1. society
2. work
3. unemployment

Economic Policy Strategy and
Funding Programme
November 2014
Introduction
 Structural reforms implemented by the Spanish Government allow an increased
effectiveness of demand-side economic policies, with positive impact on economic
growth
 The path of structural reforms continues into 2014 and 2015:




Active labour market policies
Fostering internationalisation of Spanish firms
Reform of the debt restructuring & insolvency framework
Fiscal reform
 Central Government Draft Budgets build on structural reforms
 Stimulus measures announced by the ECB will impact on the real economy
 Banking Union. A robust and complete Monetary Union:




Single Supervisory Mechanism
Approval of a uniform solvency regulation (CRD-IV)
Common resolution framework (BRRD)
Single Resolution Mechanism
INTRODUCTION
1
1. Spanish Economic Policy
2. Transformation of Spain’s Growth Model
3. The Funding Programme of the Spanish Treasury
Macroeconomic scenario
 Reforms have positively impacted on potential growth
 Forecasts in line with national consensus: higher growth stemming from private national and
external demand & spurred by investment
 AIReF endorses the macroeconomic forecasts provided by the government as probable
Macroeconomic scenario (Year-on-year growth rates in percent)
2013
Private consumption
Government consumption
Gross Fixed Capital Formation
National Demand*
Exports of goods and services
Imports of goods and services
External demand*
Gross Domestic Product
GDP - EC Autumn Forecast (Nov. 2014)
GDP - IMF WEO (Oct. 2014)
GDP - OECD (Sep. 2014)
Other macroeconomic variables
Unemployment rate (in %)
Full-time Equivalent Employment (Year-on-year)
Unit Labour costs (Year-on-year)
GDP de�lator (Year-on-year)
Net lending(+)/borrowing(-) with RoW (% of GDP)
De�icit Excl. Financial Sector One-Offs
Primary De�icit(-)/Surplus(+) Excl. Financial Sector
Debt/GDP ratio (in % of GDP)
2014(f) 2015(f)
-2.3
-2.9
-3.7
-2.7
4.3
-0.5
1.4
2.0
0.2
1.5
1.4
3.6
4.4
-0.1
2.1
-1.0
4.4
1.8
5.2
5.0
0.2
..
1.2
1.7
-1.2
1.3
2.0
..
1.3
1.7
26.1
-3.3
-0.4
0.7
2.1
-6.3
-3.1
92.1
24.7
0.7
0.2
0.1
1.5
-5.5
-2.2
97.6
22.9
1.4
0.4
0.6
1.7
-4.2
-0.8
100.3
..
1.2
1.6
Underlying assumptions
Short-term interest (3m Euribor rate)
Long-term interest (sovereign 10y debt)
USD/€ exchange rate
World GDP growth
EU GDP growth
Oil prices (Brent, USD/barrel)
Sources: Ministerio de Economía y Competitividad, OECD, IMF and European Commission.
* Contributions to GDP in p.p.
SPANISH ECONOMIC POLICY: MACROECONOMIC SCENARIO
2014(f)
0.2
2.8
1.35
3.3
0.9
106.2
2015(f)
0.2
2.6
1.30
3.9
1.6
104.1
3
The Draft Central Government Budgets for 2015
 Economic effects of tax-reform dominate lower
implied tax collection: overall tax collection
expected to increase 5.4% y-o-y, roughly in-line
with the observed increase in 2014 despite cuts
in effective tax rates
Presentation
Links to detailed information (Spanish):
Yellow Book
Draft Budgetary Plan
Ex-Ante Impact of the Fiscal Reform
2015
2016
(In € mn)
Personal Income Tax
-3,366 -2,615
Corporate Income Tax
-437
-2,641
TOTAL
2017
2015
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
Source: Ministerio de Hacienda y Administraciones Públicas.
-9,059
Tax collection. Actual and Draft Budget.
(Year-on-year Growth Rate. In %)
7
6
5
Draft
+5.4
Average +4.2 Budget
2014
4
3
Expenditure Trajectory
(% of GDP and Year-on-year Growth Rates in % )
Expenditure Increase (Y-o-Y, RHS)
Nominal GDP (Y-o-Y, RHS)
Expenditure (% GDP, LHS)
Primary Expenditure (% GDP, LHS)
-5,256
+ 2nd round effects
 Building up on efficiency reforms (CORA
Measures) and the reform of the Public
Administrations
48
46
44
42
40
38
36
34
32
30
-3,803
Total
-5,981
-3,078
2
1
10
8
6
4
2
0
-2
-4
-6
0
-1
-2
2011
2012
2013
Tax Collection by Item
2014
2015
2014
2014
2015
(In € bn)
Budget Forecast Budgets
Personal Income Tax
73.2
73.4
73.0
Corporate Income Tax 22.3
19.6
23.6
VAT
54.8
56.2
60.3
Excise Duties
20.5
19.1
19.9
Other
8.9
8.4
9.4
Source: Ministerio de Hacienda y Administraciones Públicas.
SPANISH ECONOMIC POLICY: FISCAL PATH OF THE PUBLIC ADMINISTRATIONS
Y-o-Y
-0.6%
20.4%
7.2%
4.4%
12.9%
Data
4
The fiscal path of the Public Administrations 2014-2017
 2014 deficit target revised down to 5.5% of GDP in April
 Emphasis on expenditure reduction (4pp of GDP between 2014 and 2017); mainly driven by
efficiency gains in the Public Administrations
 Incorporates impact on tax collection of the tax reform (2015-2016 total: ex-ante approx. €9.1 bn;
ex-post impact after second round effects €6.9 bn)
Changes to the fiscal balance
(% of GDP)
Revenue-Side
Expenditure-Side
Net Lending(+)/Borrowing(-) of the General Government.
Excl. Financial Sector One-Offs
(% of GDP)
2013
Forecast
Central Government
-4.2
-3.5
-2.9
-2.2
-1.1
Social Security Administrations
-1.1
-1.0
-0.6
-0.3
0.0
Autonomous Regions
Local Governments
General Government
Primary Balance
-1.5
0.5
-0.3
2014 2015 2016 2017
-1.0
0.0
-0.7
0.0
-0.3
0.0
0.0
0.0
-6.33 -5.5 -4.2 -2.8 -1.1
-3.1 -2.2 -0.8 0.6 2.3
Structural Primary Balance
Nominal Adjustment
2.2
0.3
2.7
0.8
2.9
1.4
2.8
1.3
3.0
1.7
Financial Sector one-offs
0.5
0.1
-
-
Data
Source: Ministerio de Economía y Competitividad.
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
-1.2
-1.4
-1.6
-1.0
-1.3
-1.5
-4.0pp
GDP
+0.5
+0.4
+0.0
+0.2
+1.2pp
GDP
0.6
0.5
0.4
0.3
0.2
2014
2015
2016
2017
0.1
0.0
2014
Source: Ministerio de Economía y Competitividad.
SPANISH ECONOMIC POLICY: FISCAL PATH OF THE PUBLIC ADMINISTRATIONS
2015
2016
2017
Data
5
Debt/GDP dynamics 2014-2015
97.9
75
Growth rate (RHS)
2017(f)
2016(f)
2015(f)
2014(f)
55
2013
65
2012
 Impact stemming from one-off components
has eroded (Fund for Payment to Suppliers,
financial sector recapitalisation, FADE, etc.)
25%
20%
15%
10%
5%
0%
-5%
85
2011
 Achievement of structural surplus in 2017,
ensures the decline in the ratio and reinforces
the downward trend
92.1
95
97.6 100.3 100.2
Y-o-y growth rate
 Primary surplus to be reached in 2016,
reversing the Debt to GDP trajectory
105
Forecast of General Government Debt
(% of GDP)
% of GDP
 Debt to GDP ratio to peak above 100% of
GDP in 2015
Debt to GDP ratio (LHS)
Data
Source: Ministerio de Economía y Competitividad.
Deficit and Primary Deficit
(% of GDP)
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
-4.0
-5.0
-6.0
-7.0
Cummulative Primary
Structural Adjustment
1.9
2.4
2.6
2.7
-1.1
-4.2
-6.3
2013
-5.5
2014
2015
Source: Ministerio de Economía y Competitividad.
SPANISH ECONOMIC POLICY: FISCAL PATH OF THE PUBLIC ADMINISTRATIONS
2.5
-2.8
Government
Balance
2016
2017
Data
6
Budgetary execution in 2014
 Monthly budgetary execution highlights:
 Central Government (August 2014 data):
the combined deficit of the Central
Government
Administration
and
the
autonomous entities of the Central Govt.
reached €33.4 bn
 Central Gov. Administration (September
2014 data): deficit €33.1 bn vs. €36.5 bn in
September 2013; primary deficit down to
€10.8 bn vs. €15.2 bn in September 2013
 Income increased by 4.4% y-o-y
 Expenditure increased by 1.2% y-o-y
 Regional Governments (August 2014 data):
deficit reached €10.8 bn
 Social Security Administrations (August
2014 data): the Social Security posted a deficit
of €1.2 bn
Combined Deficit of Central & Regional Governments and
Social Security Administrations.
Excl. Financial Sector Recapitalisation
(% of GDP)
0.0
-1.0
-2.0
-3.0
-4.0
-5.0
-6.0
-7.0
-8.0
-4.26
-4.63
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2013
Source: IGAE.
2014
Data
Breakdown of the Budget Balance of the Central Government
Administration Excl. Financial Sector Recapitalisation
(% of GDP)
Balance
Primary Balance
0.0
-0.5
-0.5
-1.5
-2.5
-3.11
-3.5
-4.5
SPANISH ECONOMIC POLICY: FISCAL PATH OF THE PUBLIC ADMINISTRATIONS
-1.01
-1.0
-1.5
-2.0
Source: IGAE.
Up to August 2014
2012
-2.5
2013
2014
Data
7
STRUCTURAL REFORMS
The reform process continues
2012: First Generation Reforms
Labour Market
Budgetary Framework
Financial Sector
2013: Second Generation Reforms
Labour Market Reform
Budgetary Plan 2013-2014
Services/Product Markets
Pension System Reform
Serv. Market Liberalisation
Local Administrations
Single Market Law
De-indexation
Financial Sector Reform
Strategic Plan for Exporters
ICO Mediation Credit Lines
Main Reforms in 2014
IMPLEMENTATION OF
REFORMS ADOPTED IN
2012-2013
Economic Structural Reforms
Public Sector Reforms
Financial Sector Reforms
SPANISH ECONOMIC POLICY: REFORMS
Job
Activation
Strategy and
Plan for
Youth
Employment
Reform of the
Active Labour
Market Policy
Framework
Reform of
the Tax
System
New Legal
Framework for
Disintermediation
and Promotion of
Capital Markets
for SMEs
Links to detailed presentations
describing the Reform Agenda
Measures to
Facilitate Corporate
Recovery & Debt
Restructuring
Reform of the
Insolvency Regime
Balance Reforms. Two and a Half Years in
Government
OECD: CORA Reforms
9
 The reform of the public sector builds on the structural reform process initiated in 2012
New Regulatory Framework
Budgetary
Sustainability Law,
Fiscal supervisory
rules
Fiscal discipline at all levels
of the Administration
Early-warning system,
enforcement and sanction
procedures
Transparency: monthly and
quarterly execution
Assurance of compliance:
coercive measures and
enforced compliance
Law for Transparency in the
Public
Administrations:
accountability & governance
Reform of the Local
Authorities
Liquidity Measures for Regions & Local Governments
FLA
FFPP
Undue expenditures
Transfer of competences
Mergers & integrated
management
Changes at minor local
entities
Resizing of the local public
sector
 Provision of
liquidity to
suppliers of Local &
Regional
Governments
 2012: €27.4 bn
 2013: €6.8 bn
 2014: €8.0 bn
 The Programme
has been ended by
July 2014
 Enabling the
centralisation of
public debt
issuance in Spain
 Providing
liquidity to
Autonomous
Regions
 Ensuring �iscal
and �inancial
sustainability
Embedded into
the Treasury’s
Funding
Programme
 2012: €16.6 bn
 2013: €23.0 bn
 2014: €23.0 bn
REFORM OF THE PUBLIC ADMINISTRATIONS
The reform of the public administrations
Stricter �iscal
conditionality &
issuance caps
 Strict additional
�iscal compliance
Temporary and exclusive
staff of local governments
Commission for the reform of the public administration
General measures
Sub-commission for administrative simpli�ication
Sub-commission for management of common services and resources
Sub-commission on administrative overlap
Sub-commission for institutional administration
Electronic Billing Law
De-indexation Law
SPANISH ECONOMIC POLICY: REFORMS
10
 The Government’s
draft
law
was
presented on June
20th
 Aims at reducing
taxation on labour, to
strengthen
competitiveness, to
promote saving and
investment,
and
modernise Personal
and
Corporate
Income tax
 Reinforcement of
the fight against tax
fraud
Changes to Personal Income
Tax
Changes to Tax on Capital
Changes to Corporate Income Tax
►Reduced general rate: from 30% to
►Reduction in number of
►Lower rates in two years and
25% in two years (reduced rate for new
tranches and rates in two years
more progressive
firms 15%)
►Elimination of tax deduction ►In the case of the financial sector kept
for dividends
at 30%
►Modification of personal
►Substitution of deductions in CIT
income allowance:
 Deductions eliminated:
- Higher personal income
►Capital gains generated in less
- Environmental investments
minima
than 12 months no longer
- Expenses for vocational training
- Family tax deductions:
penalised
- Reinvestment of extraordinary
enabling negative tax rates for
benefits
large families and with
 New deductions (favouring the
dependent persons with serious
deleveraging process):
disabilities
- Capitalisation reserves. 10% of
corporate income deducible if
incorporated into reserves.
- Equalisation reserve for SMEs
►Limits to exemptions to
 Limits to the financial expenditure
►New savings instrument:
severance payments in case of
deductions (favouring the deleveraging
savings
or
insurance
schemes
unjustified dismissal
process, reduced to 30% of gross
maintained longer than five
operating profit)
years ('Cuenta Ahorro 5'):
►Tax deductions for house
rental:
- Elimination for new rentals
(Expenditure side)
- Lower tax deductions for
house rentals (Income side)
exempt form capital gains tax
►Update and simplification of
depreciation tables
►Lower tax withholding for
►Limit for deductible
►No deductibility of equity securities
professional and self-employed
contributions linked to pension impairments extended to fixed income
workers with incomes below
plans lowered to €8,000/year
portfolios and fixed assets
€15,000
►Limits to simplified method
►General limit 60% for Tax loss
►Better fiscal treatment in case
('Modulos') to certain
carryforwards as from 2016
professional activities
of assets received in lieu of
►Elimination of abatement
payment if affected by
►To maintain income from the CIT, in
coefficients and monetary
preference shares
2015 previous measures maintained
correction gains
SPANISH ECONOMIC POLICY: REFORMS
VAT
►Health care products
VAT rate adapted to ECC
regulations:
-Intermediate products
for drug development,
medical instruments and
equipment, medical
devices and
pharmaceutical products
Fight Against Tax
Fraud
R&D and cultural
investment
►Lists of defaulters to be ►Extension of
partial exemption
published
(85%) of the tax on
►Annual publication of
electricity.
tax havens
Exemptions
extended to all
productive
Tax audit process: New
processes in which
deadlines and suspension
the costs of
of Statutes of Limitation
electricity exceeds
in specific situations
50% of production
costs
►Administrative
assessment in evidence of
tax fraud
TAX REFORM
Tax reform: draft law
►Companies
investing more
than 10% of their
accounting net
income in R&D will
extend their
percentage of
►Better precision in the deduction to 50%.
indirect assessment
regime
►Tax assessment cases
are extended to
smuggling offenses
►New rules on the
localisation of assets;
taxing at destination of
electronic,
telecommunications and
radio-television services
when the addressee is a ►Imprescriptibility of
private individual
the Administration’s right
to check tax credits
derived from statutebarred tax years
►Interruption of the
limitation period of
related tax obligations
►Incentives for
cultural activities
11
SPANISH ECONOMIC POLICY: REFORMS
Spain
12.5
After
pension
Reform
Denmark
2010
2030
Source: European Commission and
Ministerio de Economía y Competitividad
Italy
France
Austria
Greece
Portugal
Finland
Belgium
7.5
Germany
10.0
Spain B
 A yearly Update factor which links pensions
to the financial situation of the pension
system, to the number of pensioners and to
average pension
 Life expectancy; will enter into force in 2019
and will be evaluated every 5 years
15.0
Before
pension
Reform
Sweden
 In December 2013 the Pension System
Reform was approved. It introduces two factors
to which pensions will be linked:
17.5
Gross Expenditure in Public Pensions
(% of GDP)
Luxembourg
 Building on the 2011 reform which already
introduced measures to adapt the pension
system, in March 2013 a Royal Decree was
presented in order to foster active ageing,
increasing the effective retirement age
REFORM OF THE PENSION SYSTEM
The Pension System reform reduces the impact of population ageing
Data
12
 The labour market reform tackles the main shortcomings of the Spanish labour market: high structural
unemployment, high youth unemployment, duality, high employment volatility and wage indexation which limit
gains in competitiveness
Collective Bargaining
Internal Flexibility of Firms
External Flexibility of Firms
Contracts
 Dynamic bargaining more
responsive to the needs of
businesses and workers

rigidity
 Avoiding
Avoiding lay-offs: rigidity
fostered
means of
of
fostered job
job cuts as a means
adjusting
to
economic
changes
adjusting to economic
 Lack of flexibility avoided
innovation and gains in
competitiveness
 Reduction of severance pay
for unfair dismissals
 Crisis contract: new contract
for entrepreneurs aimed at
small businesses. It has a oneyear trial period. Tied to
employment tax breaks and
fiscal tax credit, specially for
hiring young workers. Breaks
and credits are designed to
limit the dead-weight effect
 Training and skill building:
deep regulatory modifications
to provide a structural change
and develop a dual training
system that allows a balance of
training and work
 Flexible
regulation
of
telework
 Part-time
contract:
increased flexibility, allowing
overtime
 Move beyond the model of
indexing salaries and wages
 Balanced
regulatory
framework in line with
economic circumstances
 Opting out from higher-level
agreements
 Priority of company-level
agreements
 Limiting
the
statutory
extension rule of expired
agreements up to one year
(unlimited before)
 Classification of workers
based on skills not on
professional occupations
 Simplification of rules for
the reallocation of workers
 Streamlining the adoption of
significant changes in working
conditions
 Furloughs/Time-reductions
if
legitimate
financial,
productive or organisational
reasons exist
 Distribution of workingtime
SPANISH ECONOMIC POLICY: REFORMS
 Clear
and
objective
regulatory framework of fair
dismissals
 Severance pay for unfair
dismissal down to 33days/Max
24months of salary vs.
45days/Max 42 months
 Clarification of fair dismissal
causes (20days/Max 12 Mo)
 Removal of administrative
authorisation for collective
layoffs
 Elimination of procedural
salaries
 Fair dismissals for economic
causes of civil servants
 Streamlining of dismissals
based on absenteeism
REFORM OF THE LABOUR MARKET
The labour market reform addresses Spain’s most important imbalance
13
 Activation policies complement the labor reform. Spain has reformed its public employment services
and launching new tools to fight against.
PLANNING
+
COORDINATION
REGIONAL
GOVERNMENTS
ACTIVATION
POLICIES
Multi-annual
Activation Strategy
Annual Employment
Plans
Training for the
employment
Labour
intermediation
Hiring subsidies
TOOLS
Unemployment
benefits
•
•
•
•
•
•
Common concepts, objectives and strategy
Result-oriented measures to increase efficiency
Funding linked to results
Efficiency monitoring through common sets of indicators
Sharing and implementation of best practices
Common IT system
•
•
•
•
•
Training priorities linked to real needs
Open competition to select providers
Monitoring, supervision and transparency
Online training
Professional certificates
• Private-public collaboration
• Common rules to select providers
National
employment
website
• Improved design of hiring subsidies
• Better monitoring ex ante and ex post
• Rationalization, better targeting, conditionality
• Closer linkage to active labour policies
Youth guarantee
SPANISH ECONOMIC POLICY: REFORMS
Vocational
training
national
Strategy
REFORM OF THE LABOUR MARKET: ACTIVATION POLICIES
Activation policies & fight against unemployment
Youth Employment and Entrepreneurship
Strategy
14
 The financial sector reform steps in 2014 address the thee main problems of corporate financing: the
recovery in financing of viable projects, resolving the dependency on banking credit and reducing the
differential cost of Spanish SMEs
End 2013 and 2014
Law 26/2013 of savings banks and banking
foundations
Initial steps: 2009-Mid 2013
FROB I
20092011
2012
2013
Reform of the Legal Framework of Cajas
MoU
Law 14/2013 Internationalisation bonds & cedulas: support to
exporting entrepreneurs
Integration of Cajas via “Institutional Protection Schemes”
and Capital Injections/Asset Protection Schemes
RD-Law 11/2014 financial sector solvency and supervision
FROB II
Venture capital companies and closed-end collective
investment schemes
Clean-up of Balances (I) €50bn in additional
capital and provisions
Law 17/2014 Reform of the Insolvency regime (I): pre-insolvency
proceedings; refinancing and restructuring of corporate debt
Clean-up of Balances (II) €29 bn in additional
provisions to cover possible migrations into NPLs
Reform of the Insolvency regime (II): broader scope of insolvency
regime & revision of in-court debt restructuring procedures
Asset quality review &
stress tests
Next steps
Law 9/2012 recovery and
resolution of financial institutions
Completion of the reform of the savings banks sector: draft
circular on savings banks and banking foundations
Recapitalisati
on &
restructuring
Transfer of
assets to
SAREB for
recapitalised
banks
SPANISH ECONOMIC POLICY: REFORMS
MoU
REFORM OF THE FINANCIAL SECTOR
Financial Sector Reform
Transposition of the Banking Recovery and Resolution
Directive & Deposit Guarantee Directive
SMEs access to finance: draft law promoting corporate
financing
 Access to banking credit
 Securitisation
 Access to non-bank financing
15
REFORM OF THE FINANCIAL SECTOR
Credit developments bolstered by progress in European Banking Union
 Main pillars of the Banking Union:
 Single Supervisory Mechanism
 Approval of a uniform solvency regulation (CRD-IV)
 Common resolution framework (BRRD)
financial institutions
France
Italy
2014
2013
2012
2011
Spain
2010
Germany
Source: European Central Bank.
2009
2
2008
 Bulk of potential recapitalisations to be borne by
3
2007
 Level playing field for financial institutions
4
2006
 Result:
5
2005
 Creation of a Single Resolution Fund
6
2004
 Strong central decision-making Board
7
2003
 Single Resolution Mechanism
Lending Rates of New Loans to
Non-Financial Corporations
(In %. Maturity up to a Year and up to €1 mn)
Data
 Limiting tax-payer burden
 Breaking the link between the financial sector and the sovereign
SPANISH ECONOMIC POLICY: REFORMS
16
 The winding-down of the financial sector has
removed the excess capacity built up during the
housing boom
Adjustment in Deposit Taking Institutions
(Number of Employees and Branches)
250,000
44,000
42,000
40,000
237,500
38,000
36,000
225,000
212,500
200,000
 Burden-sharing exercises: €13.6 bn
34,000
1995 1998 2001 2004 2007 2010 2013
Employees (Letft hand side)
Branches (Right hand side)
55%
32,000
30,000
Data
Source: Bank of Spain.
 Private capital increases in excess of €25 bn
Doubtful Loans. Other Resident Sector
(LHS Coverage ratio/RHS in € bn)
250
50%
200
47%
150
45%
40%
35%
Coverage Ratio
50
0
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
29%
2001
25%
2000
30%
100
36%
Source: Bank of Spain.
SPANISH ECONOMIC POLICY: REFORMS
Branches
262,500
 FROB and Deposit Guarantee Fund: €59 bn
 Coverage ratios of doubtful loans to “other
resident sector” has increased from 36% in
2012Q1 to 47% by 2014Q2
46,000
Employees
275,000
 Capital increases and voluntary liability
management exercises in the last 4 years above
€100 bn:
 Clean-up effort in the period 2008-2013
amounted to €270 bn, especially intense in 2012,
when it reached €122 bn
REFORM OF THE FINANCIAL SECTOR
Adjustment and recapitalisation of the financial system
Other Resident Sector Doubtful
Data
17
 Increase in the quality and quantity of
information provided by banks, including on
refinanced loans
 Disclosure requirements have been
enhanced and harmonised for all entities in
key areas of their portfolios such as
restructured and refinanced loans, NPLs,
asset quality across asset classes,
concentration by sector, etc.
14%
13%
12%
11%
10%
9%
8%
7%
6%
5%
13.6%
NPL Ratio
10.7%
13.2%
2010
2011
2012
Source: Bank of Spain.
* March 2014 over March 2013
SPANISH ECONOMIC POLICY: REFORMS
50%
40%
30%
20%
10%
0%
-10%
2010
2011
2012
2014 *
2013
Increase in Doubtful loans (Numerator)
Fall in total loans (Denominator)
Mixed Effects (Not Assignable to Numerator or Denominator)
Source: Bank of Spain.
* Last: August 2014 over August 2013
Data
Restructured and Refinanced Loans (€ bn)
After Corrections
Initial
As of Dec 2013
7.8%
5.3%
Breakdown of Year-on-Year Growth Rate of NPL
Ratio into its Components
REFORM OF THE FINANCIAL SECTOR
Adjustment and recapitalisation of the financial system (II)
2013
2014
Normal
Sub-standard
Doubtful
Source: Bank of Spain.
73.6
37.2
71.7
61.7
41.0
108.6
Data
Data
18
Lending to ORS / ORS Deposits (LHS)
Equity / Assets (RHS)
Source: Bank of Spain.
7.0
6.5
123.6
6.0
5.5
Data
New Credit to Non-Financial Firms by Size of Loan
(Year-on-Year Growth Rates)
20%
100%
0%
50%
10%
75%
25%
-10%
0%
-30%
-40%
2006
2007
2008
2009
2010
2011
2012
2013
2014
-20%
<€1 mn
Source: Bank of Spain.
SPANISH ECONOMIC POLICY: REFORMS
7.5
2014*
5.8
6.8
8.0
2013
110
5.9
7.9
2012
120
6.4
2011
130
2009
140
151.0
2010
150
154.0
2008
160
173.7
Trend
-25%
-50%
2006
2007
2008
2009
2010
2011
2012
2013
2014
 In line with improving credit standards, credit
to non-financial firms is beginning to improve,
especially so in the case of credits below €1
mn
170
Equity-to-Assets and Lending-to-Deposits Ratios
8.5
(In %, *As of August2014)
2007
 Closing the funding gap: the lending-todeposits ratio has declined from 154% in 2010
to 123.6% on average in 2014 (120.7% in
August 2014)
180
2006
 Capitalisation of the financial sector: equityto-asset ratio of the overall sector has
increased from 5.8 in 2010 to 7.9 up to August
2014
REFORM OF THE FINANCIAL SECTOR
Adjustment and recapitalisation of the financial system (III)
>€1 mn
Trend
Data
19
 The Comprehensive Assessment of the ECB has involved
a full review of 130 banks from 18 euro area countries (plus
Lithuania) 81.6% of total risk-weighted assets.
 15 Spanish banks have been scrutinised, accounting for
90% of the assets of total Spanish deposit-taking
institutions
1,200
1,000
800
600
400
99%
CAJAMAR
LIBERBANK
BMN
NCG
BANKINTER
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
60%
55%
50%
45%
40%
4%
BMN
BANKINTER
POPULAR
LIBERBANK
CAJAMAR
KUTXA
BFA BANKIA
UNICAJA
Source: Bank of Spain.
SABADELL
NCG
CATALUNYABANK
IBERCAJA
LA CAIXA
BBVA
LIBERBANK
BMN
IBERCAJA
NCG
SABADELL
LA CAIXA
SANTANDER
POPULAR
BFA BANKIA
BBVA
CAJAMAR
UNICAJA
BANKINTER
KUTXA
SPANISH ECONOMIC POLICY: REFORMS
30%
SANTANDER
35%
CATALUNYABANK
0%
IBERCAJA
65%
6%
2%
100%
Coverage Ratio for Non-Performing
Exposures
(%) Weighted Average 58.6%
70%
8.7%
KUTXA
8%
9.4%
CATALUNYABANK
10%
10.4%10.3%10.3%10.3%10.0%
UNICAJA
11.1%11.0%10.7%10.7%10.6%
84%
POPULAR
12%
SABADELL
14%
Starting CET1 as of December 31st 2013
(% of RWA)
12.3%12.1%12.0%
74%
BFA BANKIA
 Spanish banks have only one bank with a gross
capital shortfall of €32mn under the stressed scenario
LA CAIXA
0
65%
79%
96% 97%
92%
88%
36%
BBVA
200
55%
SANTANDER
 Gross capital shortfall of €24.6 bn for 24 banks; €9.5
bn in net terms for 13 banks (after capital increases in
2014)
Spanish Banks: Size in €bn (LHS) and Cumulative
Percentage of Analysed Assets (RHS)
REFORM OF THE FINANCIAL SECTOR
Spanish Banks: into the Comprehensive Assessment of the ECB
Data
Data
20
34.5%
2
34.1%
SABADELL
IBERCAJA
NCG
CATALUNYABANK
KUTXA
LA CAIXA
AQR adjusted CET1 Ratio
Adjusted CET1 Ratio after Baseline Scenario
Adjusted CET1 Ratio after Adverse Scenario
LIBERBANK
POPULAR
IBERCAJA
CAJAMAR
CATALBNK
BMN
SABADELL
UNICAJA
SANTANDER
BBVA
NCG
LA CAIXA
BFA BANKIA
13%
12%
11%
10%
9%
8%
7%
6%
5%
4%
BANKINTER
France
Netherlands
Italy
0
Spain
1
CVA & Fair Value
Review
Evolution of CET1 in the
Comprehensive Assessment
(% of RWA)
KUTXA
2
Provisions on
sampledfiles
files
4.6% Provisions on sampled
17.5%
Projection
of findings
Projection of
Collective provisioning
findings review
CVA 13.8%
& Fair Value Review
Collective
provisioning review
UNICAJA
3
BFA BANKIA
4
BANKINTER
5
BMN
6
LIBERBANK
7
GDP: Deviation Between IMF
(Oct 2014) Forecasts vs.
Stressed Scenario
(In pp. 2014-2016)
64.0%
SANTANDER
GR CY SI PT AT LV EE IT MT SK BE FI NL LT IE DE LU FR ES
Source: Bank of Spain.
SPANISH ECONOMIC POLICY: REFORMS
CVA & Fair Value
Review
CAJAMAR
0
975
900
825
750
675
600
525
450
375
300
225
150
75
0
-75
Projection of
findings
Collective
provisioning review
21.7%
1
Germany
 In Spain only one bank has evidenced
an ex-ante capital shortfall (€32mn) which
has been covered after corrective
measures taken in 2014
Provisions on
sampled files
9.7%
POPULAR
 The adverse scenario entails a
substantial worsening of the Spanish
economy, both in terms of growth and
employment. The total net decline in
capital arising from the stressed scenario
amounts to 17.2 bn, i.e. 1.4pp of CET1
(vs. 3pp for the whole SSM)
Spain: Breakdown of Gross
Adjustments in the AQR
(€ mn and % of total)
SSM: Gross Adjustments in the AQR
(% of RWA and % of total)
3
BBVA
 The impact of the AQR on Spanish
banks’ RWA is 14bps, the lowest in the
SSM, which reflects the appropriate
classification, valuation and provisioning in
the Spanish financial sector. Most of the
gross adjustments due to the AQR (64%)
were due to the collective provisioning
review
REFORM OF THE FINANCIAL SECTOR
Results of the comprehensive assessment : AQR & stress tests
Data
21
1. Spanish Economic Policy
2. Transformation of Spain’s Growth Model
3. The Funding Programme of the Spanish Treasury
Transforming Spain’s economic model
 The weight of exports in GDP has increased from 22.7% in 2009 to 31.7% in 2013
 The economy has evolved from being a net debtor one to a net lender to the rest of the world.
The structural CA deficit has eroded notably; recent trends in merchandise exports support this
process despite transitory cyclical deficits linked to investment in capital goods
 This process has been supported by the structural reform process and deleveraging in the
private sector:
 The productivity- and cost-gap built up during the initial years of the EMU is eroding further
 Lower growth needed for employment creation in the private sector
 Households’ and Non-financial firms’ debt levels have adjusted considerably in the last
quarters; by 2014-Q2 adjustment in the private sector reached 34.9 pp of GDP since 2010
 Re-composition of the asset/liability structure of firms’ balance sheets, together with recent
legislative initiatives on private debt-restructuring and on the insolvency regime, reinforce the
deleveraging process
TRANSFORMATION OF SPAIN’S GROWTH MODEL
23
Recent coincident and leading indicators confirm the economic recovery
 Structural reforms implemented by the
Spanish Government allow an increased
effectiveness of demand-side economic
policies, with positive impact on economic
growth
 Recent coincident and leading indicators
point towards an expansion, especially in the
services sector
Industrial Capacity Utilisation
(Year-on-Year Growth Rates)
10
0
Capital Goods
Intermediate goods
2014
2013
2012
2011
2010
2009
2008
2007
-5
-15
Consumption goods
Source: Ministerio de Economía y Competitividad,
TRANSFORMATION OF SPAIN’S GROWTH MODEL
GDP:
2014-Q3: 1.6% y-o-y
2.5%
0.0%
Private Sector
Employment
2014-Q3:
2.0% y-o-y
-2.5%
-5.0%
-7.5%
-10.0%
2008
2009
2010
2011
2012
2013
2014
Synthetic Activity Index
GDP
Priv. Sector Employment
Data
Source: Ministerio de Economía y Competitividad,
Manufacturing and Services PMI
(Above 50  Expansion; Below 50  Contraction)
5
-10
5.0%
GDP and Private Employment Growth
vs Synthetic Activity Index
(Year-on-Year Growth Rates. Seasonally Adjusted)
Data
65
60
Last: 55.9
55
Last: 52.6
50
45
40
35
30
25
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Manufacturing PMI
Services PMI
Source: Ministerio de Economía y Competitividad,
Data
24
Wage moderation, rebalancing and competitiveness
 The initial productivity shock in 2008-2009
caused by soaring unemployment
 The structural reforms since 2011 have had
a positive impact on unit labour costs and
productivity:
 Nominal unit labour costs have declined
by 7.4% since the peak in 2009 and are
at similar levels than in 2007-Q1
-7.4%
since peak
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Germany
Source: Eurostat.
120
Italy
UK
Spain
Data
Real Labour Productivity per Person Employed
(Rebased, Index 2000=100)
115
110
105
100
95
90
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Germany
Source: Eurostat.
TRANSFORMATION OF SPAIN’S GROWTH MODEL
France
+13.4%
 Real productivity has steadily increased
since 2008 due to the shift from non
tradable goods towards tradable goods
and services, erasing relative productivity
losses registered up to 2008
140
135
130
125
120
115
110
105
100
95
Nominal Unit Labour Costs
(Rebased, Index, 2000=100)
France
Italy
UK
Spain
Data
25
Labour market reform: wage moderation and enhanced flexibility mechanisms
Workers
2012: 29,352
2013: 159,550
2014*: 84.056
100
50
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2012
2013
Source: Ministerio de Empleo y Seguridad Social.
* 2014: from October 2013 to October2014
Data
Evolution of Employment
(Year-on-year growth rates. Not seasonally adjusted)
7.5
5.0
2.5
0.0
-2.5
-5.0
-7.5
-10.0
-12.5
Entrepreneurs and Self-employed
Public sector employees
Private sector employees
Source: National Statistics Institute.
TRANSFORMATION OF SPAIN’S GROWTH MODEL
2014
2014
 The 2014 reform of the Activation Policies will have
a special incidence on productivity, on youth and
structural unemployment
150
2013
 Private sector employees are increasing since
end-2013, for the first time since early 2008
200
2012
 Since 2011 the number of employees in the
public sector has diminished substantially,
reaching 2007 levels: a reduction by 381,000
employees since 2011-Q3
250
2011
 Acceleration of self-employment and private
employment, contraction of public sector
300
2010
 Phasing out of automatic renewal of expired
collective agreements, and increasing number of
new agreements, have accelerated wage
moderation
Opt-out Measures in Wage Negotiation
(Number of opted-out agreements)
2009
 The reform has eased opting out from collective
agreements; mostly linked to wage negotiation
(approx. 90% of all opting-outs clauses in 2013)
Data
26
Lower growth needed for employment creation in the private sector
1
2
3
4
2
3
1 Quarter
3
GDP
+1.6
1
-1
45%
2
3
2013
4
1
2
3
4
2014
Source: National Statistics Institute.
2014*
1
2013
30%
Employment -3
-5
2012
25%
35%
2011
40%
33%
2013-2014
50%
4
1994
55%
45%
1993
1
59%
Employment
42%
Data
Data
Growth Required for Private Employment Creation
(Quarterly Data, Seasonally and Calendar Adjusted)
Year-on-Year
vs 2014Q2
5.0%
2014Q3: +2%
2014Q2: +1.2%
2.5%
0.0%
-2.5%
-5.0%
~1.5%
Lower growth for net private sector job growth
0
TRANSFORMATION OF SPAIN’S GROWTH MODEL
40
80
Data
-5% -4% -3% -2% -1% 0% 1% 2% 3% 4% 5%
Y-o-y GDP growth
Source: National Statistics Institute.
-7.5%
Y-o-y private employment
growth
Source: National Statistics Institute.
-40
GDP
2010
Education
Agriculture, forestry and fishing
Other Services
Water supply; Waste &…
Financial and insurance activities
Construction
International Organisations
Information & Communication
Administrative and support…
Mining and quarrying
Real estate activities
Domestic Service
Prof., Scientific & Technical…
Electricity, gas, steam & air…
Transportation & storage
Wholesale & retail trade; repair…
Public admin & defence; Social Sec.
Arts, entertainment and recreation
Human health and social work…
Manufacturing
Accommodation and food services
1993-1994
46%
Employment by Branch
(1,000s of Persons. Seasonally Adjusted)
4 Quarters
% of Sectors with
Quarterly Employment
Growth
(Annual
Averages)
60%
2009
 Private sector employment has increased by
2% in the third quarter 0.4 pp above year-onyear GDP growth
4
2
0
-2
-4
-6
Employment vs. GDP Growth
(Year-on-year Growth Rates)
39%
 New regulatory framework has affected the
minimum GDP growth required for net job
creation, while maintaining productivity growth
 one quarter lag between GDP growth and
employment creation
-10.0%
Data
27
Rapid expansion of the external sector
 As a reflection of the structural change in the
Spanish economy the weight of exports in
GDP has increased from 22.7% in 2009 to
31.6% by 2013, while the weight of investment
has declined substantially, from over 31% of
GDP to 19% in 6 years
 Cumulative Current Account from August
2013 to August 2014: +0.2% of GDP, linked to
higher imports of capital goods
 Current Account plus Capital Account
(equivalent to net lending/borrowing capacity)
stands at +0.7% of GDP
Investment, Exports and Imports
(% of GDP)
35
31.3
Euro
Area
49.0%
Ex.
Europe &
N.
America
25.8%
30
25
Exports Year 2000
22.7
Euro Area 60.5%
Ex. Europe & N.
America 16.5%
20
15
19.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Gross Capital Formation
Exports of Goods & Services
Imports of Goods and Services
Data
Source: National Statistics Institute.
4
Current Account Balance and Capital Account Balance
(% of GDP)
2.1
2
0
-2
Goods & Services
+2.5
+0.7
+0.2
2014*
Source: Bank of Spain.
* Up to August 2014
2013
Current Acc.
2012
2011
-3.9
1.4
-0.3
-1.3
2010
-4
TRANSFORMATION OF SPAIN’S GROWTH MODEL
31.6
Current+ Capital Acc.
Data
28
Recent evolution of the external sector
 Recent balance of payments statistics reflect a
stabilising trend in exports; to a great extent it is
attributable to large ticket orders in 2013 in specific
types of goods (Navantia, Mecca-Medina high speed
rail project, etc.) while others have continued with the
positive trend
 Meanwhile exports of services maintain notable
growth rates; exports of construction services are
recovering positive growth rates
Main Export Products
15.0
12.5
10.0
7.5
5.0
2.5
0.0
-2.5
-5.0
2010
Exporting Firms
(Year-on-year Growth Rates)
+10.9
Increase in Regular
Exporting Firms
since 2008:
Approx.. 4.000
Firms
-0.9
2011
2012
Regular Exporters
Source: ICEX.
2013
2014 (JanAug)*
Total Exporters
Data
Main Import Products
(With Weight in Total 2013 Merchandise Exports >1%. Smoothed data)
(With Weight in Total 2013 Merchandise Imports >1%. Smoothed data)
TRUCKS AND SPECIAL PURPOSE VEHICLES
ANIMAL AND VEGETABLE OILS AND FATS
FOOTWEAR
MEAT & MEAT PRODUCTS
MEDICAL-SURGICAL, PRECISION EQUIPMENT
AUTOMOBILES
PLASTIC MATERIALS
CLOTHING AND FURRIER INDUSTRY
PREPARED FRUIT & VEGETABLES
TEXTILE PRODUCTS
OTHER FOOD PRODUCTS
METALLIC PRODUCTS, EX MACHINERY & EQUIP.
OTHER CHEMICAL PRODUCTS
PARTS AND FITTINGS OF MOTOR VEHICLES
MACHINERY AND ELECTRIC EQUIP.
REST OF PRODUCTS
AGRIC., SILVICULTURE & FORESTRY PRODUCTS
OTHER NON-METALLIC MINERALS
METALLURGIC PRODUCTS
FISHING PRODUCTS
PAPER, PULP, PAPERBOARD & GRAPH. ARTS
RUBBER PRODUCTS
BEVERAGES
PHARMACEUTIC PRODUCTS
MACHINERY & MECH. EQUIP., EXCEPT AGRIC.
REFINED OIL & PROCESSED NUCLEAR PRODUCTS
PRECIOUS & OTHER NON FERROUS METALS
AIRCRAFT & SPACECRAFT
AUTOMOBILES
PARTS AND FITTINGS OF MOTOR VEHICLES
CLOTHING AND FURRIER INDUSTRY
MEDICAL-SURGICAL, PRECISION EQUIPMENT
PLASTIC MATERIALS
OFFICE MACHINES AND COMPUTERS
TEXTILE PRODUCTS
MACHINERY & MECH. EQUIP., EXCEPT AGRIC.
MACHINERY AND ELECTRIC EQUIP.
FISHING PRODUCTS
METALLIC PRODUCTS, EX MACHINERY & EQUIP.
RUBBER PRODUCTS
REFINED OIL & PROCESSED NUCLEAR PRODUCTS
PHARMACEUTICAL PRODUCTS
ELECTRON., RADIO, TELEVISION AND COMMUNIC.
PAPER, PULP, PAPERBOARD & GRAPH. ARTS
METALLURGIC PRODUCTS
OTHER CHEMICAL PRODUCTS
PRECIOUS & OTHER NON FERROUS METALS
AIRCRAFT & SPACECRAFT
AGRIC., SILVICULTURE & FORESTRY PRODUCTS
CRUDE OIL
BEVERAGES
OTHER FOOD PRODUCTS
NATURAL GAS
-35% -25% -15% -5%
Source: Ministerio de Economía y Competitividad.
Vs last month
Year-on-year
5%
TRANSFORMATION OF SPAIN’S GROWTH MODEL
15% 25% 35%
-35% -25% -15% -5%
Vs last month
Year on year
5%
15% 25% 35%
Data
29
Deleveraging of the private sector: re-composition of assets and liabilities
 The private sector is gradually switching from traditional debt to equity, in both, assets and
liabilities
 Non financial corporations: liabilities less intensive in loans and commercial credit, more
holdings of equity vs. currency and deposits. This feature will be enhanced through recent
structural reforms (Royal Decree on Debt Restructuring & Reform of the Insolvency Regime)
 Households holdings of equity have improved household wealth through stock market growth
Source: Bank of Spain.
TRANSFORMATION OF SPAIN’S GROWTH MODEL
Loans
2012
2014-Q2
Other assets
Ins. pensions & stand. guarantees
Equity and inv. Fund shares
Debt Securities
Currency and deposits
2010
2012
2010
2008
2014-Q2
Other
Ins. pensions & stand. guarantees
Equity and inv. Fund shares
Loans
Debt Securities
0%
2006
2014-Q2
2012
2010
2008
0%
20%
2006
2014-Q2
2012
2010
2008
2006
2004
Loans
Other assets
Ins. pensions & stand. guarantees
Equity and inv. Fund shares
Debt Securities
20%
2004
40%
40%
2008
60%
80%
100%
98%
96%
94%
92%
90%
88%
86%
2006
60%
Households
(In % of Total Financial Assets/Liabilities)
Assets
Liabilities
2004
100%
80%
50%
0%
100%
2004
100%
Non-Financial Corporations
(In % of Total Financial Assets/Liabilities)
Assets
Liabilities
Other
Data
30
Deleveraging of the private sector: non-financial corporations
TRANSFORMATION OF SPAIN’S GROWTH MODEL
2014
2013
2011
2010
2009
2012
Italy
UK
Data
Data
7.1
8.0
2013
10.1
6.0
to Gross Disposable Income
7.0
2014
2012
2011
2010
2009
0
2008
10
5
9.0
vs Gross Operating Surplus
15
2007
2
10.0
2006
3
11.0
20
2005
4
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
Source: National Statistics Institute.
Interest to GDP
France
25
2004
2.3
Gross Operating Surplus to GDP
108.3
27.1 / 10.2
2003
19
5
30
2002
21.2
17
Spain
Source: ECB & Bank of Spain. ESA-2010 data for Spain.
2001
6
5.7
18.4
7.7 pp/Year
since 2010Q4
ADJUSTMENT
25.1 pp of GDP
Non-Financial Corporations. Liabilities Excl. Equity to
Gross Disposable Income and Gross Operating Surplus
Gross Operating Surplus of Non-Financial
Corporates and Interest Paid
(% of GDP)
21
Germany
vs Gross Disposable Income
23
133.4
2008
 Gross operating surplus of non-financial
corporations has increased form below 18% of
GDP to above 21% in 6 years
 Strong flow correction: indebtedness excl.
equity to Gross Operating Surplus and to
Gross Disposable income below 2002 levels
140
130
120
110
100
90
80
70
60
Debt of Non-Financial Corporations
(% of GDP)
2007
 Non-financial firms reduced their debt stock by
c.25% of GDP. Firms generating savings and
concentrated on reducing debt
to Gross Operating Surplus
Source: National Statistics Institute and Bank of Spain.
Data
31
Deleveraging of the private sector: households
 By 2018 the Household Debt/GDP ratio
will be in line with the current ratios of
Germany or France
 By 2020-2023 the existing mortgage stock
would be halved vs. today’s levels
ADJUSTMENT
10.3 pp of GDP
2.4 pp per year
84.0
France
UK
2013
2014
Spain
2012
Germany
2011
2010
73.7
2009
 Projections of existing mortgage debt
amortisation schedules point in the direction of
a fast deleveraging process
Household Debt
(% of GDP)
2008
 Debt/GDP of Spanish households has
declined from 84.0% in 2010Q4 to 73.7%
by 2014Q2
110
100
90
80
70
60
50
40
2007
 Households have progressively reduced
their leverage ratios and their debt is below
2007 levels
Source: ECB & Bank of Spain. ESA-2010 data for Spain.
Data
Deleveraging Scenarios of Mortgage Debt at Different
Interest Rates and with no New Flow
(€ bn)
900
800
700
600
500
400
300
200
Historical values
Projections
100
1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029
Stock
Scenario 0.5%
Source: Santander GBM Research.
TRANSFORMATION OF SPAIN’S GROWTH MODEL
Scenario 3.0%
Scenario 5.0%
32
The construction sector has accelerated its adjustment
 Real estate prices have fallen on average by
approx. 30% in nominal terms since the peak
in 2008
Nominal Housing Price Adjustment Since
the Peak in Each Province
(In percent)
2013-Q2
2014-Q1
2014-Q2
 Recent data point towards milder declines
around coastal areas and increased
adjustment in the inner provinces
 The
adjustment
has
been
very
heterogeneous and more intense around most
populated and coastal provinces
 The average nominal price decline since
the peak for new dwellings reaches 30%
 Significantly more houses sold than started
or finished: gradual reduction of unsold stock
> 40%
40%-35% 35%-30% 30%-25% 25%-20% 20%-15% 15%-10%
Source: Ministerio de Fomento.
75,000
Monthly Houses Started, Finished and Sold
(Units, Trend-Cycle. Monthly Data)
50,000
25,000
0
2007 2008 2009 2010 2011 2012 2013 2014
Housing Starts
Houses Finished
Source: Ministerio de Economía y Competitividad.
TRANSFORMATION OF SPAIN’S GROWTH MODEL
Houses Sold
Data
33
1. Spanish Economic Policy
2. Transformation of Spain’s Growth Model
3. The Funding Programme of the Spanish Treasury
The Treasury’s Revised Funding Programme for 2014
 In line with fiscal consolidation strategy for 2014, the net funding in the Treasury’s Funding
Programme for 2014 was revised downwards by €10 bn,
 Up to October 31st the Spanish Treasury has funded €121.9 bn of the expected amount of the
regular medium- and long-term gross issuance
 Including Letras, the Spanish Treasury has issued €204.9 bn so far in 2014
(billion euros, in effective terms)
Total Net Issuance
Total Gross Issuance
1,2
January 2014
65.0
242.4
June 2014
Update
55.0
231.3
Funding Programme in 2014
(Gross issuance, € bn, October 31st 2014)
Medium- and Long-Term
Gross Issuance 2,3
Net Issuance3
Letras del Tesoro
Forecast Gross Issuance1
Net Issuance
133.3
65.0
109.1
0.0
129.3
61.0
102.0
-6.0
1 Redemptions of Letras, and therefore also gross issuance, will depend on the Letras
issuance stra tegy in 2014
2 Excluding additional issuance for early redemptions.
3 Includes debt in other currencies, Bonos & Obligaciones, and assumed debts
THE FUNDING PROGRAMME OF THE SPANISH TREASURY
Source: Secretaría General del Tesoro y Política Financiera.
Data
35
Syndicated issuance in 2014
 In June 2014, the Spanish Treasury launched
its third syndicated transaction of the year in
concurrence with a switch offer (reducing the
gross refinancing needs of the Kingdom of Spain
in 2015)
JUNE - NEW 10 YEAR REFERENCE. OCTOBER 2024
CASH BOOK
by Type of Investor
(%)
Geographic Distribution
(%)
 The new €9bn (€3.7bn switch / €5.3bn cash)
10 year benchmark issue (due 31 October 2024)
has a 2.75% coupon and was priced at a spread
of 118 bps over mid swaps
 In October 2014 the Kingdom of Spain issued
through syndication its second bond indexed to
Euro Area HICP Ex-Tobacco
 Due 30 November 2019, the EUR 5bn 5-year
benchmark issue carries a 0.55% annual coupon
and was priced at a spread of 69 bps through
the nominal bond with coupon 4.3% due October
2019
OCTOBER - NEW 5 YEAR BOND LINKED TO
EA HICP EX. TOBACCO. NOVEMBER 2019
Hedge fund
9.6%
Other
0.1%
Official Institution
11.4%
Bank
20.9%
Italy
3.3%
DE/AT/CH
5.8%
Nordics
Other
3.2%
1.4%
Spain
25.6%
BeNeLux
6.3%
USA
9.6%
UK/Ireland
17.6%
Insurance/Pension
19.0%
Fund manager
38.9%
THE FUNDING PROGRAMME OF THE SPANISH TREASURY
Geographic Distribution
(%)
by Type of Investor
(%)
Asia
11.3%
France
15.9%
36
Cost and life of debt
Cost of Debt Outstanding and Cost at Issuance
Average Life of Debt Outstanding
1.61
6.4
Cost of Debt Outstanding
10
(*As of October 31st 2014, in years)
100%
2013
2012
6.0
6.20
Cost at Issuance
Marginal Life at Issuance of
Bonos and Obligaciones
Average Life at Issuance of
Bonos and Obligaciones
9.6
(*As of October 31st 2014, in years)
9
80%
8.6
8
60%
7.6
7.6
7
40%
6
20%
0%
6.2
2011
2014*
2013
2012
2011
2010
2009
2008
2007
2006
2005
1.0
2004
2.0
6.38
2010
2.5
6.6
2009
3.0
2014*
3.52
2008
3.5
6.8
2007
4.0
2005
4.5
1.5
(*As of October 31st 2014, in years)
7.0
2004
5.0
2006
(*As of October 31st 2014, in percent)
2010
<3
2011
3-5
2012
5-9
2013
9-15
2014*
>15
THE FUNDING PROGRAMME OF THE SPANISH TREASURY
5.1
5
4
2010
2011
2012
2013
Source: Secretaría General del Tesoro y Política Financiera.
2014*
Data
37
Households & Nonfinancials
Public Admin.
0
-40
2009
2010
2011
2012
2013
2014*
Non-Resident
Source: Secretaría General del Tesoro y Política Financiera.
* 2014: Year-on-year change. September 2013 to August 2014
Data
THE FUNDING PROGRAMME OF THE SPANISH TREASURY
Aug 2012
33.5%
(€191.8 bn)
40%
Aug 2014
40.6%
(€290.9 bn)
35%
+116.4 bn
2012
Aug 2012
30.5%
(€174.5 bn)
2013
Registered Holdings
Aug 2012
40.6%
(€232.5 bn)
45%
2014
Term Investment
+15.1 bn
40%
Aug 2014
34.6%
(€247.6 bn)
35%
Aug 2012
34.1%
(€195.2 bn)
30%
25%
20%
Registered Holdings
Sep 2014
28%
(€203.3 bn)
2014
40
Resident Credit Institutions (%)
Pens. & Ins., Mutual
Funds
Other Financial Inst.
Sep 2014
46.4%
(€336.8 bn)
45%
30%
Credit Inst.
80
50%
2013
(Term Investment. € bn)
120
Holdings
of Unstripped Government Debt
2012
Change in Term Investment by Investor Type
Non-Resident (%)
Recent trends in investor base
Term Investment
38
Prudent debt management
 Redemption dates of medium- and long-term
bonds (mainly January, April, July and
October) are accommodated to match the
dates of biggest inflows of tax revenues
 Excess liquidity is lent in the money market
each month through weekly, bi-monthly and
monthly repo auctions
Relative Redemptions, including T-Bills
25%
15.8%
14.7%
15
10
5
0
Jan Feb Mar Apr May Jun
T-Bills
Bonos
Jul Aug Sep Oct Nov Dec
Obligaciones
Other
Data
Administrative Distribution of Tax Collection
14.7%
Jan Feb Mar Apr May Jun
314.9
59.4
10%
6.5%
190.0
5%
0%
(€ bn)
20
19.9%
168.5
15%
Monthly Maturity Structure in 2014
as of October 31st 2014
Source: Secretaría General del Tesoro y Política Financiera.
323.8
20%
(% of estimated 2014 GDP. November 2014 to October2015)
25
Italy
Spain
Belgium
France
Sources: Secretaría General del Tesoro y Política
Financiera for Spain, September 30th data for Italy,
and Bloomberg for other countries.
Germany
Jul Aug Sep Oct Nov Dec
Personal Income Tax
Corporate Income Tax
VAT
Excise Duties & Other
Degree of concentration of tax collection
-
+
Data
THE FUNDING PROGRAMME OF THE SPANISH TREASURY
39
Interest rate volatility has diminished
 Significant
spreads
tightening
in
sovereign
 Rates have stabilised for longer periods,
enabling more efficient investment decisions
by market agents
Intraday Yield Range, 10-Day Rolling Average
45
(Generic 10-year Government Bond yields
intraday high-low spread, bps)
600
(%)
Jan-12
Jan-13
US
Germany
Spain CDS Curves
1Y
2Y
(In bps)
Italy
Jan-14
Spain
500
400
30
300
200
15
0
Jan-11
Generic 10-year Government Bond Average Yield Levels
8
7
6
5
4
3
2
1
0
Jan-11
100
Jan-12
US
Jan-13
Germany
Italy
Jan-14
Spain
THE FUNDING PROGRAMME OF THE SPANISH TREASURY
0
6M
Source: Bloomberg.
Jul-12
3Y
4Y
Oct-13
5Y
Oct-14
7Y
10Y
Data
40
Evolution of Ratings
Rating and Rating Actions vs.
Spread to 10Y Bunds
(rating)
Aaa/AAA/AAA
Aa1/AA+/AA H
Aa2/AA/AA
(basis points)
-25
0
25
50
75
100
125
150
175
200
225
250
275
300
325
350
375
400
425
450
475
500
525
550
575
600
16
14
Aa3/AA-/AA L
A1/A+/A H
12
A2/A/A
A3/A-/A L
10
Baa1/BBB+/BBB H
Baa2/BBB/BBB 8
Baa3/BBB-/BBB L
Ba1/BB+/BB H
6
Ba2/BB/BB
Ba3/BB-/BBB L
4
B1/B+/B H
B2/B/B
2
B3/B-/B L
MOODY'S
S&P
FITCH
DBRS
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
0
Risk Premium (rhs)
Data
THE FUNDING PROGRAMME OF THE SPANISH TREASURY
41
More and updated information on the Spanish economy
For spreadsheets click on ‘Data’
Click here to download all spreadsheets
42
Thank you for your attention
Rosa María Sánchez-Yebra Alonso – General Secretary of the Treasury and Financial Policy
[email protected]
José María Fernández Rodriguez – Director General of the Treasury
[email protected]
Pablo de Ramón-Laca – Deputy Director, Head of Funding and Debt Management
[email protected]
Leandro Navarro
[email protected]
Carla Díaz
[email protected]
Julio Poyo-Guerrero
[email protected]
José Miguel Ramos
[email protected]
Teresa Morales
[email protected]
For more information please contact:
Phone: 34 91 209 95 29/30/31/32 - Fax:34 91 209 97 10
Reuters: TESORO
Bloomberg: TESO
Internet: www.tesoro.es
For more information on recent developments:
www.thespanisheconomy.com
43
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44