A Greek and an EU flag fly over the Greek ministry of finance in Athens
The Parthenon on the Athens Acropolis is seen behind a Greek and an EU flag atop the Greek ministry of finance February 8, 2012. REUTERS

(Reuters) -- Greece plans to recapitalize its struggling banks after a bond swap largely through common shares with restricted voting rights and convertible bonds, according to a draft law submitted to parliament over the weekend.

The banks are expected to require recapitalization because of impaired loans and losses from a bond swap that Greece launched on Friday to ease its debt burden.

About 50 billion euros ($67.31 billion) have been set aside to recapitalize through Greek banks after the bond exchange.

According to the draft law expected to be voted by parliament on Tuesday, the banks will be recapitalized through rights issues which will largely be covered by the Greek bailout fund, the Hellenic Financial Stability Fund.

"The voting rights of the new shares will be limited to strategic issues ... like mergers and asset sales," said the draft law.

Private investors were worried that banks would fall under state control if they were recapitalized via common voting shares, but the inclusion of restricted voting rights signals that the banks would remain privately-run.

Greek Finance Minister Evagelos Venizelos also confirmed last week that Athens did not plan to nationalize its banks.

The HFSF will give incentives to private investors to cover at least 10 percent of the rights issue, in which case they would be entitled to buy shares of the bailout fund at a ratio based in their participation in the capital increase.

Each bank that seeks funding from the HFSF will have to present a three-year restructuring plan to the fund and the

Bank of Greece , the draft law said.

The law also said that the Greek government would appoint managers for the HFSF along with the EU. The European Commission and the European Central Bank will each have one non-voting representative on its board.

The bailout fund can maintain its stakes in the banks for up to five years, the law said.

The recapitalization of the banks will take place after the bond swap concludes in mid-March.

Earlier, Greece set a March 8 deadline for investors to participate in the bond swap aimed at cutting its debt burden by about 100 billion euros, according to a document outlining the offer.

The debt-laden country formally launched the bond swap offer to private holders of its bonds on Friday, setting in motion the largest-ever sovereign debt restructuring in the hope of getting its finances back on track.

In the document, Greece said the March 8 deadline could be extended if needed. Athens in the past has said it wants to conclude the transaction by March 12.

The swap is part of a second, 130 billion euro ($175.02 billion) rescue package to claw Greece back from the brink of a default that had threatened to send shockwaves through the financial system and punish other weak euro zone members.

($1 = 0.7428 euros)

(Reporting by Lefteris Papadimas, Editing by Deepa Babington; Editing by Diane Craft)