, supervision of money remittance business for compliance with the AML requirements. [Post mission, the authorities have informed the assessment team that the BoG has developed an examination program for money remitters and that onsite inspections, including for AML, will start in September/October 2005.] - The BoG should expand its program of AML inspections to leasing firms consistent with a review of the degree of ML/FT risk in this sector. - Define a supervisory and enforcement role for the regulators “competent authorities” in the AML Law that is consistent with the banking and other regulatory laws. - Introduce an explicit provision in the AML Law providing a power for the competent authorities to prescribe and issue implementing instruments, as appropriate, e.g., regulations, rules, circulars, guidelines, and directives. - Clarify the enforceability of the existing regulatory AML guidelines that have been issued. (i.e., the BoG Circular 16, the HCMC Rule 108/Circular 8 and the MoDV Circulars). - Operationalize the insurance regulatory body and urgently commence AML supervision and the capacity both in numbers, training, and specialization of the BoG AML staff for consolidated AML supervision of financial groups, including their overseas operations. - The HCMC should enhance the adequacy of staff and resources devoted to AML issues. - Financial institutions-market entry/ownership/control (R.23) - Introduce a licensing/registration requirement for insurance agents by the insurance regulator to enable application and enforcement of the AML legal requirements to this sub-sector. - AML/CFT guidelines (R.25) - The competent authorities, including the FIU, should issue comprehensive and sector-specific guidelines for all covered sectors and in particular, to the insurance and securities sectors. - Review the applicable provision(s) under the AML and regulatory laws for issuing AML guidelines for all sectors, and make compliance with these enforceable by the regulators. - Ongoing supervision and monitoring (R.23, 29, and 32) - Bank of Greece - Enhance and introduce a risk-based AML supervisory program including consolidated supervision, which places more focus on the adequacy of AML risk-management policies and systems (as opposed to legal compliance and transaction testing), specialized procedures for certain institutions (e.g., nonbank institutions, financial groups, and cross-border supervision), greater focus on the role of the Board of Directors and top management. Examination procedures should be complemented with information from other sources e.g., the FIU, external auditors, off-site supervision staff, and other domestic supervisors as appropriate. - Require closer coordination with domestic and overseas supervisors of multinational groups. - Consider the feasibility of using external auditor’s pre and/or post inspections and audits. - Enhance training for examination staff on the risk-based approach to the new FATF Recommendations, with a view to enhancing the examination procedures. - Consider introducing an explicit periodic reporting requirement on the volume and other details of transactions conducted by all money remittance firms (including bureaux de change) similar to the requirement for currency exchange business. - HCMC - Develop comprehensive AML supervision procedures for securities firms consistent with those described above for the BoG, including financial groups. - Ministry of economic development and ministry of finance - Develop a comprehensive AML supervisory framework for the new Financial Supervisory Committee for Private Insurance that would include both off-site and on-site procedures, including the early implementation of an on-site program. - External auditors - Enhance the role of external auditors in AML, in the annual and three-yearly review, and report on internal controls. Require a copy of the auditors’ management letter to review coverage of AML control issues. This information to be factored into the annual examination program. - Access to information - Clarify the legal position and practice with respect to access by BoG examiners to suspicious activity reports filed with the FIU. Regulators should be able to review STRs and follow up on quality problems even in coordination with the FIU. - Enhance the supervisory process by reviewing during on-site inspections, the quality of STRs filed with the FIU and complement this process with statistics on the quality of STRs on an institution and system-wide basis. - Develop a statistical system that would allow for prompt production of at least the following information: - (i) number of general and specialized inspections; - (ii) number and type of deficiencies identified; - (iii) number of recommendations made and their type; - (iv) number of enforcement action taken and their type; and - (v) status of compliance with recommendations and enforcement actions. - Money value transfer services (SR.VI) - Enhance AML/CFT on-site inspections of all money transfer companies for AML/CFT. - Consider introducing a system that requires licensed money remitters to include basic AML/CFT conditions on their agents/sub-agents e.g., on customer due diligence. - Review the existence of informal remittance businesses for purposes of registration or licensing, and oversight for AML purposes. ### 4. Preventive Measures– Nonfinancial Businesses and Professions - Customer due diligence and record-keeping (R.12) - All DNFBPs should be subject to the preventive requirements of the AML Law. CDD guidance should be issued by each DNFBP regulator for enhanced and simplified measures. - Monitoring of transactions and relationships (R.12 & 16) - DNFBP regulators should issue guidance for monitoring and documentation procedures. - Pay special attention to the ML risks posed by the extensive use of cash in the casinos and the ability of customers to purchase tokens for cash and redeem them for bankers’ checks. - Suspicious transaction reporting (R.16) - All DNFBPs should be subject to mandatory reporting requirements for suspicious activities. - Provide training to DNFBPs for identification of suspicious transactions and filing STRs. - Urgently address the matter of legal privilege and the impact it will have on lawyers’ ability to file STRs under the proposed amendments to Law 2331/1995. - Internal controls, compliance, and audit (R.16) - Preventive measures should include (i) internal policies, procedures, and controls; (ii) adequate employee screening procedures; (iii) ongoing employee training; and (iv) an internal audit function, paying special attention to the risk of ML and TF and the size of the business. - Guidance should be issued by each DNFBP regulator when they have been designated. - Regulation, supervision, and monitoring (R.17, 24-25) - All DNFBPs should be subject to the preventive requirements of the AML Law, including designation of clear responsibility for monitoring and enforcing compliance with AML requirements, stronger sanctioning powers, and issuance and adoption of codes of conduct. - Tighten licensing requirements for casinos to make it mandatory that shareholders, and their associates, and the associates of operators and managers submit police certificates. - Other designated nonfinancial businesses and professions (R.20) - Focus on how the shipping industry can be used for ML activities, particularly through the ownership, control, and management of the shipping companies where intermediaries, offshore jurisdictions, and complex corporate structures are used and issue guidance. - Include shipping companies and foreign shipping companies the AML Law. ### 5. Legal Persons and Arrangements and Nonprofit Organizations - Legal Persons–access to beneficial ownership and control information (R.33) - Implement statutory requirements for the inclusion of information on the ultimate beneficial ownership and control structure in the incorporation/registration documents, and for company formation providers to obtain, verify and keep accurate records of these. Create more gateways, other than through a court order, for timely access to these records. - Legal Arrangements–(R.34) - NA - Nonprofit organizations (SR.VIII) - Conduct a review of the NPO sector for FT risk and vulnerabilities and, if necessary, introduce legislation and other measures to help prevent abuse for FT. ### 6. National and international cooperation - National cooperation and coordination (R.31) - The BoG, HCMC, and MOD/ID or the new insurance regulatory body should form a consultative committee to consider measures to implement the FATF Recommendations, an in particular, the provisions of the draft new AML Law. In light of the financial groups in Greece, coordinate efforts to develop broadly consistent regulations and guidelines to assist FIs with compliance. Conduct joint training programs and coordinate inspections of financial groups. - Consider preparation of a comprehensive AML interagency enforcement program, based on a risk assessment of potential ML and FT to improve coordination between different agencies. - The Conventions and U.N. Special Resolutions (R.35 & SR.I) - Ratify the Palermo Convention as a matter of priority and ensure that comprehensive implementing legislation is enacted at the same time when the ratification law is passed. - Enact and implement the bill amending Law 2331/1995 and ensure full coverage for FT. - Mutual Legal Assistance (R.32, 36-38, SR.V) - The ministry of justice’s central unit should continue its efforts to compile comprehensive statistical data on international cooperation, including the time required for responding, the reasons for denial, and the obstacles encountered. - Extradition (R.32, 37 & 39, & SR.V) - The current limitations on the definition of financing of terrorism may have a significant impact on Greece’s ability to extradite persons sought for this offense, taking into account, the dual criminality requirement for extradition under Article 437 (a) of the Code of Criminal Procedure, should this requirement be applied in a narrow sense. - Other Forms of Cooperation (R.32 & 40, & SR.V) - Greece should enact the law allowing international investigative teams and adopt several EU initiatives on international cooperation. - The FIU should answer foreign requests and provide appropriate feedback to requesting FIUs. *IMF assessment: Table 4. Recommended Action Plan to Improve the Anti-Money Laundering and Combating the Financing of Terrorism System* ### 7. Other issues ### 7. Other issues ### Other relevant AML/CFT measures or issues - NA ### Authorities’ response to the assessment - Paragraph 158: The Greek Authorities thank the IMF assessment team for producing a "very comprehensive report" and state that, despite several weaknesses and shortcomings in the current AML/CFT system, "significant progress has already been achieved and will continue in the near future." - Paragraph 159: The authorities state they have identified the major weaknesses of the system and "have taken important steps to address them." A draft Law, already introduced to the Greek Parliament, "is expected to address a number of issues mentioned in the report and will undoubtedly provide the necessary framework for the authorities to move to a more risk based AML/CFT system." ### Detailed observations by the authorities (paragraph 160) - Regional risk awareness and procedures - The report points to "the increased AML/CFT risks in the region." - Authorities emphasize: - "the adoption of strict rules-based procedures and mechanisms which admittedly need to be further improved" - "closer and continuous cooperation with neighboring Balkan countries at all AML/CFT levels." - Use of a wide array of financial institutions - Authorities note that all financial institutions in Greece "are actively confronting AML/CFT risks by applying effective monitoring procedures." - They assert this "reinforces, rather than refutes, the argument about the effectiveness of existing AML/CFT procedures in identifying ML cases in Greece." - Authorities observe that due to: - "adoption of tighter rules and regulations" and - "continuous improvement of monitoring procedures in the Banking, Securities and Insurance sectors in Greece," - "money laundering operations gradually tend to swift to less supervised and monitored areas." - They describe this as an "international trend" recognized by FATF Typologies and note increased emphasis on the nonfinancial sector (real estate agents, lawyers, etc.), "especially with regard to combating terrorism financing." - Insurance sector supervision and licensing - Authorities object to the report’s statement that "‘...there has been no AML supervision of insurance companies and brokers. Furthermore, agents are not licensed or supervised.’" - Legal bases cited: - Insurance Companies supervision: "articles 2, 3, 3a, 6 etc. of Decree Law 400/1970." - AML supervision of Insurance Companies: "Law 2331/1995, and Ministerial Decision ref. K3/9563 of 28-11-1997 determine the framework for the AML supervision of Insurance Companies." - Licensing and operations of brokers and agents: "law 1569/85 (articles 3, 7, 10, 13, 15a)." - Independent authority: - "the Independent Supervisory Authority for the Insurance Sector has already been established by law 3229/04 (Gov. Gazette 38/10-2-04)." - "The Presidential Decree, currently in Parliament’s Supreme Administrative Court, aims at materializing the law, otherwise to organize the new Independent Authority for which legal basis already exists." - Self-laundering and scope of offences - On the report’s observation that "‘...most ML cases prosecuted so far were self-laundering cases ...’" authorities state: - The Draft Law currently at the Greek Parliament "provides explicitly for the punishment of self-laundering activities, which is not the case in most FATF countries’ AML/CFT legislation so far." - Under the Draft Law the definition of AML/CFT offences has been widened to include: - "sixteen designated offences" and - "any other serious offence (misdemeanor or felony) punishable by at least six months imprisonment, generating substantial proceeds." - "TF-related crimes mentioned on the report are included among the aforementioned sixteen designated offences, as well as terrorism and terrorist financing activities per se." - Unlicensed bureaux de change and money remittance businesses - Authorities note that in Greece "provision of such services without being licensed is illegal." - They argue that companies operating in the tourist sector (hotels, etc.), which are "explicitly allowed, because of the prohibition in all other cases, to provide limited services, only to their customers and for very small amounts" should not be considered "unlicensed bureaux de change businesses," describing this as "an international practice that applies to hotels." - They also state that "the exchange of large amounts of currency, not consistent with the customer’s business and level of activity, is an indication of suspected money laundering according to the authorities’ indicative list of suspicious transactions." - Licensing regime of money remitters - Authorities state that the licensing regime for money remitters "became obligatory only in late 2001, with the issuance of the FATF Special Recommendations." - They note that "The procedures for transposing such a requirement in the legal system does take sometime and therefore the relevant law was passed in May *Source: _cr0606 - 7. Other issues* ### 2003. However in Greece even before these companies were brought under the ### _cr0606 - 2003. However in Greece even before these companies were brought under the ### Anti–Money Laundering (AML) oversight and money remitters - Before licensing, remittance firms were subject to close monitoring by authorities, including on-site inspections to monitor compliance with specific requirements. - Key requirements for remittance firms: - Provide the BoG with statistics and data on foreign exchange transactions. - Remit customers’ funds through credit institutions, which were subject to AML rules and applied them also on money remittance firms’ customers (therefore, reporting cases of suspicious transactions to the Competent Body—Greek FIU at that time). - On-site inspections: - Although starting on-site examinations immediately after licensing is not consistent with international practice, such examinations "will be completed by the end of October." - Suspicious transaction reporting: - Reporting practice: a transaction is reported when “there are any doubts about the legitimate origin of the funds involved.” - No linkage to a specific crime is required and generally no predicate offence is mentioned in the STR to the Greek FIU. ### Bank of Greece (BoG) AML capacity and measures taken - AML unit at the BoG: - Strengthened with new employees with increased qualifications. - Examinations focusing on policies and controls have already started. - Respective guidelines are being drafted. - Some suggested measures for BoG have already been taken or initiated. ### Hellenic Capital Market Commission (HCMC) AML supervision - Since establishment of HCMC (1995), all on-site, full scope audits carried out by HCMC inspectors include an AML component. - Therefore, it is considered inaccurate to state that supervision of AML in the securities sector has only recently commenced. - HCMC developments: - Developed special AML audit programs that became effective in July 2005. - Up to date three special AML audits have already been carried out. - Sanctions and licensing: - HCMC can impose sanctions based on HCMC’s Rule 108 and the Codes of Conduct for Investment Firms and Institutional Investors. - Breaches of Law 2331/95 and HCMC Rule 108 may additionally lead to the revocation of license of supervised entities. - IMF assessment expectation: - During the AML assessment and exchange of views, the securities sector was expected to be included among sectors that took important steps to implement AML controls in the financial system. ### Banking sector: Capital adequacy (1998–2004) - Regulatory capital to risk-weighted assets 1/: 1998 10.2, 1999 16.2, 2000 13.6, 2001 12.4, 2002 10.5, 2003 12.0, 2004 12.8 - Regulatory Tier I capital to risk-weighted assets 1/: 1998 9.7, 1999 15.3, 2000 13.5, 2001 10.9, 2002 8.8, 2003 9.8, 2004 10.0 - Capital (net worth) to assets: 1998 6.5, 1999 10.6, 2000 9.2, 2001 8.6, 2002 7.0, 2003 6.9, 2004 6.8 ### Asset composition and quality (1998–2004) - Sectoral distribution of loans (percent): - Insurance corporations and pension funds: 1998 0.0, 1999 0.1, 2000 0.1, 2001 0.1, 2002 0.1, 2003 0.1, 2004 0.1 - Other financial intermediaries: 1998 0.7, 1999 0.4, 2000 1.1, 2001 2.2, 2002 3.2, 2003 2.6, 2004 2.3 - Nonfinancial corporations: 1998 75.0, 1999 72.2, 2000 70.5, 2001 65.7, 2002 60.4, 2003 57.7, 2004 54.4 - Consumer credit: 1998 7.3, 1999 8.4, 2000 9.3, 2001 10.6, 2002 11.3, 2003 12.3, 2004 14.3 - Lending for house purchase: 1998 17.0, 1999 18.8, 2000 18.8, 2001 21.0, 2002 24.3, 2003 26.1, 2004 27.6 - Other lending to households and nonprofit institutions: 1998 0.1, 1999 0.2, 2000 0.3, 2001 0.4, 2002 0.6, 2003 1.2, 2004 1.2 - Geographical distribution of loans to firms and households: - Domestic: 1998 95.3, 1999 90.8, 2000 93.9, 2001 94.7, 2002 95.6, 2003 96.3, 2004 96.6 - Other euro area countries: 1998 0.2, 1999 0.2, 2000 0.2, 2001 0.2, 2002 0.2, 2003 0.1, 2004 0.1 - Non-euro area countries: 1998 4.4, 1999 9.1, 2000 5.9, 2001 5.1, 2002 4.2, 2003 3.5, 2004 3.2 - Foreign exchange (FX) loans to total loans: 1998 24.8, 1999 27.0, 2000 28.4, 2001 10.0, 2002 7.5, 2003 5.5, 2004 4.5 - FX assets to total assets: 1998 28.9, 1999 25.4, 2000 23.9, 2001 11.3, 2002 8.1, 2003 7.8, 2004 7.1 - Loans to general government (billions of euros): 1998 3.3, 1999 3.5, 2000 3.8, 2001 3.8, 2002 4.8, 2003 5.2, 2004 6.6 - Loans to nonresidents (billions of euros): 1998 12.0, 1999 16.3, 2000 19.8, 2001 22.0, 2002 23.5, 2003 26.2, 2004 26.5 - Deposits from general government (billions of euros): 1998 2.5, 1999 2.8, 2000 3.2, 2001 3.6, 2002 3.8, 2003 4.3, 2004 5.2 - Deposits from nonresidents (billions of euros): 1998 12.9, 1999 16.4, 2000 20.2, 2001 16.9, 2002 25.2, 2003 28.0, 2004 37.5 - Off-balance sheet accounts (billions of euros): 1998 229.9, 1999 233.3, 2000 289.7, 2001 251.8, 2002 287.5, 2003 333.8, 2004 412.9 - NPLs to gross loans: 1998 13.6, 1999 15.9, 2000 9.9, 2001 8.2, 2002 7.3, 2003 7.0, 2004 7.0 - NPLs to gross loans (excluding ABG): 1998 8.7, 1999 11.2, 2000 7.2, 2001 5.6, 2002 5.5, 2003 5.1, 2004 5.4 - NPLs net of provisions to capital: 1998 76.4, 1999 41.4, 2000 32.0, 2001 29.1, 2002 29.0, 2003 27.0, 2004 26.6 - NPLs net of provisions to capital (excluding ABG): 1998 32.3, 1999 24.1, 2000 23.2, 2001 17.4, 2002 18.7, 2003 16.1, 2004 16.4 - Large exposures to capital: 1998 146.9, 1999 131.1, 2000 148.5, 2001 155.4, 2002 154.1, 2003 190.8, 2004 123.7 ### Earnings and profitability (1998–2004) - ROA (after taxes): 1998 0.7, 1999 2.4, 2000 1.4, 2001 1.0, 2002 0.5, 2003 0.6, 2004 0.5 - ROE (after taxes): 1998 13.7, 1999 28.6, 2000 15.4, 2001 12.4, 2002 6.8, 2003 8.9, 2004 7.3 - Interest margin to gross income: 1998 55.1, 1999 44.5, 2000 54.5, 2001 62.8, 2002 72.5, 2003 74.2, 2004 74.9 - Noninterest expenses to gross income: 1998 61.9, 1999 48.1, 2000 52.8, 2001 58.8, 2002 69.3, 2003 62.3, 2004 61.8 - Personnel expenses to noninterest expenses: 1998 66.8, 1999 63.6, 2000 61.8, 2001 59.8, 2002 58.0, 2003 58.2, 2004 59.1 - Trading and fee income to total income: 1998 38.0, 1999 49.9, 2000 35.5, 2001 28.0, 2002 22.7, 2003 21.6, 2004 20.3 - Average deposit rate: 1998 8.2, 1999 7.0, 2000 4.0, 2001 2.0, 2002 1.6, 2003 1.2, 2004 1.2 - Average lending rate: 1998 17.0, 1999 14.8, 2000 10.5, 2001 8.1, 2002 6.4, 2003 6.0, 2004 6.0 - Spread between reference loan and deposit rates: 1998 9.0, 1999 6.7, 2000 6.3, 2001 6.1, 2002 6.1, 2003 5.8, 2004 5.9 ### Liquidity (1998–2004) - Liquid assets (billions of euros): 1998 70.4, 1999 80.4, 2000 88.2, 2001 82.6, 2002 79.8, 2003 78.9, 2004 77.0 - Liquid assets to total assets: 1998 55.2, 1999 50.3, 2000 46.4, 2001 41.1, 2002 39.5, 2003 37.0, 2004 33.4 - Liquid assets to total short-term liabilities: 1998 62.6, 1999 64.6, 2000 60.7, 2001 53.0, 2002 48.7, 2003 46.5, 2004 43.2 - Short-term liabilities (billions of euros): 1998 112.6, 1999 124.5, 2000 145.2, 2001 155.7, 2002 163.9, 2003 169.7, 2004 178.1 - Customer deposits to total (noninterbank) loans: 1998 191.1, 1999 190.8, 2000 176.3, 2001 166.0, 2002 147.4, 2003 135.3, 2004 130.6 - FX liabilities to total liabilities: 1998 34.5, 1999 25.7, 2000 24.5, 2001 16.6, 2002 12.8, 2003 13.2, 2004 12.9 - FX liabilities (billions of euros): 1998 44.0, 1999 41.2, 2000 46.6, 2001 33.3, 2002 27.3, 2003 28.2, 2004 29.8 - Deposits from customers (billions of euros): 1998 173.8, 1999 203.8, 2000 235.7, 2001 271.5, 2002 280.3, 2003 297.8, 2004 333.5 - In local currency: 1998 62.7, 1999 77.1, 2000 89.3, 2001 108.8, 2002 117.9, 2003 126.2, 2004 142.8 - In foreign currencies: 1998 24.2, 1999 24.8, 2000 28.5, 2001 27.0, 2002 22.2, 2003 22.7, 2004 23.9 - From residents: 1998 84.9, 1999 97.2, 2000 112.4, 2001 129.5, 2002 134.3, 2003 139.3, 2004 149.6 - From nonresidents: 1998 1.9, 1999 4.7, 2000 5.4, 2001 6.2, 2002 5.8, 2003 9.6, 2004 17.2 - Deposit liabilities and bank bonds (domestic and euro area residents excluding central government) (billions of euros): 1998 85.5, 1999 97.7, 2000 113.2, 2001 129.7, 2002 127.3, 2003 129.3, 2004 140.8 - Sight deposits: 1998 49.2, 1999 56.5, 2000 61.0, 2001 70.4, 2002 71.4, 2003 79.1, 2004 91.1 - Original maturity between 1 and 365 days: 1998 33.4, 1999 38.2, 2000 48.9, 2001 55.8, 2002 51.8, 2003 45.2, 2004 44.9 - Original maturity of over one year: 1998 2.9, 1999 3.1, 2000 3.3, 2001 3.5, 2002 4.1, 2003 5.0, 2004 4.8 - Loans by original maturity (domestic and other euro area residents) (billions of euros): total 1998 43.6, 1999 48.8, 2000 63.0, 2001 77.7, 2002 91.3, 2003 106.3, 2004 123.7 - Up to one year: 1998 25.4, 1999 23.8, 2000 35.6, 2001 41.1, 2002 44.0, 2003 46.4, 2004 50.9 - Between one year and five years: 1998 5.8, 1999 10.8, 2000 8.9, 2001 12.5, 2002 11.2, 2003 14.7, 2004 19.0 - Over five years: 1998 12.4, 1999 14.2, 2000 18.5, 2001 24.1, 2002 36.1, 2003 45.3, 2004 53.9 - Securities other than shares by original maturity (domestic and other euro area residents) (billions of euros): total 1998 77.1, 1999 59.7, 2000 56.1, 2001 53.0, 2002 52.9, 2003 46.5, 2004 42.5 - Up to one year: 1998 2.9, 1999 1.6, 2000 2.2, 2001 2.3, 2002 2.4, 2003 1.2, 2004 1.0 - Over one year: 1998 28.7, 1999 34.3, 2000 39.9, 2001 40.9, 2002 41.1, 2003 37.1, 2004 35.4 - Average bid-ask spread in the securities market 2/: 1998 45.5, 1999 23.7, 2000 14.0, 2001 9.8, 2002 9.4, 2003 8.2, 2004 6.1 ### Sensitivity to market risk (selected items) - Estimated average repricing period of assets (in days): 2001 79.0, 2002 80.0, 2003 83.0, 2004 82.0 - Estimated average repricing period of liabilities (in days): 2001 20.0, 2002 21.0, 2003 20.0, 2004 26.0 - Net open positions in FX to capital 3/: 2001 3.5, 2002 7.4, 2003 5.5, 2004 3.4 - Net open positions in equities to capital 3/: 2001 21.5, 2002 12.9, 2003 10.4, 2004 6.1 --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0606.pdf_