EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 6 December  2019  
on a guarantee  scheme for  securitisations of loans originated by credit institutions  
(CON/20 19/42) 
 
Introduction and legal basis  
On 20 November 2019  the European Central Bank (ECB) received a request from the Greek Ministry of 
Finance for an opinion on a draft law on a guarantee scheme for securitisations of loans originated by 
credit institutions  (hereinafter the ‘draft law’) . 
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the sixth indent of Article 2(1) of Council Decision 98/415/EC1, as 
the draft law relates to rules applicable to financial institutions insofar as they materially influence the 
stability of financial institutions and markets.  In accordance with the first sentence of Article 17.5 of the 
Rules of Procedure of the European Central Bank, the Governing Council has adopted this opinion.  
 
1. Purpose of the draft law  
1.1 Objective and s cope of the draft law   
The draft law provides for the introduction of a State guarantee scheme for securitisations, setting 
out the terms and conditions under which the Greek S tate may guarantee the senior tranche of 
asset -backed securities (ABS) backed by  receivabl es (the ‘Receivables’ ) originated by Greek credit 
institutions, or subsidiaries of foreign credit institutions established in Greece,  and sold and 
transferred by such institutions (the ‘Originator’ or ‘Seller’) to a special purpose vehicle (SPV) (the 
‘Issuer’ or ‘Acquirer’) under Articles  10 and 14 of Law No 3156/2003 on bond loans, securitisation 
of claims  and other provisions2. The Receivables are claims of the Originator arising from  loans 
and other forms of credit  provision , including receivables that are in temporary or permanent 
arrears or that have been restructur ed.  
1.2 Structure of eligible securitisation transactions   
In order for a transaction to benefit from the State guarantee envisaged in the draft law, it must be 
structured as follows: (i) the Issuer must finance the purchase of the Receivables by issuing ABS 
notes comprising at least two tranches (senior and junior) , it being possible for the securitisation 
transaction also to provide for the issuance of a mezzanine tranche; (ii)  the capital of the junior 
                                                 
1  Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).  
2  Law No 3156/2003 on bond loans, securitisation of claims and other provisions, Government Gazette A 
157/25.6.2003), as amended and in force.  
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2 tranche may only be repaid after the repayment in full of the senior tranche and, if issued, the 
mezzanine tranche; (iii) t he consideration received by the Seller for the sale and transfer of the 
Receivables may not exceed the net book value of the transferred Receivables, which is defined in 
the draft law as the nominal value of the Receivables minus the provisions taken by the Originator 
and recorded in the Originator’s accounting books and records on the date of the sale and transfer 
of the Receivables ; (iv) t he interest  rate on the ABS notes is to be floating or fixed and the interest 
period is to be a 3- , 6- or 12- month period; and (v)  the ABS notes must be freely transferable and 
capable of be ing listed for trading on a regulated market or a multilateral trading facility.   
1.3 Subscription restrictions  
The draft law provides that the junior tranche and, if issued, the mezzanine tranche may not be 
subscribed by the State, public law bodies or general government entities, including companies 
that are directly or indirectly controlled by the State.  
1.4 Waterfall  of payments  
The contractual documentation f or the securitisation transaction must stipulate that the proceeds 
received by the Issuer from repayments made under, and from the servicing  of, the Receivables, 
as well as from any loan or credit  agreements , hedging  and security agreements, including 
financial derivatives agreements , entered into by the Issuer for the purposes of financing the 
securitisation transaction will be used for pay ments in the following order : securitisation transaction 
costs; taxes; service r’s fees (if not deferred); interest on loans or other liquidity or credit lines which 
the Issuer may enter into for the purposes of the securitisation transaction; claims of the State for 
the guarantee premium payable by the credit institutions participat ing in the scheme; claims of 
hedging counterparties for hedging transactions entered into by the I ssuer for the purposes of the 
securitisation transaction; interest on the senior notes; claims other than interest under loans or 
other liquidity or credit li nes which the Issuer may enter into for the purposes of the securitisation 
transaction; interest on the mezzanine notes (if not deferred); capital on the senior notes; capital on 
the mezzanine notes ( provided that the capital on the senior notes has been f ully repaid); capital on 
the junior notes ( provided that the capital on the senior and the mezzanine notes has been fully 
repaid).  
1.5 Servicing  
The servicing of the transferred Receivables must be assigned to a servicer which must be 
independent (as per IFRS 10) from the O riginator.  
1.6 Deferral of payment of interest on the mezzanine and of servicer’s fee  
The contractual documentation for the securitisation transaction must stipulate that t he payment of 
(i) interest on the mezzanine notes and (ii) part of the servicer’s fee will be mandatorily3 deferred if 
the aggregate net proceeds received from the servicing of the transferred Receivables since the 
beginning of the servicing are at least 20% less than the net proceeds forecast in the servicer’s 
business plan which was taken into account when the senior notes were assigned a credit rating.  
                                                 
3  The contractual documentation for the securitisation transaction may provide for additional cases of deferral where 
deviations from the forecasted net proceeds are lower than 20%.  
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3 Net proceeds are defined in the draft law as the aggregate collect ions made under the transferred 
Receivab les minus the securitisation transaction costs.  This deferral is triggered 12 months after 
the entry into force of the State guarantee.  
1.7 Amount , conditions and pricing of the State guarantee  
The maximum amount of the State guarantee for the entire scheme is capped at EUR 12 billion, 
but may be increased in the future by decision of the Minister for Finance following a decision of 
the European Commissio n. The State guarantee is an  undertaking b y the State , subject to the 
conditions described below,  to meet all obligat ions of the Issuer in connection with the full 
repayment of senior ABS notes, including claims for the repayment of capital thereof and the 
payment of interest thereon throughout the life of said notes.  
The State guarantee enters into effect if the following conditions  are met : (i) at least 50% of the 
junior notes plus one must have been transferred against a positive value; (ii) a sufficient  number of 
the junior notes (and of the mezzanine  notes , if issued) must have been transferred at a positive 
price such that the transferred Receivables have been derecognised, accounting- wise, from the 
financial statements of the Originator and the Originator’s group on a consolidated basis  in 
accordance with the applicable I FRS; (iii) the senior notes must have been assigned at a minimum 
a rating of ΒΒ -, Ba3, ΒΒ -, BBL by  at least one external credit assessment institution (ECAI) which 
is accepted by the ECB at the time the guarantee enters into effect ; and (iv) the servicing of the 
transferred Receivables must have  been assigned to an independent servicer.  
In addition, in order for the guarantee to be granted, the contractual documentation for the 
securitisation transaction must provide, among other things, that  (i) a delay on the part of the Issuer 
in paying interest on the senior notes and the call o n the State guarantee to cover the relevant 
amounts will not cause the Issuer’s debt obligations to fall due prematurely; and (ii) certain terms of 
the transaction may not be amended without the prior explicit consent of the Minister for Finance4.  
The State guarantee is explicit, irrevocable, unconditional and payable on first demand, in 
accordance with Articles 213, 214 and 215(1) of Regulation (EU) No 575/2013 of the European 
Parliament and of the Council5, as if the State were the primary obligor . Furthermore, it is governed 
by Greek law and is to be interpreted in accordance with the Commission decision of 10 October 
2019 granting State aid clearance to the scheme6 (the ‘Commission State aid decision’)  and the 
State aid rules  laid down in primary and secondary EU legislation. Lastly, the State guarantee is 
granted until maturity  of the senior notes .  
The State guarantee is granted against a premium payable at the beginning of the interest period 
from the entry into force of the State guarantee and for its entire duration. This premium is 
                                                 
4  These terms are listed in Article 9(1)(b) of the draft law . 
5  Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential 
requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176 
27.6.2013, p. 1).  
6  See Commission Decision C(2019) 7309 final of 10 October 2019 (Case SA.53519 –  Greece – Hellenic Asset 
Protection Scheme (‘Hercules’), which concluded that the guarantee scheme contained in the draft law does not 
constitute aid within the meaning of Article 107(1) TFEU.  
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4 calculated on the basis of Annex B to the draft law which reflects Section 3.2 of the Commission 
State aid decision.  
1.8 Applications  for a S tate guarantee  
Applications for a State guarantee under the scheme may be submitted within 18 months from the 
date of the Commission state aid decision, namely until 10 April 2021. By decision of the Greek 
Minister for Finance  following a decision by the C ommission , this period may be extended, and the 
terms and conditions of the guarantee may be amended  for the future. Applications for a State 
guarantee under the scheme will be granted on a first -come first -served basis. I f the State 
guarantee does not enter into effect within 12 months from the publication of the relevant 
ministerial decision, that decision will be revoked ipso jure and the relevant amount of the 
guarantee will be released  and become available a gain. In that situation no new application for a 
guarantee for the same securitisation may be submitted within 6 months from the revocation of the 
ministerial decision.  
1.9 Calls on the state guarantee 
The senior noteholders (acting through their representative) may call on the guarantee within a 
window of 9 months beginning 60 days after non-payment of any of the I ssuer’s liabilities related to 
the senior notes. The State must pay the guarantee within 30 days from receipt of the call  
notification , whereupon it will be subrogated to the claims of the senior noteholders against the 
Issuer.  
1.10 Information requirements  and monitoring of the scheme 
The servicer is required to submit to the Ministry of Finance servicing reports based on the ESMA 
template reports for securitisation transactions. An adapted report must also be submitted on a 
regular basis to the Bank of Greece and to a special m inisterial committee established for the 
purposes of m onitoring the State g uarantees  applied for or granted under the draft law7. This 
committee will also receive  certain information related to payments made under the securitisation 
transaction.  
The scheme, its implementation and the various specificities in its setup, in particular the rating 
requirements and their application, will be subject to regular monitoring by a monitoring trustee, to 
be appointed by the Minister for Finance with the cons ent of the Commission . 
1.11 Termination of the S tate guarantee  
The State guarantee will cease to be effective if the terms and conditions of the securitisation are 
amended in a way that breaches the Commission State aid decision. The senior noteholders may 
at any time apply to have the guarantee terminated. If the senior noteholders are the O riginator, the 
consent of the competent supervisory authority will also be required.  
1.12 Replacement of the servicer  
Article 11(1) of the draft law provides that if a State guarantee is called on, the servicer servicing 
the transferred loans may be replaced provided that, for two successive interest periods, the net 
                                                 
7  The committee is made up of representatives from the Public Debt Management Agency, the Bank of Greece, the 
Ministry of Finance and the Greek Court of Auditors.  
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5 proceeds from the servicing of the transferred Receivables has deviated, due to negligence by the 
servicer, by at least 30% from the cumulative net proceeds forecast for the relevant periods in the 
servicer’s business plan which was taken into account by the ECAI that assigned the rating to the 
senior notes . 
1.13 Exemption of the guarantee from the guarantee ceiling 
State guarantees granted under the scheme do not count  towards the calculation of the maximum 
guarantee ceiling that the Greek State ma y provide on an annual basis8. 
 
2. General observations  
2.1 Effects on the  banking sector  
The ECB notes that, for a number of reasons, addressing high levels of non- performing loans 
(NPLs ) has been one of the ECB’s supervisory priorities since the inception of the Single 
Supervisory Mechanism (SSM)9. First, NPLs weigh on the balance sheets of credit institutions, 
curbing their profits. Second, NPLs are distracting for credit institutions, and represent a drain on 
their resources. Third, NPLs undermine investors’ confidence in credit institutions. In addition, 
internal analysis conducted by the ECB shows that, over recent years, credit underwriting by credit 
institutions with a high amount of NPLs has  consistently been lower  than that of  credit institutions 
with loans of better credit quality, thereby providing less support to firms and households and the 
economy in general10. Further, high stocks of NPLs are a macroprudential issue and can affect 
entire economies11. From a financial stability point of view, the presence of significant volumes of 
NPLs on credit institutions’ balance sheets reduces their ability to fulfil their function as providers of 
credit to the real economy and hampers operational flexibility and overall profitability which are 
essential to a well -functioning banking sector.  
2.2 It is the refore important that NPLs are dealt with in an efficient and effective manner. Risk transfer 
through asset sales, securitisation and other measures is an important part of the toolkit available 
to credit institutions to reduce NPLs in an effective manner , in addition to other tools such as the 
originating credit institutions’ internal procedures for handling the work -out of NPLs. In addition, the 
ECB has been a strong proponent for the development of secondary markets for credit institution 
assets, particularly for NPLs, as reflected in the action plan of the Council of the European Union to 
                                                 
8  That ceiling is determined by a decision of the Greek Minister for Finance under Article 104 of Law No 4549/2018 on 
provisions for the completion of the Agreement on Fiscal Targets and Structural Reforms –  Medium -term Fiscal 
Strategy Framework 2019- 2022 and other provisions, (Government Gazette A 105/14.06.2018) and cannot account 
for more than 1.5% of the primary expenditure of the national budget in the relevant year.    
9  See e.g. the speech by Danièle Nouy, former Chair of the Supervisory Board of the ECB, and Sharon Donnery,  
Chair of the ECB’s High Level Group on non- performing loans, ‘Int roductory remarks to the public hearing on the 
draft addendum to the ECB guidance to banks on non- performing loans’, Frankfurt am Main, 30 November 2017, 
available on the ECB’s Banking Supervision website at www.bankingsupervision.europa.eu.  
10  See ‘Europ ean banking supervision three years on,’ Welcome remarks by Mario Draghi, President of the ECB, at the 
second ECB Forum on Banking Supervision, Frankfurt am Main, 7 November 2017, available on the ECB’s website 
at www.ecb.europa.eu.  
11  See paragraph 1 of Opinion CON/2018/32 and paragraph 3.3.3 of Opinion CON/2019/14.  All ECB opinions are 
available on the ECB’s website at www.ecb.europa.eu.  
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6 tackle NPLs in Europe12. In the context of the large stocks of NPLs that remain on the balance 
sheets of some European credit institutions, and as part of a comprehensive solution to NPL 
resolution13, the development of secondary markets may contribute to reducing NPLs. Therefore, a 
carefully designed scheme resulting in incentivising  the transfer of the risks of NPLs off credit 
institutions’ balance sheets would  generally  have a positive effect on financial stability  and the 
reduction of NPL levels .  
2.3 The elevated level of NPLs  in Greece has been one of the key areas of focus in recent years and is 
being closely monitored from a supervisory perspective. The four  significant Greek credit 
institutions directly supervised by the ECB have committed to achieve certain NPL  reduction 
targets by 2021. The Greek authorities have also committed to ‘implement reforms aimed at 
restoring the health of the banking system, including NPL resolution efforts by ensuring the 
continued effectiveness of the relevant legal framework’14. 
2.4 The ECB understands that the scheme envisaged by the draft law for banks to use in the context of 
NPL securitisations is voluntary . The ECB notes that this Opinion does not  assess the regulatory 
treatment of the state guarantee foreseen by the draft law. T he ECB suggests that the consulting 
authority engage in meaningful and timely consultations with all relevant stakeholders, including 
with the supervisory authorities, as such consultations might shed light on aspects of the draft law 
which may otherwise not be immediately apparent.  
 
3. Specific observations  
3.1 Legal certainty   
Clear drafting of the draft law is required in order to ensure legal certainty. The ECB notes that 
achieving legal certainty is necessary to ensure that : (i) the scheme attract s significant third -party 
investor interest, especially for the junior tranche and, if issued, the mezzanine tranche, the 
placement of  which would contribute to the banks achieving a significant risk transfer with 
accounting deconsolidation; and (ii) disputes and/or litigation arising out of the validity, amount, 
duration or other features of the State guarantee are avoided.  Some provisions in the draft law 
might give rise to legal uncertainty and could be helpfully redrafted to enhance clarity and reduce 
risks15.  
                                                 
12  See the Council of the European Union’s press release of 11 July 2017 on the ‘Council conclusions on Action plan to 
tackle non- performing loans in Europe’, available at: http://www.consilium.europa.eu/en/press/press-
releases/2017/07/11/conclusions -non-performing- loans/. See also Opinion CON/2018/31.  
13  See, for example, Special features, Section B of the ECB’s Novem ber 2016 Financial Stability Review, available at: 
https://www.ecb.europa.eu/pub/pdf/other/sfbfinancialstabilityreview201611.en.pdf.  
14  See Annex to the Eurogroup Statement on Greece of 22 June 2018, available on the Council’s website at 
https://www.consilium.europa.eu.  
15  For example, Article 2(13) defining securitisation costs which in turn affects the definition of net proceeds; Article 3(4) 
determining the con ditions for the deferral of payment of interest on the mezzanine tranche and of the servicer’s fee; 
Article 6(1) on increasing the maximum amount of State guarantee that can be granted under the draft law following 
a decision by the Commission; and Article  9(1)(f) read together with Article 14 of Law No 3156/2003 and paragraphs 
2(8) and 3 of Annex C2 to the draft law determining the taxes, fees or charges, if any, payable in respect of the State 
guarantee and the party liable to pay them.  
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7 Most importantly, the following aspects of the draft law must be sufficiently clarified in the draft law , 
or in secondary legislation to be enacted pursuant to that law, since they all have a bearing on the 
enforceability of the State guarantee and, therefore, an impact on the effectiveness of the scheme 
as a whole: (i) the date of entry into effect and the date of termination of the State guarantee;  and 
(ii) the detailed rules for the submission of applications for a State guarantee under the draft law16. 
It is also crucial that the exact procedure from a call on a guarantee to the payment of said 
guarantee is clearly drafted  in the draft law or in secondary legislation enacted pursuant to that law, 
in a way that safeguards the concept of the first demand guarantee as stated in the draft law .  
Lastly, it is suggested that the detailed rules applying to the monitoring of securitisation 
transactions entered into under the draft law  would benefit from further clarification in the draft law, 
or in secondary legislation to be enacted pursuant to the draft law , as would the associated 
documentary requirements and frequency of the monitoring17. A qualified independent entity is 
recommended as it w ould be well positioned to monitor the compliance of the issued guarantee 
with stated conditions, servicer performance and events that would trigger a call on the 
guarantee18.  
3.2 Clearer wording when a llowing full repayment of the senior tranche prior to any payment of interest 
on the mezzanine tranche in the w aterfall structure  
Article 3(3) of the draft law seems to regulate the waterfall in a strict, pre- defined way. It is 
suggested that the draft law should present in a clearer way the ranking of the payment of interest 
on the mezzanine tranche  in the waterfall structure, in a way that does not preclude that  full 
repayment of the senior tranche (including principal) may occur prior to any payment of interest on 
the mezzanine tranche. From a prudential point of view, this will ensure faster repayment of the 
senior tranche and could therefore reduce the term of the guarantee.  
3.3 Credit assessment of senior notes  
Article 7 (1) of the draft law requires the senior notes to be rated by an ECAI ‘approved by the ECB  
at the time the State guarantee enters into effect ’. The ECB notes that it does not approve ECAIs . 
The Eurosystem accepts certain ECAIs whose ratings are considered suitable for the specific 
purpose of its monetary policy operations . Such ECAIs must comply with the general acceptance 
criteria for ECAIs , one of which is that they be registered by the European Securities and Markets 
Authority in accordance with Regulation (EC) No 1060/2009 of the European Parliament and of the 
Council19. 
                                                 
16  See also paragraph 3.2.2 of Opinion CON/2016/17.  For example, the date of entry into effect of the State guarantee 
should be uniformly applied in the draft law and be clearly distinguished from the date the guarantee was granted. In 
addition, the date of termination of the State guarantee would be more clearly defined if it were linked to breaches of 
the draft law, as opposed to breaches of the Commission State aid decision.  
17  For example, the competences of the monitoring committee established by Article 16 of the draf t law could be 
drafted more clearly.  
18  See also paragraph 3.2.4 of Opinion CON/2016/17.  
19  Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating 
agencies (OJ L 302, 17.11.2009, p. 1). See Article 120(1) of Guideline (EU) 2015/510 of the European Central Bank 
of 19 December 2014 on the im plementation of the Eurosystem monetary policy framework (General Documentation 
Guideline) (ECB/2014/60) (recast) (OJ L 91, 2.4.2015, p. 3). The list of ECAIs accepted by the Eurosystem can be 
found on the ECB’s website at https://www.ecb.europa.eu/paym/coll/risk/ecaf/html/index.en.html.  
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8 3.4 Term of the State guarantee 
Article 6(7) of the draft law provides that the State guarantee will remain in place until the set 
maturity date of the senior notes. It is suggested that the term of the guarantee should endure until  
repayment has been made in full of all amounts ow ed in respect of the senior notes .  
3.5 Regular reviews  
Finally, it would be advisable to provide for an independent qualified entity to regularly review and 
assess the effectiveness of the scheme envisaged in the draft law by reference to its objectives 
and its impact on the credit institutions covered in the short and medium term. One year following 
its introduction might be a reasonable point at which to review the overall operation of the new 
scheme20. 
3.6 Compliance with s tate aid rules  
It is for the Commission to assess the draft law’s compliance with Union S tate aid rules.  
 
This opinion will be published on the ECB’s website.  
 
 
Done at Frankfurt am Main, 6  December 2019.  
 
[signed]  
 
The President of the ECB  
Christine  LAGARDE  
                                                 
20  See paragraph 3.3 of Opinion CON/2013/34 and paragraph 3.9 of Opinion CON/2019/9.