Bank of Spain Circular 5/2021, of September 22, amending Circular 2/2016, of February 2, to credit institutions, on supervision and solvency, which completes the adaptation of the Spanish legal system to Directive 2013/36/EU and Regulation (EU) No. 575/2013.
This circular regulates the establishment of the countercyclical capital buffer on one or several sectors, the limits on exposures to certain sectors and the possibility of establishing limits and conditions on the granting of loans and other transactions by institutions for operations with the private sector in Spain.
First, this circular incorporates into the countercyclical buffer framework much of the Basel Committee on Banking Supervision (BCBS) guiding principles published in November 2019. For the activation and determination of the countercyclical buffer on specific sectors, a broad set of variables are identified that have the capacity to act as early warning indicators of sectoral imbalances. In particular, the following categories of indicators are considered:
- sectoral credit volume indicators - measures of credit growth, intensity and gaps;
- asset price indicators -evolution and specialized imbalance measures for each sector-, and
- indicators of sectoral macro-financial imbalances -indebtedness, net wealth, financing capacity or need, savings rate, and consumption and investment gaps, among others-.
As regards sectoral limits on the concentration of exposures, a continuity is established with the countercyclical capital buffer on one or more sectors. The only difference between these measures, in terms of the sectoral segmentation of the credit portfolio, is that two additional sectors are added to include exposures to the financial sector. In addition, concentration is defined in terms of the weight that this exposure has on equity; in this case, on the institution's CET1.
In this way, an absolute limit on exposures is not established, but depends on the institutions' resources to cover potential losses. Another difference between these measures and the countercyclical capital buffer is that the exposures to which they refer are not risk-weighted. These limits may be required for a particular sector, or for several of them together, and may be in place in conjunction with other macroprudential tools. An adjustment time period will be specified to facilitate rapid convergence towards these limits. To determine the concentration limits, the Bank of Spain will take into account, among other criteria, the evolution of the aggregate exposure in each sector, its historical weight in the total portfolio of exposures and its recent evolution, its relevance in the GDP and in the sectoral value added, and its weight in the aggregate CET1.
Regarding the setting of limits and conditions on the granting of loans and other transactions, this circular establishes different conditions that may be activated. Thus, according to the explanatory memorandum of Royal Decree-Law 22/2018, the Bank of Spain may set limits on the maximum indebtedness that a borrower may obtain:
- given the collateral provided (loan to value);
- to the portion of disposable income that can be used to pay its debt (debt service to income);
- to the level of debt to income (debt to income) and;
- to the maturity date of the transaction, among other measures.
These limits may be activated individually or jointly, and other macroprudential instruments may be in force at the same time. Furthermore, these limits may be different for certain groups, both in the case of individuals and legal entities.
In order to determine the need to activate these tools, the Bank of Spain will analyze, among other criteria, the recent evolution of credit and real activity, the characteristics of the granting of loans and multiple indicators of the degree of solvency, income and indebtedness of individuals and legal entities.
Formally, the regulation is made up of a single amending article, a final provision and an annex.
This circular shall enter into force on the twentieth day following its publication in the BOE.
