system was 11. 6 %, compared with the current minimum of 8 % required under the basel accord. it is worth stressing – as certain comments made seek to omit this or completely misinterpret it – that the fundamental intention and effect of the capital injections with public funds ( whether from the european stability mechanism or from the spanish treasury ) has been to prevent the winding - up of banks, thereby preserving customer deposits. bis central bankers ’ speeches it would be remiss not to mention here the problem of the hybrid capital and subordinated debt instruments sold to retail customers by credit institutions which, following the detection of capital shortfalls in the stress tests completed last september, were unable to cover their capital needs with their own resources and received state aid. these banks, on requiring public financial assistance, are subject to the terms of the memorandum of understanding signed on 20 july 2012, to law 9 / 2012 on the restructuring and resolution of credit institutions and, consequently, to the european commission ’ s arrangements governing state aid. the banco de espana, directly through the frob and the deposit guarantee fund, and via its participation in the arbitrage committee set up last march, is collaborating with the other authorities involved and with the banks themselves to find the best possible solution to this serious and multi - faceted problem ; not all these instruments are the same, they have not been sold in the same way, and nor will they be given the same treatment under european regulations. liquidity thirdly, liquidity. spain underwent a serious external funding crisis in 2012. the origins of this crisis lay both in the crisis in the euro area and negative market perception of our banks ’ solvency. a feedback loop between sovereign risk and banking risk emerged, dominated by the socalled “ redenomination risk ”, i. e. the risk that certain countries might abandon the monetary union. that led to a very difficult situation for our external funding, which the liquidity supplied by the european central bank allowed us to address. in the last quarter of 2012, however, the tensions eased and the liquidity of our banks began to improve. the debit position vis - a - vis the ecb decreased from €410 billion in august 2012 to slightly more than €250 billion last may. furthermore, the access of our banks to bond markets has improved. npl ratio fourth, the npl ratio. in december 2012, after the initial phase of transfer of assets to the sar

process of debt re - balancing and has made it reside, above all, on a contraction in lending. the last year in which lending posted a positive rate of change in spain was in 2008. since then, net credit flows, both to households and to non - financial corporations, have been bis central bankers ’ speeches negative overall, although there was a very slight increase in lending to households for house purchase in 2010. in 2012, total lending to the resident non - financial private - sector fell by 5. 8 % ; credit to households fell by 3. 7 % while that to non - financial corporations decreased by 8 %. when total credit to productive activities excluding construction, real estate development and financial services is considered, the decline was not as sharp, standing at 6 %. indeed, credit to productive activities excluding construction, real estate development and financial services was slightly positive in 2010, but has been negative in 2011, 2012 and in 2013 to date. in considering these developments it should evidently be borne in mind that credit for construction and real estate development activities had to shrink as the cyclical upturn ended and the excesses of the period 2004 – 2008 had to be corrected. the problem naturally lies in the negative rates of credit flow for productive activities other than construction and development, and in the contraction of credit for households, both for house purchases and for other purposes. and, in addition to a problem of volume, there is a problem of prices ; our households and firms are paying higher interest rates than the average rates paid for comparable transactions in the euro area as a whole, although these spreads are small in the case of financing for house purchase, very high for consumer loans and also substantial for credit obtained by non - financial corporations. to explain this we must look both at supply - side factors relating to loanable funds by banks, and to demand - side factors on the part of borrowers, households and firms. concerning the demand for credit, the recessionary environment, high unemployment, the hitherto scant growth prospects and uncertainty are evidently affecting potential borrowers. on the supply side, neither liquidity – provided in a stable fashion and at a low cost by the eurosystem – nor the shortage of capital would appear to be significant explanatory factors. we believe that on the supply side the two most influential factors are the deleveraging of banks and the lack of projects that may be deemed solvent, or offer sufficient guarantees. there are in fact figures confirming that the most dynamic