Prepared by Mustafa Saiyid (MCM).
The remainder of loans to households for other uses, such as auto purchase and credit cards, fell by 30 percent.
In September 2012, an independent stress test of banks’ balance sheets identified ten banks that were projected to face capital shortfalls relative to a benchmark of a 6 percent CT1 capital ratio by end-2014 under an adverse scenario. These banks were divided into three groups: Group 1 (banks that could not fill their capital needs on their own and were already controlled by the state); Group 2 (other banks that could not fill their capital shortfall on their own); and Group 3 (banks that could fill their capital shortfall through their own means).
Earnings for foreign operations of the banking system are estimated from those of the two largest banks as reported in filings. The domestic profit of the banking system is calculated as the sum of the profit or loss of each institution taken individually.
Decrees mandating stepped up specific and generic provisions for REDs were adopted in the first half of 2012, before the start of the program.
State support has also included issuance of guarantees on bank debt.
DTAs arising from timing differences are eligible for the deduction. These arise when a bank incurs an accounting loss that is not tax-deductible until some point in the future — for example, when a bank makes a generic provision, it is typically not tax-deductible until assigned to a specific loan as a specific provision; in the meantime, the bank records a loss from the generic provision in its accounts and counts the expected future tax deduction as an asset (DTA).
See Box 2.3 of the BdE’s May 2014 Financial Stability Report for further explanation of this change and its rationale.
These developments are in line with structural recommendations made by the IMF’s Financial Stability Sector Assessment (FSAP) in 2012, as well as subsequent Staff monitoring missions for the Spanish program supported by the ESM.
For further discussion, see Box 2: “Would Slower Private-sector Deleveraging be Good or Bad?” in Spain: Financial Sector Reform, Final Progress Report, February 2014.
Financial Stability Report, Banco de Espaňa, May 2014 (pp. 38).
The ECB will analyze samples of Spanish banks’ foreign portfolios in Portugal, Germany, UK, USA, Mexico, Brazil and Chile.
See for instance, closing address by Mr Fernando Restoy, Deputy Governor of the Bank of Spain, at the XXI Meeting of the Financial Sector, organized by ABC, Deloitte and Sociedad de Tasación, Madrid, 1 April 2014.
Available via the Internet: http://www.imf.org/external/pubs/ft/scr/2014/cr1459.pdf