Opinion of the European Central Bank of 5 June 2012 on the reorganisation and sale of real estate assets in the financial sector (CON/2012/46)
Date: 2012-06-05
Institutions: European Central Bank
Subjects: Spain, credit institution, financial stability, national law, real estate credit, real property

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 5 June 2012  

on the reorganisation and sale of real estate assets in the financial sector 

(CON/2012/46) 

Introduction and legal basis 

On 17 May 2012, the European Central Bank (ECB) received a request from Banco de España, on behalf 

of the Spanish Secretary of State for Economic Affairs, for an opinion on Royal Decree Law 18/2012, on 

the  reorganisation  and  sale  of  real  estate  assets  in  the  financial  sector  (hereinafter,  the  ‘Royal  Decree-

Law’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning  of  the  European  Union and the third  and  sixth indents  of  Article 2(1)  of  Council  Decision 

98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national  authorities 
regarding draft legislative provisions1, as the Royal Decree-Law relates to the role of Banco de España 

and  contains  rules  applicable  to  financial  institutions  that  materially  influence  the  stability  of  financial 

institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of 

the European Central Bank, the Governing Council has adopted this opinion. 

1.  

Purpose of the Royal Decree-Law 

1.1  The Royal Decree-Law increases the provisioning measures established for non-troubled real estate 

assets under Royal Decree Law 2/2012 of 3 February 2012 on the reorganisation of the financial 

sector (hereinafter  the  ‘RDL  2/2012’). The  rate for  generic  provisions  was  set  at  7% and is  now 

increased, as a one-off measure. The increase ranges from 7% to 45%, depending on the type of 

loan, i.e.  loans secured  by  land,  ongoing  and  finished  developments  and real  estate  related loans 

without  security  interest.  The  provisions  must  be  created  within  the  same  time-frame  as  that 

established by RDL 2/2012, namely before 31 December 2012, with an additional 12 months for 

credit  institutions  involved  in  a  restructuring  process.  Credit  institutions  must  present  a  plan  to 

Banco  de  España  detailing  the  measures  they  intend  to  adopt  to  create  the  provisions  before 

11 June  2012.  Banco  de  España  can  then  impose  additional  measures,  such  as  requiring  a  credit 

institution to request financial aid from the Fund for Orderly Bank Restructuring (FROB). 

1  

OJ L 189, 3.7.1998, p. 42.  

 
 
 
 
 
                                                 
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1.2  The Royal Decree-Law establishes the creation of asset management companies (AMCs) to which 

credit institutions must transfer all real estate assets which have been foreclosed or received in lieu 

of payment i.e. properties, but not loans. Such transfers must be completed before the end of 2012, 

with an additional 12 months for those institutions involved in a restructuring process.  All banks 

are also required to transfer to their respective AMC assets which have been foreclosed or received 

in  payment  of  debt  after  the  end  of  2012.  The  AMCs  will  be  public  limited  companies  without 

banking  activities,  and  their  purpose  will  be  the  management  and  disposal  of  real  estate  assets 

received.  Assets  have  to  be  transferred  at  fair  value  or,  if  that  value  cannot  be  determined, 

according to book value, net of the provisions required under RDL 2/2012 and the Royal Decree-

Law. From 2013 onwards, the assets transferred will be valued on the basis of the general method 

established in the Law on commercial companies, namely an evaluation by an independent expert. 

The  AMCs  created  by  credit  institutions  that  have  received  financial  aid  must  make  an  annual 

disposal of at least 5% of their assets to an unrelated third party. Likewise, credit institutions that 

have  received  financial  aid  will  have  a  three  year  period  to  reduce  their  stake  in  the  AMCs  to a 

non-controlling position.  

1.3  The Royal Decree-Law also contains some tax incentives to encourage the disposal of urban real 

estate  assets, including  partial  exemptions  on  corporate  tax,  income  tax  and  non-resident income 

tax. 

2. 

General observations  

The ECB was consulted on 17 May 2012 following the approval of the Royal Decree-Law by the 

Government on 11 May 2012. This means that the ECB was consulted on a law which is already in 

force and not on ‘draft legislative provisions’ as defined by Decision 98/415/EC. The ECB reminds 

the consulting authority of the importance of consulting the ECB at an appropriate point in time in 

order to enable the authority initiating the draft legislative provisions to ‘take into consideration the 
ECB’s opinion before taking its decision on the substance’2. 

3. 

Specific comments 

3.1  Rules regarding the one-off increase in provisioning for non-troubled real estate assets 

The ECB welcomes this measure as part of the general efforts taken by the Spanish Government to 

restore the confidence of investors and markets in the Spanish financial system. It is in line with the 

previous provisioning exercise established in February 2012 under RDL 2/2012 and the increase of 

the  core  capital  requirements  under  Royal  Decree  Law  2/2011  of  18  February  2011  on  the 

strengthening of the financial system. In this context, the ECB takes note of the recently announced 

measure concerning the appointment of (a) two external consulting firms to assess the resilience of 

the  Spanish  banks’  balance  sheets,  and  (b)  three  audit  firms  to  perform  on-site  work  on  the 

2  

See Article 4 of Decision 98/415/EC. 

2 

 
 
 
                                                 
ECB-PUBLIC 

procedures for recognising and provisioning for impairment in Spanish banking groups’ accounts. 

The  ECB  welcomes  an  increase  of  generic  provisions  for  performing  real  estate  assets,  which 

forces  the  banks  to  build  up  effective  buffers  for  this  part  of  their  portfolios  in  view  of  the 

downturn  of  the  cycle  for  such  assets.  The  ECB  understands  that  a  further  adjustment  of  the 

provisions may be the consequence of the results provided by external consulting and audit firms. 

The  ECB  also  notes  the  scope  of  the  Royal  Decree-Law  and  that  the  provisioning  measures 

concern only loan assets relating to land for real estate development and property construction and 

not the rest of the banks’ loan portfolios.  

3.2  Creation of AMCs 

The ECB welcomes the proposed creation of AMCs as a step in the right direction. Combined with 

the  creation  of  provisions,  this  should  (a)  contribute  to  greater  transparency  regarding  the  real 

estate  portfolios  of  Spanish  banks,  and  (b)  enhance  asset  management  processes  in  banks,  thus 

decreasing  the  potential  for  future  losses.  In  addition,  the  creation  of  AMCs  should  create 

incentives for the sale of assets. It remains unclear, however, whether the envisaged framework is 

sufficient to achieve an effective separation of the risks of banks.  In addition, the Royal Decree-

Law is not very specific on how the AMCs will be funded, and whether there might be any kind of 

Government  guarantees  in place.  Likewise,  the  economic  rationale  for  an  annual  disposal  rate  of 

5% of assets transferred to AMCs, which are receiving support from the FROB, remains unclear. In 

this  regard,  the  ECB  would  recommend  further  steps  towards  a  complete  deconsolidation  and 

separation  of  risks  between  entities.  However,  the  ECB  welcomes  that  institutions  that  have 

received  financial  aid  from  the  FROB  will  have  to  reduce  their  stake  in  the  AMC  within  three 

years.  

This opinion will be published on the ECB’s website.  

Done at Frankfurt am Main, 5 June 2012. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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