APPENDIX XII: Refinancing and restructuring operations and other requirements under Bank of Spain Circular 6/2012

REFINANCING AND RESTRUCTURING OPERATIONS

a) Group policies and principles with respect to refinancing or restructuring operations

Refinancing/restructuring operations (see definition in the Glossary, Appendix XIII) are carried out with customers who have requested such an operation in order to meet their current debt payments if they are expected, or may be expected, to experience financial difficulty in making the payments in the future.

The basic aim of a refinanced/restructured operation is to provide the customer with a situation of financial viability over time by adapting repayment of the debt incurred with the bank to the customer’s new situation of fund generation. The use of refinancing or restructuring with for other purposes, such as for delaying loss recognition, is contrary to BBVA Group policies.

The BBVA Group’s refinancing/restructuring policies are based on the following general principles:

• Refinancing and restructuring is authorized according to the capacity of customers to pay the new installments. This is done by first identifying the origin of the payment difficulties and then carrying out an analysis of the customers’ viability, including an updated analysis of their economic and financial situation and capacity to pay and generate funds. If the customer is a company, the analysis also covers the situation of the sector in which it operates.
• With the aim of increasing the solvency of the operation, new guarantees and/or guarantors of demonstrable solvency are obtained where possible. An essential part of this process is an analysis of the effectiveness of both the new and original guarantees submitted.
• This analysis is carried out from the overall customer or group perspective, and not only from the perspective of a specific product.
• Refinancing and restructuring operations do not in general increase the amount of the customer’s debt, except for the expenses inherent to the operation itself.
• The capacity to refinance and restructure debt is not delegated to the branches, but decided on by the risk units.
• The decisions adopted are reviewed from time to time with the aim of checking full compliance with refinancing and restructuring policies.

These general principles are adapted in each case according to the conditions and circumstances of each geographical area in which the Group operates, and to the different types of customers involved.

In the case of retail customers (private individuals), the main aim of the BBVA Group’s policy on refinancing/restructuring debt is to avoid default arising from a customer’s temporary liquidity problems by implementing structural solutions that do not increase the customer’s debt. The solution required is adapted to each case and the debt repayment is made easier, in accordance with the following principles:

• Analysis of the viability of operations based on the customer’s willingness and ability to pay, which may be reduced, but should nevertheless be present. The customer must therefore repay at least the interest on the operation in all cases. No arrangements may be concluded that involve a grace period for both capital and interest.
• No refinancing/restructuring operations may be concluded on debt that is not incurred with the BBVA Group.
• Customers subject to refinancing or restructuring operations are excluded from commercial campaigns of any kind.

In the case of wholesale customers (basically businesses and corporations), refinancing/restructuring is authorized according to an economic and financial viability plan based on:

• Forecast future income, margins and cash flows over a sufficiently long period (around five years) to allow companies to implement cost adjustment measures (industrial restructuring) and a business development plan that can help reduce the level of leverage to sustainable levels (capacity to access the financial markets).
• Where appropriate, the existence of a divestment plan for assets and/or business segments that can generate cash to assist the deleveraging process.
• The capacity of shareholders to contribute capital and/or guarantees that can support the viability plan.

As stated in Note 3 of the accompanying Financial Statements, the BBVA Group acquired Unnim in 2012. Unnim’s policies with respect to debt refinancing may have been different from those of BBVA, but after its integration it adapted its policies to those established by the BBVA Group.

In accordance with the Group’s policy, the conclusion of a debt refinancing/restructuring operation does not imply the debt is reclassified from "impaired" or "substandard" to outstanding risk; such a reclassification must be based on the analysis mentioned earlier of the viability and effectiveness of the new guarantees submitted.

In any event, the Group maintains its policy of including risks relating to refinanced/restructured assets as either: "doubtful assets", as although the customer is up to date with payments, they are classified as impaired for reasons other than their default when there are significant doubts that the terms of their refinancing may not be met; "substandard assets", because there is some material doubt as to possible non-compliance with the refinanced operation; or "normal-risk assets" (although as mentioned in the table in the following section, they continue to be classified as "normal-risk assets with special monitoring" until the conditions established by Bank of Spain Circular 6/2012 for their consideration as outstanding risk are met).

b) Quantitative information on refinancing and restructuring operations.

BALANCE OF FORBEREANCE (a)

Download Excel

BBVA GROUP DECEMBER 2012 (Millions of euros)	NORMAL (b)						POTENTIAL PROBLEM LOANS
	Real estate mortgage secured		Rest of secured loans (c)		Unsecured loans		Real estate mortgage secured		Rest of secured loans (c)		Unsecured loans		Specific coverage
	Number of operations	Gross amount	Number of operations	Gross amount	Number of operations	Gross amount	Number of operations	Gross amount	Number of operations	Gross amount	Number of operations	Gross amount
1 Government agencies	112	5	14	87	11	707	2	227	1	12	4	220	7
2 Other legal entities and individual entrepreneurs	10,046	3,225	1,002	400	24,996	2,762	3,485	2,436	732	653	10,173	1,347	866
Of which: Financing the construction and property development	2,312	1,688	93	106	984	421	702	1,287	77	422	221	75	600
3 Other individuals	76,940	3,845	3,742	434	331,051	487	32,440	2,684	3,458	590	23,876	253	289
4 Total	87,098	7,075	4,758	921	356,058	3,956	35,927	5,348	4,191	1,254	34,053	1,820	1,162

BBVA GROUP DECEMBER 2012 (Millions of euros)	IMPAIRED							TOTAL
	Real estate mortgage secured		Rest of secured loans (c)		Unsecured loans		Specific coverage
	Number of operations	Gross amount	Number of operations	Gross amount	Number of operations	Gross amount		Number of operations	Gross amount	Specific coverage
1 Government agencies	14	19	1	7	-	-	1	159	1,284	9
2 Other legal entities and individual entrepreneurs	7,665	3,873	1,556	1,133	12,516	907	2,131	72,171	16,736	2,997
Of which: Financing the construction and property development	2,790	2,764	392	818	746	361	1,800	8,317	7,942	2,400
3 Other individuals	30,646	1,998	2,224	370	103,796	300	863	608,173	10,961	1,151
4 Total	38,325	5,890	3,781	1,511	116,312	1,207	2,995	680,503	28,981	4,157

(a) Includes all forbereance operations as defined in paragraph 1.g) of Annex IX of Circular 4/2004 of the Bank of Spain (b) Risks rated as normal in special monitoring as stated in paragraph 7.a) of Annex IX of the Circular 4/2004 of the Bank of Spain. (c) Includes mortgage-backed real estate operations not full, ie loan to value greater than 1, and secured operations, other than transactions secured by real estate mortgage, of whatever their loan to value.

The BBVA Group’s total refinancing operations as of December 2012 amounted to €28,981 million. Of this figure, 68% corresponded to BBVA S.A., 12% to Unnim and 20% to the rest of the BBVA Group.

The refinanced debt in a normal risk situation in BBVA S.A. (€7,367 million) accounts for 3% of total credit. A further 3% is classified as substandard risk (€6,402 million), with a coverage of 14.5%.

The risk figure for refinanced debt in the commercial portfolio (developers and other companies) includes not only refinanced debt but also the total position associated with the customer.

Of the performing (normal and substandard) portfolio, 23% is loans to developers, 37% corresponds to other companies and 40% to retail portfolios.

• In 2012 the portfolio of loans to developers has been subject to high loan-loss provisions as a result of the deterioration of assets related to the real-estate sector in Spain. The coverage ratio of this portfolio is between 25% and 35% on average, depending on whether the risk is normal or substandard, and according to the type of guarantee.
• In the Other Companies portfolio, which includes businesses and corporations, 60% is in a normal risk situation and 40% substandard. Large corporations account for 15% of the portfolio. Here, refinancing represents temporary financial support in cases of cash-flow tensions, but the solvency of the companies means that the NPA ratio is residual. The rest of the risk is with businesses, a segment where the oldest debt refinancing operations, with a high level of maturity, mean that repayments of 37% of the initial amount of the principal have already been made. Of all the refinancing operations in this group, 38% are classified as impaired (22% due to default and the rest as subjective).
• In the retail segment, the Residential Mortgage group accounts for around 34% of the performing refinanced risk. As 53% of this portfolio was restructured in 2008 and 2009, it is considered mature and its results are used as a benchmark. In this group nearly all the customers are already paying the capital plus interest and the default rate stands at 22%. Some 6% of non-performing customers are classified as in "subjective default".

OTHER REQUIREMENTS UNDER BANK OF SPAIN CIRCULAR 6/2012

a) Quantitative information on the concentration of risks by activity and guarantees

LOANS AND ADVANCES TO CUSTOMERS BY ACTIVITY (carrying amount)

Download Excel

	Millions of Euros
	Total (*)	Of which: Mortgage loans	Of which: Secured loans	Collateralized Credit Risk. Loan to value
				Less than or equal to 40%	Over 40% but less than or equal to 60%	Over 60% but less than or equal to 80%	Over 80% but less than or equal to 100%	Over 100%
1 Government agencies	36,963	673	2,796	147	199	258	8	2,857
2 Other financial institutions	1,639	41	6	12	19	11	4	1
3 Non-financial institutions and individual entrepreneurs	158,587	41,652	23,444	22,241	13,815	15,716	7,677	5,647
3.1 Construction and property development	24,158	15,583	4,544	5,202	4,987	6,129	1,739	2,068
3.2 Construction of civil works	6,195	1,184	611	693	375	270	99	358
3.3 Other purposes	128,234	24,885	18,289	16,346	8,453	9,317	5,839	3,221
3.3.1 Large companies	83,169	11,492	4,564	8,723	3,017	1,966	1,029	1,321
3.3.2 SMEs and individual entrepreneurs	45,064	13,394	13,725	7,622	5,436	7,351	4,809	1,900
4 Rest of households and NPISHs	160,941	115,188	2,524	22,074	28,783	46,718	16,826	3,311
4.1 Housing	119,618	112,487	340	19,780	27,943	45,807	16,359	2,937
4.2 Consumption	35,194	521	1,797	1,236	277	443	249	115
4.3 Other purposes	6,129	2,180	387	1,058	563	468	218	259
SUBTOTAL	358,129	157,555	28,769	44,475	42,816	62,703	24,516	11,815
5 Less: Valuation adjustments due to impairment of assets not attributable to specific operations	4,954
6 TOTAL	353,175
MEMORANDUM:
Forbereance operations	24,824	18,312	3,686	4,919	3,877	5,744	4,210	3,248

(*) The amounts included in this table are net of impairment losses.

b) Quantitative information on the concentration of risks by activity and geographical areas

Download Excel

	Millions of Euros
	TOTAL (*)	Spain	Rest of European Union	America	Rest of the world
	1 Credit institutions	63,881	14,886	44,155	1,408	3,432
2 Government agencies	117,436	62,028	9,272	42,227	3,909
2.1 Central Administration	90,374	36,948	8,864	40,679	3,882
2.2 Rest	27,062	25,080	407	1,548	27
3 Other financial institutions	51,236	9,406	14,483	27,036	311
4 Non-financial institutions and individual entrepreneurs	194,864	88,025	26,017	69,400	11,423
4.1 Construction and property development	24,158	15,526	278	8,324	31
4.2 Construction of civil works	8,537	4,187	1,856	2,473	19
4.3 Other purposes	162,169	68,311	23,883	58,602	11,373
4.3.1 Large companies	110,149	43,547	18,819	39,692	8,090
4.3.2 SMEs and individual entrepreneurs	52,020	24,764	5,063	18,910	3,282
5 Rest of households and NPISHs	176,559	110,510	4,382	58,221	3,446
5.1 Housing	134,292	98,865	3,140	31,193	1,093
5.2 Consumption	35,194	6,678	466	25,714	2,336
5.3 Other purposes	7,074	4,967	776	1,314	17
SUBTOTAL	603,976	284,854	98,309	198,292	22,521
6 Less: Valuation adjustments due to impairment of assets not attributable to specific operations	5,000	-	-	-	-
7 TOTAL	598,976	-	-	-	-

(*) The definition of risk for the purpose of this statement includes the following items on the public balance sheet: Loans and advances to credit institutions, Loans and advances to customers, Debt securities, Other equity securities, Trading derivatives, Hedging derivatives, Investments and Contingent risks. The amounts included in this table are net of impairment losses

.