ECB supervisor rejects Piraeus request to pay CoCo coupon - source

ATHENS (Reuters) - The European Central Bank's supervisory arm has rejected a request from Greek lender Piraeus Bank to make a coupon payment on its contingent convertible bonds (CoCos), a banking source close to the matter told Reuters on Friday.

The source said the decision was made because the ECB's Single Supervisory Mechanism (SSM) wanted Piraeus to conserve capital.

Failure to pay the 165 million euro (148.02 million pounds) coupon would lead Piraeus Bank's CoCos to be converted into shares, which would increase the stake of Greece's bank rescue fund in the bank to around 61% from 26% currently.

"There will be an interval for Piraeus Bank to express its views before a decision by the ECB's Governing Council is taken later in the month," the banking source said.

The governing council of the ECB rarely objects to decisions by the SSM.

The SSM declined to comment.

Piraeus Bank's CoCos are held solely by the Hellenic Financial Stability Fund (HFSF). They were issued by the bank to the HFSF in 2015 when the fund pumped money into the bank in a recapitalisation.

Last month shares in Piraeus, one of Greece's four biggest lenders, tumbled 10% after it said was it was unclear whether the SSM would allow it to pay interest on its CoCos, due on Dec. 2.

On Thursday, Piraeus said it was in an "ongoing communication and cooperation" with the SSM team.

(Reporting by George Georgiopoulos; Editing by Michele Kambas and Mark Potter)