Statistical effects on Spanish credit institutions’ balance sheets of the recent restructuring and recapitalisation operations

The restructuring and recapitalisation of the Spanish banking system under way in recent years accelerated notably from June 2012, when the Spanish authorities requested external financial assistance under a sectoral programme. In this connection, the Spanish and European authorities signed a Memorandum of Understanding (MoU) last July. The MoU set out the specific measures needed for such restructuring and included, among other aspects, the segregation of problem assets, stress tests to estimate the capital needs credit institutions might have under adverse conditions and improved risk-identification and crisis-management mechanisms. The milestones laid down in the MoU have since been progressively reached, meaning that Spain has been able to access European financing from the European Stability Mechanism (ESM) to recapitalise institutions with a capital shortfall. This set of measures has affected many items on credit institutions’ balance sheets; however, as this article will show, their effects on financing flows to the private sector have not been significant. One of the key aspects of this restructuring process has been the creation of the Asset Management Company for Assets Arising from Bank Restructuring (SAREB), to which insufficiently capitalised banks have been transferring their portfolio of problem assets. In December, the so-called “group 1”1 banks transferred various assets to SAREB for a nominal value of €71 billion. In exchange, these credit institutions received securities issued by SAREB amounting to €36.6 billion (see Figure 1). In the coming days there will be a similar operation, albeit for a smaller amount, with the “group 2” banks, which are those that require public aid to cover their capital shortfall, although they are not majority-owned by the Fund for the Orderly Restructuring of the Banking Sector (FROB). Likewise in December, the group banks received fresh capital from the FROB, which channelled the financial assistance provided by the ESM, for an amount of €37 billion. Shortly, the group 2 banks will receive fresh capital under a similar arangement. This article briefly reviews the impact of these operations on the main variables of bank balance sheets, especially on the credit granted to the private sector. The following section looks at the effects of the transfer of assets to SAREB on institutions’ accounts. Next, an analysis is made of the recapitalisation carried out by the FROB with ESM funds, and, finally, the foreseeable prospects for this process in the short term are summarised.