New rules forcing banks to clean up real estate assets

Automatic summary, not yet reviewed

1. Banks must set aside extra money (provisions) for loans tied to land for development and real estate construction, at percentages set in the annex: for example, 45% for land backed by a real guarantee.
2. Banks had to submit a plan to the Bank of Spain with the measures to meet these requirements before December 31, 2012. Banks that merge during 2012 have twelve months from the authorization.
3. Banks must transfer properties and land received as payment for debts to companies created to manage and sell those assets. These companies must sell at least 5% of their assets each year to third parties, and banks must keep databases with information on those assets.
4. Breaking the law's obligations is a serious or very serious administrative offense, punishable under the rules on credit institution discipline.
5. Gains from selling urban properties bought between May 12 and December 31, 2012 are 50% exempt under the corporate income taxincome tax The personal income tax (IRPF in Spain): what people pay on what they earn from work, business or savings., personal income tax (IRPF) and the nonresident income tax, if certain conditions are met.
6. Notary and property registry fees are reduced for asset transfers from bank cleanups. The law also changes currency rules to give the Bank of Spain functions against counterfeiting, and sets six-year nonrenewable terms for the Governor and Deputy Governor.

Who it affects

• Credit institutions and their consolidable groups: They must make additional provisions, submit a compliance plan and transfer their real estate assets to management companies.
• Asset management companies: They must sell at least 5% of the assets each year, and their directors need proven experience in real estate management.
• Holders of preferred participations: They may defer payment of preferred participation remuneration for up to twelve months if the bank lacks distributable profits.
• Credit unions: They may pay member contributions from the excess of their Mandatory Reserve Fund between 2012 and 2015, with Bank of Spain approval.
• People with mortgages affected by restructuring operations: They pay lower fees for mortgage novations, subrogations and cancellations arising from bank cleanups.

Words worth knowing

Provisión (provision)

Money a bank sets aside from profits to cover possible losses, for example, a loan that will not be repaid.

Fondo de Reestructuración Ordenada Bancaria (FROB)

Public institution that can provide financial support to troubled banks.

Adjudicado o recibido en pago de deudas (awarded or received in payment of debts)

Properties or land the bank keeps when a debtor cannot pay and hands over the asset instead of money.

Participaciones preferentes (preferred participations)

A financial product that pays a fixed return, but is neither a share nor a regular deposit.

Valor razonable (fair value)

The price an asset would fetch if bought or sold in the market at that moment.

income tax

The personal income tax (IRPF in Spain): what people pay on what they earn from work, business or savings.

It summarizes the law as published in the BOE. It is written by artificial intelligence and may contain mistakes: the official text is what counts. Read the official text · How we make summaries