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financial statements 2012

APPENDIX XII: Refinancing and restructuring operations and other requirements under Bank of Spain Circular 6/2012

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REFINANCING AND RESTRUCTURING OPERATIONS

a) Group policies and principles with respect to refinancing or restructuring operations

Refinancing/restructuring operations (see definition in the Glossary, Appendix XIII) are carried out with customers who have requested such an operation in order to meet their current debt payments if they are expected, or may be expected, to experience financial difficulty in making the payments in the future.

The basic aim of a refinanced/restructured operation is to provide the customer with a situation of financial viability over time by adapting repayment of the debt incurred with the bank to the customer’s new situation of fund generation. The use of refinancing or restructuring with for other purposes, such as for delaying loss recognition, is contrary to BBVA Group policies.

The BBVA Group’s refinancing/restructuring policies are based on the following general principles:

  • Refinancing and restructuring is authorized according to the capacity of customers to pay the new installments. This is done by first identifying the origin of the payment difficulties and then carrying out an analysis of the customers’ viability, including an updated analysis of their economic and financial situation and capacity to pay and generate funds. If the customer is a company, the analysis also covers the situation of the sector in which it operates.
  • With the aim of increasing the solvency of the operation, new guarantees and/or guarantors of demonstrable solvency are obtained where possible. An essential part of this process is an analysis of the effectiveness of both the new and original guarantees submitted.
  • This analysis is carried out from the overall customer or group perspective, and not only from the perspective of a specific product.
  • Refinancing and restructuring operations do not in general increase the amount of the customer’s debt, except for the expenses inherent to the operation itself.
  • The capacity to refinance and restructure debt is not delegated to the branches, but decided on by the risk units.
  • The decisions adopted are reviewed from time to time with the aim of checking full compliance with refinancing and restructuring policies.

These general principles are adapted in each case according to the conditions and circumstances of each geographical area in which the Group operates, and to the different types of customers involved.

In the case of retail customers (private individuals), the main aim of the BBVA Group’s policy on refinancing/restructuring debt is to avoid default arising from a customer’s temporary liquidity problems by implementing structural solutions that do not increase the customer’s debt. The solution required is adapted to each case and the debt repayment is made easier, in accordance with the following principles:

  • Analysis of the viability of operations based on the customer’s willingness and ability to pay, which may be reduced, but should nevertheless be present. The customer must therefore repay at least the interest on the operation in all cases. No arrangements may be concluded that involve a grace period for both capital and interest.
  • No refinancing/restructuring operations may be concluded on debt that is not incurred with the BBVA Group.
  • Customers subject to refinancing or restructuring operations are excluded from commercial campaigns of any kind.

In the case of wholesale customers (basically businesses and corporations), refinancing/restructuring is authorized according to an economic and financial viability plan based on:

  • Forecast future income, margins and cash flows over a sufficiently long period (around five years) to allow companies to implement cost adjustment measures (industrial restructuring) and a business development plan that can help reduce the level of leverage to sustainable levels (capacity to access the financial markets).
  • Where appropriate, the existence of a divestment plan for assets and/or business segments that can generate cash to assist the deleveraging process.
  • The capacity of shareholders to contribute capital and/or guarantees that can support the viability plan.

As stated in Note 3 of the accompanying Financial Statements, the BBVA Group acquired Unnim in 2012. Unnim’s policies with respect to debt refinancing may have been different from those of BBVA, but after its integration it adapted its policies to those established by the BBVA Group.

In accordance with the Group’s policy, the conclusion of a debt refinancing/restructuring operation does not imply the debt is reclassified from "impaired" or "substandard" to outstanding risk; such a reclassification must be based on the analysis mentioned earlier of the viability and effectiveness of the new guarantees submitted.

In any event, the Group maintains its policy of including risks relating to refinanced/restructured assets as either: "doubtful assets", as although the customer is up to date with payments, they are classified as impaired for reasons other than their default when there are significant doubts that the terms of their refinancing may not be met; "substandard assets", because there is some material doubt as to possible non-compliance with the refinanced operation; or "normal-risk assets" (although as mentioned in the table in the following section, they continue to be classified as "normal-risk assets with special monitoring" until the conditions established by Bank of Spain Circular 6/2012 for their consideration as outstanding risk are met).

b) Quantitative information on refinancing and restructuring operations.

BALANCE OF FORBEREANCE (a)
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BBVA GROUP DECEMBER 2012
(Millions of euros)
NORMAL (b) POTENTIAL PROBLEM LOANS
Real estate mortgage secured Rest of secured loans (c) Unsecured loans Real estate mortgage secured Rest of secured loans (c) Unsecured loans Specific coverage
Number of operations Gross amount Number of operations Gross amount Number of operations Gross amount Number of operations Gross amount Number of operations Gross amount Number of operations Gross amount
1 Government agencies 112 5 14 87 11 707 2 227 1 12 4 220 7
2 Other legal entities and individual entrepreneurs 10,046 3,225 1,002 400 24,996 2,762 3,485 2,436 732 653 10,173 1,347 866
Of which: Financing the construction and property development 2,312 1,688 93 106 984 421 702 1,287 77 422 221 75 600
3 Other individuals 76,940 3,845 3,742 434 331,051 487 32,440 2,684 3,458 590 23,876 253 289
4 Total 87,098 7,075 4,758 921 356,058 3,956 35,927 5,348 4,191 1,254 34,053 1,820 1,162
BBVA GROUP DECEMBER 2012
(Millions of euros)
IMPAIRED TOTAL
Real estate mortgage secured Rest of secured loans (c) Unsecured loans Specific coverage
Number of operations Gross amount Number of operations Gross amount Number of operations Gross amount
Number of operations Gross amount Specific coverage
1 Government agencies 14 19 1 7 - - 1 159 1,284 9
2 Other legal entities and individual entrepreneurs 7,665 3,873 1,556 1,133 12,516 907 2,131 72,171 16,736 2,997
Of which: Financing the construction and property development 2,790 2,764 392 818 746 361 1,800 8,317 7,942 2,400
3 Other individuals 30,646 1,998 2,224 370 103,796 300 863 608,173 10,961 1,151
4 Total 38,325 5,890 3,781 1,511 116,312 1,207 2,995 680,503 28,981 4,157
(a) Includes all forbereance operations as defined in paragraph 1.g) of Annex IX of Circular 4/2004 of the Bank of Spain (b) Risks rated as normal in special monitoring as stated in paragraph 7.a) of Annex IX of the Circular 4/2004 of the Bank of Spain. (c) Includes mortgage-backed real estate operations not full, ie loan to value greater than 1, and secured operations, other than transactions secured by real estate mortgage, of whatever their loan to value.

The BBVA Group’s total refinancing operations as of December 2012 amounted to €28,981 million. Of this figure, 68% corresponded to BBVA S.A., 12% to Unnim and 20% to the rest of the BBVA Group.

The refinanced debt in a normal risk situation in BBVA S.A. (€7,367 million) accounts for 3% of total credit. A further 3% is classified as substandard risk (€6,402 million), with a coverage of 14.5%.

The risk figure for refinanced debt in the commercial portfolio (developers and other companies) includes not only refinanced debt but also the total position associated with the customer.

Of the performing (normal and substandard) portfolio, 23% is loans to developers, 37% corresponds to other companies and 40% to retail portfolios.

  • In 2012 the portfolio of loans to developers has been subject to high loan-loss provisions as a result of the deterioration of assets related to the real-estate sector in Spain. The coverage ratio of this portfolio is between 25% and 35% on average, depending on whether the risk is normal or substandard, and according to the type of guarantee.
  • In the Other Companies portfolio, which includes businesses and corporations, 60% is in a normal risk situation and 40% substandard. Large corporations account for 15% of the portfolio. Here, refinancing represents temporary financial support in cases of cash-flow tensions, but the solvency of the companies means that the NPA ratio is residual. The rest of the risk is with businesses, a segment where the oldest debt refinancing operations, with a high level of maturity, mean that repayments of 37% of the initial amount of the principal have already been made. Of all the refinancing operations in this group, 38% are classified as impaired (22% due to default and the rest as subjective).
  • In the retail segment, the Residential Mortgage group accounts for around 34% of the performing refinanced risk. As 53% of this portfolio was restructured in 2008 and 2009, it is considered mature and its results are used as a benchmark. In this group nearly all the customers are already paying the capital plus interest and the default rate stands at 22%. Some 6% of non-performing customers are classified as in "subjective default".

OTHER REQUIREMENTS UNDER BANK OF SPAIN CIRCULAR 6/2012

a) Quantitative information on the concentration of risks by activity and guarantees

LOANS AND ADVANCES TO CUSTOMERS BY ACTIVITY (carrying amount)
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Millions of Euros
Total (*) Of which: Mortgage loans Of which: Secured loans Collateralized Credit Risk. Loan to value
Less than or equal to 40% Over 40% but less than or equal to 60% Over 60% but less than or equal to 80% Over 80% but less than or equal to 100% Over 100%
1 Government agencies 36,963 673 2,796 147 199 258 8 2,857
2 Other financial institutions 1,639 41 6 12 19 11 4 1
3 Non-financial institutions and individual entrepreneurs 158,587 41,652 23,444 22,241 13,815 15,716 7,677 5,647
3.1 Construction and property development 24,158 15,583 4,544 5,202 4,987 6,129 1,739 2,068
3.2 Construction of civil works 6,195 1,184 611 693 375 270 99 358
3.3 Other purposes 128,234 24,885 18,289 16,346 8,453 9,317 5,839 3,221
3.3.1 Large companies 83,169 11,492 4,564 8,723 3,017 1,966 1,029 1,321
3.3.2 SMEs and individual entrepreneurs 45,064 13,394 13,725 7,622 5,436 7,351 4,809 1,900
4 Rest of households and NPISHs 160,941 115,188 2,524 22,074 28,783 46,718 16,826 3,311
4.1 Housing 119,618 112,487 340 19,780 27,943 45,807 16,359 2,937
4.2 Consumption 35,194 521 1,797 1,236 277 443 249 115
4.3 Other purposes 6,129 2,180 387 1,058 563 468 218 259
SUBTOTAL 358,129 157,555 28,769 44,475 42,816 62,703 24,516 11,815
5 Less: Valuation adjustments due to impairment of assets not attributable to specific operations 4,954






6 TOTAL 353,175






MEMORANDUM:







Forbereance operations 24,824 18,312 3,686 4,919 3,877 5,744 4,210 3,248


















(*) The amounts included in this table are net of impairment losses.

b) Quantitative information on the concentration of risks by activity and geographical areas

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Millions of Euros
TOTAL (*) Spain Rest of European Union America Rest of the world
1 Credit institutions 63,881 14,886 44,155 1,408 3,432
2 Government agencies 117,436 62,028 9,272 42,227 3,909
2.1 Central Administration 90,374 36,948 8,864 40,679 3,882
2.2 Rest 27,062 25,080 407 1,548 27
3 Other financial institutions 51,236 9,406 14,483 27,036 311
4 Non-financial institutions and individual entrepreneurs 194,864 88,025 26,017 69,400 11,423
4.1 Construction and property development 24,158 15,526 278 8,324 31
4.2 Construction of civil works 8,537 4,187 1,856 2,473 19
4.3 Other purposes 162,169 68,311 23,883 58,602 11,373
4.3.1 Large companies 110,149 43,547 18,819 39,692 8,090
4.3.2 SMEs and individual entrepreneurs 52,020 24,764 5,063 18,910 3,282
5 Rest of households and NPISHs 176,559 110,510 4,382 58,221 3,446
5.1 Housing 134,292 98,865 3,140 31,193 1,093
5.2 Consumption 35,194 6,678 466 25,714 2,336
5.3 Other purposes 7,074 4,967 776 1,314 17
SUBTOTAL 603,976 284,854 98,309 198,292 22,521
6 Less: Valuation adjustments due to impairment of assets not attributable to specific operations 5,000 - - - -
7 TOTAL 598,976 - - - -
(*) The definition of risk for the purpose of this statement includes the following items on the public balance sheet: Loans and advances to credit institutions, Loans and advances to customers, Debt securities, Other equity securities, Trading derivatives, Hedging derivatives, Investments and Contingent risks. The amounts included in this table are net of impairment losses

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