restructured operations 15,115,514 11,909,975 1,122,160 1,920,935 3,411,844 3,400,108 2,305,542 1,993,706
(3.1.8) Renegotiated financial assets
In 2012, the Bank carried out renegotiations of assets, modifying the conditions originally agreed with borrowers in terms of repayment deadlines, interest rates, collateral given, etc.
The purpose of asset renegotiation is to give the borrower financial stability so as to ensure continuity of its business, adapting operations to its repayment capacity revealed, in the case of legal entities, in business plans approved by experts, and in the case of individuals by the existence of a proven ability to pay and/or compliance with its payment obligations during previous periods.
The debt restructuring and refinancing policy distinguishes between legal and natural persons. The criteria for legal persons have certain common features, the most important of which are:
• Existence of standstill agreements, under which the debts are not enforced and maturities are not extended, to guarantee funding of companies' working capital so they can continue to operate as usual.
• Submission of business plans verified by independent experts and showing repayment capacity. • Potential existence of disposal plans for non-earning assets to repay debt.
• Inclusion of new guarantees or modification of existing guarantees.
For natural persons the policy is limited to a single restructuring and whether there is a proven willingness to pay. Approval criteria vary between mortgage and consumer loan renegotiations.
Criteria applied to mortgage renegotiations include:
• Extension of maturities and amendment to repayment system to adapt to customers' payment capacity.
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For transactions with personal guarantees, negotiations in general seek an overall solution, consolidating the customers' debts with the Bank and extending the maturity as far as possible for the product at all times.
The following tables show the gross amounts of refinancing operations according to their classification as transactions that call for special monitoring, substandard or doubtful risks, along with the respective credit risk cover:
(Thousands of euros)
Normal (1)
Full mortgage guarantee Other collateral (2) Without collateral
No. of transactions Gross amount No. of transactions Gross amount No. of transactions Gross amount
Government agencies 77 13,152 - - 35 62,710
Other legal persons and sole proprietors 1,649 604,627 238 356,046 1,697 465,741
Of which: Financing for construction and property development 845 399,187 87 61,586 590 132,958
Other natural persons 38,865 5,484,119 3,684 544,679 5,031 36,212
Total 40,591 6,101,898 3,922 900,725 6,763 564,663
(Thousands of euros) Substandard
Full mortgage guarantee Other collateral (2) Without collateral Specific
allowanc e No. of transactions Gross amount No. of transactions Gross amount No. of transactions Gross amount Government agencies - - - - 1 8,000 (1,200)
Other legal persons and sole proprietors 3,404 1,102,197 836 992,048 5,375 769,422 (660,346)
Of which: Financing for construction and property
development 613 355,423 71 88,044 409 252,788 (232,214)
Other natural persons 2,980 503,850 494 55,294 24,482 179,683 (54,455)
Total 6,384 1,606,047 1,330 1,047,342 29,858 957,105 (716,001)
(Thousands of euros) Doubtful
Full mortgage guarantee Other collateral (2) Without collateral
Specific allowance
No. of transactions Gross amount No. of transactions Gross amount No. of transactions Gross amount
Government agencies - - - - 10 11,498 (5,368)
Other legal persons and sole proprietors 3,995 2,175,073 1,361 1,522,760 6,487 1,996,991 (2,938,110)
Of which: Financing for construction and property
development 1,598 402,257 541 136,750 2,256 555,287 (681,177)
Other natural persons 15,860 2,609,094 3,376 509,266 6,199 65,101 (1,248,676)
Total 19,855 4,784,167 4,737 2,032,026 12,696 2,073,590 (4,192,154)
(Tho
usa
nds
of
euro
TotalFull mortgage guarantee Other collateral (2) Without collateral
Specific allowance Specific allowance No. of transactions Gross amount No. of transactions Gross amount No. of transactions Gross amount No. of transactions Gross amount Government agencies 77 13,152 - - 46 82,208 (6,568) 123 95,360 (6,568) Other legal persons and sole proprietors 9,048 3,881,897 2,435 2,870,854 13,559 3,232,154 (3,598,456) 25,042 9,984,905 (3,598,456) Of which: Financing for construction and property
development 3,056 1,156,867 699 286,380 3,255 941,033 (913,391) 7,010 2,384,280 (913,391) Other natural persons 57,705 8,597,063 7,554 1,109,239 35,712 280,996 (1,303,131) 100,971 9,987,298 (1,303,131)
Total 66,830 12,492,112 9,989 3,980,093 49,317 3,595,358 (4,908,155) 126,136 20,067,563 (4,908,155)
(1) Normal risks classified as transactions that call for special monitoring as per section 7 of Appendix IX of Circular 4/2004
(2) Includes transactions with partial mortgage collateral; i.e. with an LTV of over 1, and other transactions with collateral other than a mortgage, regardless of the LTV.
For refinanced transactions, the Group maintains all doubtful renegotiated mortgage and consumer loans classified in this category until there is a period of continued payments of the instalments that ensures the effectiveness of the measures adopted. Renegotiated operations that were not classified as doubtful at the time of the refinancing are classified as substandard, recognising a minimum provision of 10%. The provision for insolvency maintained or increased on these operations offsets any potential loss arising from the difference between the carrying amount of the financial assets before and after the
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renegotiation. The Group does not generally offer relief from or lower interest rates in renegotiating this type of asset.
The potential reversal of impairment losses recognised on refinanced operations is made, as appropriate, after a prudential period of time between the time of refinancing and when the new conditions of the refinancing provide evidence of the effectiveness of the measures adopted by the Group, and providing the borrower meets its obligations.
(3.1.9) Assets impaired and derecognised
The table below shows the changes in 2012 and 2011 in the Bank’s impaired financial assets that were not recognised on the face of the balance sheet because their recovery was considered unlikely, although the Bank had not discontinued actions to recover the amounts owed (“written-off assets”).
(Thousands of euros) Assets impaired and derecognised
ITEM 31/12/12 31/12/11
Balance at 1 January 936,737 -
Additions from:
Assets unlikely to be recovered (*) 14,956,043 1,580,891
Uncollected past-due amounts 128,856 108,755
Subtotal 15,084,899 1,689,646
Derecognition through:
Cash collection 182,706 70,499
Foreclosure of assets and other causes(*) 14,550,147 686,781
Subtotal 14,732,853 757,280
Net change due to exchange differences (867) 4,371
Balance at 31 December 1,287,916 936,737
(*) The balance of these items for 2012 includes EUR 13,361,513 thousand related to losses incurred in the transfer of loans to the SAREB (see Note 1.16).
(3.2) Liquidity risk of financial instruments
The Assets and Liabilities Committee (ALCO) is the body responsible for monitoring and managing liquidity risk in accordance with the decisions and criteria approved by the Board of Directors. The Committee approves procedures for action to be taken to secure financing through instruments and maturities with a view to guaranteeing at all times the availability of funds at reasonable prices, to enable the Bank to meet the obligations undertaken and finance the growth of investment business.
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The Bank's liquidity gap is shown below, classifying capital outstanding on financial assets and liabilities by due dates, using the reference of the periods to run between the date referred to and their contractual due dates. The liquidity gap at 31 December 2012 was as follows:
(Thousands of euros)
ITEM On demand Up to 1 month 1 to 3 months
3 months to 1
year 1 to 5 years More than 5 years Total Assets
Cash and balances with central banks 4,563,082 - - - - - 4,563,082
Loans and advances to credit institutions - 7,369,545 953,992 469,469 228,366 3,025 9,024,397
Loans and advances to customers - 3,801,423 3,675,929 10,176,366 30,512,560 87,220,673 135,386,951
Financial assets held for trading and financial
assets at fair value through profit or loss - 24,920 199,404 5,085 10,800 74,423 314,632
Other portfolios - Debt securities - 133,715 216,576 8,566,887 48,190,938 14,115,994 71,224,110
Subtotal 4,563,082 11,329,603 5,045,901 19,217,807 78,942,664 101,414,115 220,513,172
Liabilities
Deposits from central banks and credit
institutions 5,115,243 40,201,260 1,141,403 578,118 29,913,599 1,119,916 78,069,539
Customer deposits 38,392,741 13,585,378 6,626,813 29,020,615 18,676,898 11,614,502 117,916,947
Marketable debt securities - 264,756 2,400,655 3,364,713 14,709,254 10,413,020 31,152,398
Subordinated liabilities - - - 15,641,800 15,641,800
Subtotal 43,507,984 54,051,394 10,168,871 32,963,446 63,299,751 38,789,238 242,780,684
TOTAL GAP (38,944,902) (42,721,791) (5,122,970) (13,745,639) 15,642,913 62,624,877 (22,267,512)
The liquidity gap at 31 December 2011 was as follows:
(Thousands of euros)
ITEM On demand Up to 1 month 1 to 3 months
3 months to 1
year 1 to 5 years More than 5 years Total Assets
Cash and balances with central banks 6,117,225 - - - - - 6,117,225
Loans and advances to credit institutions - 11,924,921 2,885,747 831,591 506,763 3,479,784 19,628,806
Loans and advances to customers - 7,664,164 5,955,347 17,272,028 40,946,979 110,787,042 182,625,560
Financial assets held for trading and financial
assets at fair value through profit or loss - 1,018,068 - - 168,550 196,550 1,383,168
Other portfolios - Debt securities - 18,177,649 183,321 1,560,609 11,085,755 8,865,340 39,872,674
Subtotal 6,117,225 38,784,802 9,024,415 19,664,228 52,708,047 123,328,716 249,627,433
Liabilities
Deposits from central banks and credit
institutions 1,510,706 16,516,268 3,081,923 1,108,565 20,264,715 2,383,292 44,865,469
Customer deposits 44,976,321 34,435,315 8,321,449 27,272,823 31,273,712 15,104,767 161,384,387
Marketable debt securities - 2,439,175 7,479,036 9,150,331 17,877,200 10,661,640 47,607,382
Subordinated liabilities - - - 318,283 318,283
Subtotal 46,487,027 53,390,758 18,882,408 37,531,719 69,415,627 28,467,982 254,175,521
TOTAL GAP (40,369,802) (14,605,956) (9,857,993) (17,867,491) (16,707,580) 94,860,734 (4,548,088)
Pursuant to applicable regulations, “Liabilities at amortised cost – Other financial liabilities” is a residual item which, in general, includes temporary items or those with no contractual maturity. Therefore, it is not included in the preceding table, because it is not possible to reliably attribute the amounts recognised therein by maturity.
In addition, regarding derivatives entered into by the Bank, as fair value is estimated and as the operations have regular maturity schedules in many cases, it is not possible to reliably attribute the amount to specific maturities. As a result, the derivative financial instruments used by the Bank, both trading or hedging, are not material and in no case essential for understanding its exposure to liquidity risk.
Valuation adjustments and accrued interest are included.
This gap is the result of grouping financial assets and liabilities together by contractual maturity dates at 31 December 2012 and 2011, disregarding possible renewals. It is, therefore, an extremely prudent analysis of liquidity risk, given the historical performance of the Bank’s financial liabilities, especially customer deposits (retail liabilities). Therefore, in terms of liquidity risk, the balances of customer demand deposits have historically remained stable over time, although legally they are payable on demand. It
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must also be remembered that most of the assets in the securities portfolio are eligible for use as collateral for short-term financing operations in the market and for financing with the European Central Bank (ECB) with strong possibilities of being rolled over.
Maturities of issues
The following table provides information on the term to maturities of the Bank's issues at 31 December 2012 and 2011, by type of financial instrument, including promissory notes and issues placed via the network.
31 December 2012
Thousands of euros
ITEM 2013 2014 2015 > 2015
Mortgage-backed bonds and securities 3,294,819 5,796,163 2,874,289 18,302,262
Territorial bonds - 1,442,300 - -
Senior debt 1,710,150 765,200 459,604 1,724,916
State-guaranteed issues 300,000 - - -
Subordinate, preference and convertible securities (*) - - - 15,498,427 Other medium-term and long-term financial instruments - - - -
Securitisations sold to third parties - - - 6,236,381
Commercial paper 1,636,574 - - -
Total maturities of issues (**) 6,941,543 8,003,663 3,333,893 41,761,986
(*) Includes the EUR 4,500,000 thousand subordinated loan granted by Banco Financiero y de Ahorros, S.A.U. in September 2012 and the EUR 10,700,000 thousand of convertible bonds subscribed by Banco Financiero de Ahorros under Bankia's Recapitalisation Plan. The remaining EUR 298,427 thousand are subject to execution of the burden-sharing exercise among the commitments of the Recapitalisation Plan.
(**) Figures shown in nominal amounts less treasury shares and issues withheld.
In the first four months of 2012, the Bank covered maturities through a reduction in the commercial gap and participation in the ECB's long-term auction. In May, borrowing from the ECB increased due to the escalation of the sovereign crisis in EU peripheral countries, rating actions on sovereign debt and Spanish financial institutions, and the restructuring of the Spanish banking sector, which virtually closed off long-term wholesale markets for Spain's credit institutions and made it more difficult to raise short- term finance on the market through reverse repos.
31 December 2011
Thousands of euros
ITEM 2012 2013 2014 > 2014
Mortgage-backed bonds and securities 3,000,722 3,082,142 5,433,563 21,776,635
Territorial bonds 20,000 - 1,489,550 -
Senior debt 5,135,772 1,595,638 772,100 2,236,285
State-guaranteed issues 9,046,150 300,000 - -
Subordinate, preference and convertible securities - - - 297,736 Other medium-term and long-term financial instruments - - - -
Securitisations sold to third parties - - - 8,204,314
Commercial paper 2,459,987 2,000 - -
Total maturities of issues (*) 19,662,631 4,979,780 7,695,213 32,521,956
(*) Figures shown in nominal amounts less treasury shares and issues withheld.
Liquid assets
In managing its liquidity gap, and in order to cater for future funding maturities, the Bank has certain liquid assets available to guarantee the commitments acquired in its lending activities.
Thousands of euros 31/12/12 31/12/11
Liquid assets (nominal value) 24,453,710 19,083,570
Liquid assets (market value and ECB haircut) 24,111,696 13,354,373
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The Bank has EUR 24,112 million of effective liquid assets, all eligible for ECB financing operations. Of these, EUR 3,922,229 thousand were undrawn at 31 December 2012 (EUR 10,231,897 at 31 December 2011). In December 2012, due to the Bank's capitalisation and the transfer of assets to the SAREB, assets were received that are eligible for ECB financing, leading to an increase in the level of liquid assets from the year before.
In addition, the balance of the Eurosystem deposit facility at 31 December 2012 amounted to EUR 2,800 million (EUR 4,100 million at 31 December 2011).
Issuance capacity
(Thousands of euros) 31/12/12 31/12/11
Mortgage-backed securities issuance capacity 1,936,298 6,283,501
Territorial bond issuance capacity 503,249 367,788
(3.3) Exposure to interest rate risk
Responsibility for monitoring and managing the Bank's global balance sheet interest rate risk is formally allocated to the Assets and Liabilities Committee (ALCO), the Institution's most senior executive body, which operates in accordance with the determinations and criteria approved by the Board of Directors. In light of current circumstances and market forecasts for interest rates, the ALCO should act in line with the Bank's risk strategy and profile. Interest rate risk is managed with a view to achieving a stable net interest margin and preserving the Bank's economic value. To achieve this, it arranges additional hedges to natural hedges for its assets and liabilities.
The ALCO uses measurements of sensitivities of interest rates and equity to movements in interest rates and different sensitivity scenarios based on implied market rates, comparing non-parallel shifts in yield curves that alter the trend slope of different balance sheet aggregates.
The interest rate gap shows the maturity distribution or asset repricing, whichever is closer in time. The sensitivity of items with no fixed maturity, such as transactional demand deposits from customers, to movements in interest rates is assessed with respect to their historical stability in different market interest rate scenarios. Balance-sheet items not sensitive to interest rates, mainly valuation adjustments, provisions and doubtful assets, are included in the period for over five years.
The interest rate gap at 31 December 2012 is as follows:
(Thousands of euros) ITEM Up to 1 month 1 to 3 months 3 months to
1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years
More than 5
years Total
Assets
Cash and balances with central banks 2,920,825 - - - 1,642,257 4,563,082
Loans and advances to credit institutions 6,995,412 1,110,680 454,726 135 22 - 7,339 456,083 9,024,397
Loans and advances to customers 25,963,552 35,972,225 59,722,547 2,000,167 447,315 143,471 217,026 10,920,648 135,386,951
Financial assets held for trading and financial assets at
fair value through profit or loss 12,467 200,004 5,110 2,000 5,500 300 2,400 86,851 314,632
Other portfolios - Debt securities 6,603,283 25,686,366 18,354,150 2,019,798 4,480,420 8,033,599 2,577,041 3,469,453 71,224,110
Subtotal
42,495,539 62,969,275 78,536,533 4,022,100 4,933,257 8,177,370 2,803,806 16,575,292 220,513,172 Liabilities
Deposits from central banks and credit institutions 75,504,213 1,964,131 475,252 3,214 129 38 37 122,525 78,069,539
Customer deposits, marketable debt securities and
subordinated liabilities 33,599,140 31,184,120 39,415,382 10,703,272 966,266 420,225 59,934 48,362,806 164,711,145
Subtotal 109,103,353 33,148,251 39,890,634 10,706,486 966,395 420,263 59,971 48,485,331 242,780,684 TOTAL GAP (66,607,814) 29,821,024 38,645,899 (6,684,386) 3,966,862 7,757,107 2,743,835 (31,910,039) (22,267,512) CUMULATIVE GAP (66,607,814) (36,786,790) 1,859,109 (4,825,277) (858,415) 6,898,692 9,642,527 (22,267,512) % of balance sheet total
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The sensitivity gap analysis at 31 December 2011 is as follows:
(Thousands of euros) ITEM Up to 1 month 1 to 3 months 3 months to
1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years
More than 5
years Total
Assets
Cash and balances with central banks 4,058,355 - - - 2,058,870 6,117,225
Loans and advances to credit institutions 12,637,463 3,004,203 828,725 6,340 23 22 - 3,152,030 19,628,806
Loans and advances to customers
39,547,992 48,237,833 76,891,572 2,756,318 1,360,685 561,575 232,738 13,036,847 182,625,560 Financial assets held for trading and financial assets at
fair value through profit or loss 215,696 58,977 476,522 106,992 43,600 101,300 48,700 331,381 1,383,168
Other portfolios - Debt securities 6,970,578 6,594,664 8,557,757 2,736,273 2,101,374 2,943,252 5,234,779 4,733,997 39,872,674
Subtotal
63,430,084 57,895,677 86,754,576 5,605,923 3,505,682 3,606,149 5,516,217 23,313,125 249,627,433 Liabilities
Deposits from central banks and credit institutions 37,067,021 4,139,571 1,938,004 583,628 212,964 135,596 49,587 739,098 44,865,469 Customer deposits, marketable debt securities and
subordinated liabilities 63,248,325 45,787,842 38,863,752 12,175,169 10,375,861 1,279,813 611,105 36,968,185 209,310,052
Subtotal 100,315,346 49,927,413 40,801,756 12,758,797 10,588,825 1,415,409 660,692 37,707,283 254,175,521 TOTAL GAP (36,885,262) 7,968,264 45,952,820 (7,152,874) (7,083,143) 2,190,740 4,855,525 (14,394,158) (4,548,088) CUMULATIVE GAP
(36,885,262) (28,916,998) 17,035,822 9,882,948 2,799,805 4,990,545 9,846,070 (4,548,088) % of balance sheet total (12.36%) (9.69%) 5.71% 3.31% 0.94% 1.67% 3.30% (1.52%)
In keeping with Bank of Spain regulations, the structural interest rate risk was analysed using two complementary approaches:
o Simulations of the performance of net interest income. At 31 December 2012, the sensitivity of the net interest margin, excluding the trading portfolio and financial activity not denominated in euros, to a parallel increase of 200 b.p. in the yield curve, with a time horizon of one year and a scenario of a stable balance sheet, was -28.69%.
o Exposure of equity, defined as the net present value of expected future cash flows from the various balance sheet aggregates. At 31 December 2012, the sensitivity of equity, excluding the trading portfolio and financial activity not denominated in euros, to a parallel increase of 200 b.p. in the yield curve, with a time horizon of one year and a scenario of a stable balance sheet, was -1.32% of the Bank's economic value.
The sensitivity analysis was carried out assuming that the subordinated loans granted by BFA to Bankia would be repaid and the contingent convertible bonds would be converted into Bankia shares in 2013.
(3.4) Exposure to other market risks
The effect on the income statement and equity of reasonable future changes in the various market risk factors at 31 December 2012 and 2011 is as follows:
Sensitivity analysis at 31 December 2012
(Thousands of euros)
Interest rate Equity instruments Exchange rate Credit spreads
(1,746) 160 (483) 7,743
Sensitivity analysis at 31 December 2011
(Thousands of euros)
Interest rate Equity instruments Exchange rate Credit spreads
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