As is well known, Spain’s current system for valuing assets is highly demanding, both in terms of the criteria for classifying assets as troubled and in terms of provisioning and write-downs. One example would be the treatment of savings banks’ exposure to the construction and real-estate development sector. The total amount of this exposure is € billion, of which 28 billion (13%) is made up of doubtful assets. That said, the requirements of the Banco de España force the banks to also record as potentially troubled investments, and make the necessary provisions for, assets acquired in payment of debt, as well as standard loans under surveillance owing to some observed weakness, even if payments are up to date. As a result of these rigorous asset classification criteria, as at 31 December 2010 savings banks were obliged to recognise € billion of potentially troubled lending to construction and property development, i.e. 46% of their total loans and receivables in this sector. This gives an idea of the transparency efforts made, which have been far beyond those required in other parts of the world. Accumulated specific loan loss provisions represent 31% of these “extended” troubled assets, and if we add the general provisions this percentage reaches 38%.
What has been done so far I shall begin by examining progress to date. At the time of the outbreak of the international financial crisis the Spanish economy and banking system had seen more than ten years of real estate expansion, excessive private indebtedness and continual competitiveness losses. Such imbalances had been generated in an environment characterised by very low interest rates and dominated by the absence of any significant structural reforms in relation to public spending, pensions, the labour market or savings banks. After ten years building up imbalances it was inevitable that the economy would have to adjust and reforms were essential to restore growth and employment as soon as possible. If we examine what has happened during the two and a half years since the collapse of Lehman Brothers, it is clear that our country’s economy and banking system have both made considerable progress in terms of adjustment and restructuring. The private sector has made progress in reducing its imbalances at a faster rate than in other countries with similar problems: the external deficit fell from 10% of GDP at the beginning of the crisis to 5% last year and Spain has even managed to turn some long-standing deficits, such as those in trade with the European Union and in non-tourism services, into surplus.