Spanish dynamic provisions: main numerical features

Abstract

This article contains a detailed numerical analysis of the Spanish dynamic provision, both at the whole system level and at the level of different groups of banks. In general terms, the maximum amount of general or dynamic provisions accumulated at the peak of the lending cycle was almost €26 billion. In relative terms, a coverage of 1.1% of the credit portfolio and of almost 1% of total assets was achieved at that peak. Currently, general provisions are almost depleted to prove that they were designed as an automatic mechanism to be used as a macro-prudential countercyclical tool. In terms of risk weighted assets, dynamic provisions reached 1.5% of credit risk weighted assets at the peak of the cycle which is around half way from the maximum countercyclical capital buffer designed for Basel III. The fact that MoU group 1 and group 2 banks had accumulated at its peak €7,000 million euro of general or dynamic provisions has reduced in an equivalent amount the public capital injections required by these banks. The amount saved in this counterfactual exercise is close to 1% of the Spanish GDP.