More reserves and sale of banks' real estate assets

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1. Banks must set aside extra money (provisions) to cover the risk of their real estate financing, even loans classified as normal. The percentages vary by asset type: for example, 45% for land with a mortgage guarantee and 7% for completed developments.
2. Banks must comply before December 31, 2012 and submit a plan to the Bank of Spain with the measures they will take, including selling real estate assets. If the plan leaves the bank without enough capital, the Bank of Spain can force it to seek public support from the FROBFROB Fund for the Orderly Restructuring of Banks (Fondo de Reestructuración Ordenada Bancaria): a public fund that can give money to troubled banks..
3. Banks must move their properties and land received as payment for debts into companies created to manage and sell them. These companies must sell at least 5% of their assets each year to third parties, and banks receiving FROB support have 3 years to make the company only an associated company.
4. Failing to meet these obligations is a serious or very serious offense under banking discipline rules, and can bring administrative liability for banks and their directors.
5. Gains from selling urban properties bought from the entry into force until 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 non-resident income tax, subject to certain conditions.
6. Banks with outstanding preferred shares can request deferring their payment by up to twelve months if, after the cleanup, they lack sufficient profits. In addition, notary and property registry fees are reduced for asset transfers resulting from bank restructurings.

Who it affects

• Credit institutions and their consolidable groups: Must set aside additional provisions, submit a compliance plan and move their real estate assets into asset management companies.
• Bank of Spain (Banco de España): Approves the plans, can impose additional measures and regulate the asset databases.
• Fund for the Orderly Restructuring of Banks (FROB): Can inject capital into banks with deficits and decide on the creation of asset management companies.
• Notaries and property registrars: Their fees are reduced for asset transfers resulting from bank cleanups and restructurings.
• Sellers of urban properties (companies, IRPF taxpayers and non-residents): Benefit from a 50% exemption on gains from selling urban properties bought before December 31, 2012.

Words worth knowing

Provisión

Money a bank sets aside from its profits to cover possible losses or defaults.

FROB

Fund for the Orderly Restructuring of Banks (Fondo de Reestructuración Ordenada Bancaria): a public fund that can give money to troubled banks.

Participaciones preferentes

Preferred shares: a product paying a fixed return, but it is neither a share nor a deposit; if the bank has no profits, it may not pay.

Adjudicado en pago de deudas

A property the bank keeps because the debtor could not pay.

Valor razonable

Fair value: the price an asset would fetch 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