Credit risk in the Spanish developer sector


BBVA has always understood the need for teams specializing in the developer and real estate sector, given its economic importance and technical component. In addition, the Group has very clear criteria regarding the management of risk from this sector, including:

  1. To avoid concentration in terms of customers, products and regions. To do so, large-scale corporate transactions have been avoided, as they already decreased BBVA’s market share in the years of maximum lending growth.
  2. To not participate in the second home market, but to stand behind public housing and to intervene in transactions on land with a high degree of planning security. One result of this is the high quality of BBVA collateral, with 66% of loans to developers guaranteed with buildings (62% are homes, 89% of which are principal residences for public housing) and 26% with land (of which 68% is urbanized).
  3. In terms of home-buyer lending, the policy is to not finance with loan-to-value (LTV) over 80%, or otherwise, to require collateral or additional guarantees. Therefore, secured loansto households for the purchase of a home have an average LTV of 51%, and nearly 95% of this portfolio corresponds to the principal residence.
  4. In the case of real estate assets acquired by BBVA, distinction should be made between the types: completed, in progress and land. In the first type, the ultimate objective is their sale to individuals, which is supported by the customer base and the Group’s various distribution channels. In the second type, the strategy is clearly to facilitate and promote the completion of the project. And in the third type, BBVA’s majority presence on urban land simplifies the work, though planning management and control of liquidity for the urbanization expenses are also subject to special monitoring.

Developer risk

As of December 31, 2010, BBVA’s credit exposure in the developer sector amounted to €16.6 billion, 9% of the loans to the resident sector in Spain as a whole (8% including the public sector) and barely 3% of the Group’s consolidated assets.

At the end of 2009, BBVA carried out an exercise in transparency, and recognized €1,817 million as non-performing assets mainly related with this sector. Therefore the nonperformance of this portfolio has been stabilized in 2010. Currently, 32% of the non-performing assets are up-to-date on payments (subjective non-performing). This percentage is standout as compared with the rest of the system.

According to the last Financial Stability Report from the Bank of Spain, as of June 2010, the exposure of the Spanish banking system to said sector was €439 billion, which represents an approximate share of 7% for BBVA in this segment, as compared to the 11.0% share in the total loan-book in Spain. Of this amount, €175.5 billion were problematic assets (€47.9 billion non-performing, €57.6 billion substandard and €70 billion acquired assets), of which BBVA only has a 5.2% share.


The value of the collateral covering developer risk, based on up-to-date appraisals, amounted to €25,327 million, for an average LTV of 65.5%, which broadly covers the portfolio value. Furthermore, it has specific recognized provisions amounting to €1,224 million. Circular 3/2010 of the Bank of Spain, which entered into force on September 30, 2010, amending Circular 4/2004, stipulates that very severe regulatory coefficients must be applied to the updated appraisal value of the collateral. These coefficients range between 30% and 50%, according to the type of asset. After applying the coefficient, the excess value above the guarantee value, which represents provisional base, amounts to €1,355 million for non-performing assets, and €1,185 million for substandard assets.

25: Spain. Exposure to developers

(Million euros and percentage)

Real estate risk Spain

(Billion euros)


BBVA 31-12-10 System 30-6-10 Percentage BBVA over system
Problematic assets 9.1 175.5 5.2
NPA 3.5 47.9 7.3
Substandard assets 2.4 57.6 4.2
Asset purchases 3.3 70.0 4.7
Source: Bank of Spain.