- The analysis will be carried out on the whole of the credit portfolio, on its classification and individually
- The resistance of the sector will be measured in a very adverse economic scenario
The Government has launched a transparency exercise, in addition to other initiatives that have been carried out, consisting of carrying out two independent private valuation analyzes of the loan portfolios in Spain of the 14 main banking groups (once the integration processes currently underway), which represent around 90% of the financial system. These exercises will analyze, on the one hand, the resistance of the system to a further strong deterioration of the economic situation (1st Stage) and, on the other hand, the internal systems of the entities to classify, provision and measure the risks of their portfolios (2nd Stage ). Both exercises are interrelated and are carried out under the coordination of the Bank of Spain.
The two stages of the independent valuation exercise of the Spanish banking system progress according to the planned objectives, phases and schedules. For the 1st Stage of the exercise, consultants Oliver Wyman and Roland Berger were hired, who have been tasked with identifying the capital needs that the system would experience in two types of scenarios: A base scenario, reflecting the situation that would be to date today's more likely; and a stressed scenario where a significantly worse economic situation and a fall in the prices of real estate assets are assumed, in order to gauge the resistance of the system to hypothetical extreme negative developments.
The reference scenarios are in line with those used by the IMF in the stress test carried out under the Financial Sector Assessment Program (FSAP). The decision in this regard was taken jointly by the Ministry of Economy and Competitiveness and the Bank of Spain, after hearing the members of the Advisory Committee, including representatives of the ECB, the Central Banks of France and the Netherlands, and the IMF.
This first exercise will consist of measuring the incidence of a hypothetical deterioration of the economic situation on the entire credit portfolio of the entities, that is, not only of the real estate portfolio, but also of loans to companies and individuals. The basis will be the information on the accounting and regulatory statements sent by the entities to the Bank of Spain, as well as any other available on the credit portfolios of the entities, their segmentation and quality. The work methodology will use the models, estimates and hypotheses of the consultants themselves. In short, the resilience of Spanish banks will be identified, against a further sharp deterioration in their portfolio, in a very adverse economic scenario.
The results of these works must be delivered by consulting firms no later than June 21. These exercises will obtain orders of magnitude of the aggregate needs of the system to cope with the stressed scenario and the groups of entities that are most vulnerable to such a scenario.
Therefore, two independent estimates will be obtained, since the consultants carry out their work unrelated to each other, using their own methodologies and models. In this way, the result of the exercise will be reflected in a reference range.
Work has also started on the 2nd Stage of the valuation exercise, which is longer. These works are being carried out by the four largest auditing firms in Spain, Deloitte, PwC, Ernst & Young and KPMG, being distributed among the 14 banking groups in question, without any of them being able to review entities that they have audited in recent years. The exercise consists of carrying out an individualized and detailed analysis of the credit portfolios of these entities, which will assess, among other issues, the classification and provision levels of their credit portfolios. The results of these works should be available on July 31. The Bank of Spain will analyze the information resulting from these works and will verify and demand, where appropriate, the corresponding capital needs and / or provisions of the entities.
