fijando los fundamentos para el crecimiento sostenible-(ingles)) investors presentation_september...

7/29/2019 Fijando los fundamentos para el crecimiento sostenible-(Ingles)) Investors Presentation_September 2013.pdf

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Setting the Foundations for Sustainable Growth

September 2013


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Table of Contents

1. Overview

2. Sustainability of Public Finances and Reform of the Public Sector

3. Thorough and Transparent Reform of the Banking Sector

4. Far Reaching Structural Reforms

5. Results in the Private Sector: Rebalancing of the Economy

Appendix: Funding and Debt Management Policies

2


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Overview

3


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Addressing the Imbalances of Spains Economy

Lower funding costs and broader investor base in sovereign debt market. Strong commitment to

continuing structural reforms

2

4

Commitment with the sustainability of public finances

Clean up and recapitalization of banks leading to a strong financial system

Structural reforms to boost competitiveness and productivity

Structural fiscal adjustment of c.3.1% in 2012 according to IMF

All levels of public administration accounts are becoming sustainable

Deficit / GDP in 2012 (y-o-y change): central government 4.11% (1pp), regions: 1.76% (1.6pp),

local entities: 0.15% (0.3pp)

Three pillars of Spains economic policy

Increased coverage ratios to real estate and construction

Banks exposure to real estate sector down by almost 50% in 2012

More transparent and better equipped banks to finance real economy

Enhanced transparency framework and strengthened financial supervision

Labour market reform is behind the decline in unit labour costs Since 2009, Spains ULC have declined by 7% vs Eurozone up by 3%

In the past 6 months, registered unemployment has decreased by 341,000 (down by 6.8%)

Orderly private sector deleveraging: -26pp of GDP (from 231% in June 2010 to 205% in Q1 2013)

Trade balance surplus with the Eurozone and strong export performance: exports of goods +8% y-o-y in H1

2013. In H1 2012 they increased by 1.2%

1

3


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Spains Economy is Enduring a Significant Adjustment

5

Public sector deficit contracted by 2 percentage points and private sector continued its

deleveraging process

___________________________Source: MINHAP, Banco de Espaa, Spanish Customs, Ministerio de Fomento, Eurostat, INE.

2011 2012CHANGE

12/11

PUBLIC

SECTORPublic Deficit, excl. financial sector one-offs (% GDP) 8,96% 6,98% -1,98 p.p.

LABOUR

MARKET

Wage increase agreed in collective wage agreements (y-o-y change) 2,7% 1,7% -36,9%

Unit labour costs. Total economy (y-o-y growth) -1,5% -3,4% -1,9 p.p.

Productivity per employee. (y-o-y growth) 2,2% 3,2% 1,0 p.p.

Total labour cost (y-o-y growth) 1,2% -0,6% -1,8 p.p.

EXTERNAL

SECTOR

Current account balance (% GDP) -3,5% -1,1% 2,4 p.p.

Net Lending(+)/Borrowing(-) vs RoW (% GDP) -3,0% -0,6% 2,4 p.p.

Net International Investment Position (% GDP) -91,7% -91,9% -0,2 p.p.

Exports of goods (y-o-y growth) 15,6% 4,2% -11,4 p.p.

Trade balance ( mn) -42.331 -25.800 16.532

Share of exports to Euro Area 53% 49% -3,3 p.p.

Share of exports to non Euro Area 47% 51% + 4 pp

Trade balance with Eurozone ( bn) 1.636 7.777 6.141

FINANCIAL

SECTOR

Provisions; Impairment losses on assets ( mn) (Dec. 2012) 125.258 191.566 66.308Net equity, adjustments and provisions ( mn) (Dec. 2012) 363.348 405.173 41.825

Provision coverage over credits (Dec. 2012) 7,0% 11,9% 4,9 p.p.

PRIVATE

SECTOR

DEBT

Gross debt. Non financial corporates and households (% GDP) 221,0% 210,5% -10,5 p.p.

Gross debt. Non financial corporates (% GDP) 138,8% 130,7% -8,1 p.p.

Gross debt. Households. (% GDP) 82,2% 79,8% -2,4 p.p.

HOUSING Price of Housing per sq m (y-o-y growth) 1.702 1.531 -10,0%

Control of public finances

Wage moderation and

productivity

Competitiveness,

Product and geographical

diversification

Sounder and moresolvent financial

system

Deleveraging via

debt reduction

Adjustment in

housing market


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Spains adjustment in an international context

6

Spain Euro Area USA UK Japan

(% yoy change) 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013

GDP growth -1.6 -1.3 -0.6 -0.4 2.2 1.9 0.3 0.6 2.0 1.4

HICP 2.4 1.5 2.5 1.6 2.1 1.8 2.8 2.8 0.0 0.2

Unit Labour

Costs-3.4 -0.6 1.4 1.4 0.9 0.6 3.2 2.5 -1.5 -1.1

Public Deficit

(% GDP)-7.0 -6.5 -3.7 -2.9 -8.9 -6.9 -6.3 -6.8 -9.9 -9.5

General Govt

Gross Debt

(% GDP)

84.2 91.3 92.7 95.5 106.5 108.1 90.0 95.5 237.9 245.4

Exports of Goodsand Services 3.1 4.1 2.7 2.2 3.5 3.5 -0.2 1.3 -0.3 4.0

Current Account

(% of GDP)-0.9 1.6 1.8 2.5 -3.0 -2.8 -3.7 -2.7 1.1 1.8

___________________________Source: Spains Stability Programme Update April 2013, European Commission, Spring Forecasts 2013 and IMF Fiscal MonitorApril 2013

Despite the recent turbulences, the Euro Area displays strong macroeconomic

indicators


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Remaining challenges at the EU-level

Despite theadvances in theinstitutional setup of the Euroarea,fragmentationpersists andthere are

asymmetries inSME access tocredit

GenuineEuropean

banking union

Lending rates of new loans to Non-Financial corporations(Maturity up to a year, less than 1 million)

A credible commitment towards a robust and complete Monetary Union is required

1

2

3

Single Supervisory Mechanism

Single Resolution Mechanism

Common Deposit Guarantee Scheme

7

0

1

2

34

5

6

7

8

9

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Germany

Spain

France

Ireland

Italy

Portugal

2013


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Sustainability of Public Finances and Reform of the Public Sector

8


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Structural fiscal consolidation efforts to remain in an adverse international economic

environment

Commitment to continue with the Fiscal ConsolidationEfforts

Spains 2012 deficit was 6.98% of GDP excluding one-off support to the f inancial sector. In structural terms and according to

the IMF, Spains fiscal effort was 3.1% of GDP; the highest amongst large developed economies

The adjustment path to bring the public deficit below 3% has been extended by 2 years. However this does not imply a fiscal

relaxation at all: the structural effort will remain substantial

Plus, any unexpected growth surprise over and beyond the forecast scenario will be principally directed towards public

deficit reduction

___________________________1. Ministry of Economy and Competitiveness.

The fiscal path for the public administrations (excl. one-offs)

9

Forecast

(% of GDP) 2012 2013 2014 2015 2016

Central Government -4,1 -3,8 -3,7 -2,9 -2,1

Autonomous Regions -1,8 -1,3 -1,0 -0,7 -0,2

Local Governments -0,2 0,0 0,0 0,0 0,0

Social Security Administrations -1,0 -1,4 -1,1 -0,6 -0,5

General Government -7,0 -6,5 -5,8 -4,2 -2,8

-12

-10

-8

-6

-4

-2

0

2012 2013 2014 2015 2016

Deficit Structural balance Cyclical balance

Breakdown of Public Balance (% GDP)


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Spains structural fiscal efforts guarantee thesustainability of public finances

10

IMF Projections of Change in Cyclically Adjusted Primary

Balances

___________________________Source: IMF and European Commission (Spring forecasts, 2013)

-2,00

-1,00

0,00

1,00

2,00

3,00

4,00

5,00

Australia

Canada

France

Germany

Italy

Japan

Korea

Spain

UK

US

EU

2013 2012

Evolution of debt/GDP ratios of selected countries

30,0

50,0

70,0

90,0

110,0

130,0

150,0

2008 2009 2010 2011 2012 2013 2014

Belgium Germany SpainFrance Italy UK

Euro area

Change in cyclically adjusted primary balance 4.5% of GDP

in 2012 and 2013. The largest among G20 economies

Spains debt/GDP ratio is sustainable. It is expected to

increase to levels around the Eurozone average


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A new institutional and regulatory framework for allpublic administrations

Fiscal discipline at all levels of the administration

Early-warning system, enforcement and

sanction procedures

Transparency: monthly and quarterly reporting on budget

execution. Submission of budgetary guidelines previous to

the approval of regional budgets

Assurance of compliance: coercive measures andenforced compliance

Law for transparency in the public administrations:

accountability & governance

Budgetary and Financial Stability Law &

Enhanced Transparency

Fund for the Financing of Payments to Suppliers (FFPP):

Provides a financing vehicle to regional and local

governments for the regularisation of arrears

o Outstanding commercial debt owed to suppliers

Forcing fiscal adjustment at regional and local level.

Subject to conditionality

Disbursed amounts:

Local Administrations:9.3bn Regional Administrations:17.5bn

and a1.2bn increase in 2013

Regional Liquidity Mechanism (FLA):

9 of the 17 regions have adhered to the FLA

2012:16.6bn

2013:23.0bn (already computed in debt/GDP ratio)

Liquidity & Financing to Regions and Local Governments

11

Regional governments posted a deficit of 1.76% of GDP in 2012. This represents a modest deviation from the deficit target of 1.5% of

GDP. But it is 1.6pp less than last years deficit thanks primarily to cuts in expenditures

The structural fiscal framework has been strengthened through:

The approval of the Budgetary and Financial Stability Law

The creation of two funds to ensure adequate funding of local and regional governments

In 2012, all 17 regions managed to reduce their deficits by an average of 1.6% of GDP


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A Thorough and Transparent Reform of the Banking Sector

12


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Introduces a state-of-the-art recovery and resolution system for banks, which has already

been tested Early intervention for banks in mild difficulties

Restructuring measures for institutions with temporary troubles that can be solved with

public support

Orderly resolution for non-viable institutions

Early introduction of provisions foreseen in the future European Directive on Bank Recovery

and Resolution currently under negotiation at the EU level

Banking Sector Reform: A Transparent andComprehensive Exercise

New framework forBank Restructuring

and Resolution

13

Cleaning-up of balance sheets through increased provisioning requirements.

The impact on profits and reserves of increased coverage requirements on exposures related to real estate developershas been of78bn.

Identification of individual bank capital needs through evaluations from the IMF and independent external evaluators.

70% of the Spanish financial sector is sound and didnt require additional capital.

Capital needs concentrated on the 4 banks owned by the FROB (BFA-Bankia, Catalunya Bank, NCG Banco, Banco

Valencia), which account for 18% of the system.

Recapitalisation, restructuring and/or orderly resolution of the troubled banks.

Total public support for the f inancial sector has been41.3bn; less than 4% of GDP.

Segregation of real estate problem assets and their transfer to an external Asset Management Company (SAREB).

SAREB, with majority of private capital (55%), has received50.5bn of foreclosed assets and risks linked to developers.

Regulatory reform focused on resolution, savings banks, enhanced transparency and minimum capital requirement for all

banks.


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According to the European Commission and the IMFs progress reports, the reform

remains on track despite the ambitious deadlines

Spains Financial Sector Reform remains on Track

14

EUROPEAN COMMISSION

Brussels, 3 June 2013

On the basis of the review, it can be concluded that the programme remains on track

Spanish financial markets have further stabilised since the last review, with sovereign and corporate bond yields dropping amidst

lower volatility. In parallel, the liquidity situation of the Spanish banking sector has further improved. This allowed Spanish banks to

further regain access to funding markets and to reduce reliance on central bank financing. Also, the solvency position of Spanish

banks has been bolstered after the recapitalisation of parts of the banking sector and the transfer of assets to SAREB (the

Spanish asset management company), and solvency rates are above regulatory requirements

The process of bank restructuring is well underwayFurther important steps have been taken since the last review in separating impaired assets from banks, as the foreseen transfers

of assets to SAREB have now been completed and SAREB has become fully operational

Progress has also continued with respect to horizontal financial-sector conditionality. Thereby, compliance with the requirements

in the Memorandum of Understanding is nearly complete and achievements toward strengthening the governance, regulatory

and supervisory framework of the Spanish banking sector have been made

Recent government initiatives aimed at strengthening non-bank financial intermediation are welcome, including capital market

funding and venture capital non-bank financing...

The solvency position of Spanish banks has been bolstered after the recapitalisation of parts of the banking sector and the transferof assets to Sareb

There is at present no reason to foresee further programme disbursements (Third review of the programme)


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Segregation and transfer to an Asset Management Company of troubled assets from

banks that have received public support

Asset Management Company: SAREB

28 equity holders, of which 27 are private investors and

include domestic and foreign banks and

insurance companies

The only public shareholder is FROB, with a 45% stake

Equity:4.8bn (25% share capital / 75% subordinated

debt)

Business Plan with a 15 year horizon

Expected RoE of approx. 1314% under conservative

assumptions.

Transferred assets:50.5bn, for a gross book value of

106.6bn Overall average discount close to 52%

A total of around 200.000 assets have been transferred:

Foreclosed RE assets 107.000 assets for a value

11.3bn

Loans to RE developers 90.500 assets for a value

of39.4bn

Assets Liabilities

Transfer of assets from

Group 1 and Group 2

banks completed:

Foreclosed RE assets

with net accounting value

250.000 of net

accounting value

Equity approx. 8% of

total assets

Majority holding by

private investors (55%)

Sources of funding:

1. State-guaranteed senior

debt issued in exchange

of assets received

2. Subordinated debt and

common equity

TOTAL ASSETS 55.5bn

15

SAREBs activity

Nearly1bn of cash collections coming from the on-going activities by month-end July 2013

Wholesale disposals and activityare picking up

9th August: disposal of245m of loans to Colonial 6th August: Bull project: Sareb creates an SPV with an institutional investor to sell together a portfolio valued

at100m consisting of 939 homes and annexes and a commercial real estate asset 30th May: Sareb sold its interest of35m in a syndicated loan to Metrovacesa


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Enhanced Transparency in Refinancing Requirements

Spain is leading the field in best practice transparency frameworks and is well ahead its European partners

Disclosure requirements have been enhanced and

harmonised for all entities on key areas of their portfolios

such as restructured and refinanced loans, NPLs, asset

quality across asset classes, sectorial concentration and etc.

In 2012, restructured and refinanced operations amount to

208bn, equivalent to around 13% of the total loan portfolio

c58% of the refinanced portfolio considered doubtful or

substandard, and hence already provisioned

The remaining 40% of the portfolio are performing loans

33% of the refinanced portfolio is related to real estate

developers and construction. These exposures were

significantly provisioned in 2012

The Oliver Wyman stress test already took refinanced and

restructured loans into account:

It specifically considered refinanced loans: the default

rates of non-doubtful refinanced exposures were adjusted

. This increased the estimated capital needs These assumptions were more conservative than current

developments, as actual figures and data prove

16

88,3

42,9

77,0

0,0

50,0

100,0

150,0

200,0

250,0

bn

Performing Substandard Doubtful

Restructured and refinanced loans in 2012

7,9

31,3

0,0

10,0

20,0

30,0

40,0

50,0

bn

Provisions for restructured and refinanced loans

Bank of Spain has homogenised the classification criteria of restructured and refinanced loans across banks to

ensure adequate provisioning


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Sharp reduction in number of branches and number of employees in the financial sector

A significant Capacity Adjustment has already occurred

The Spanish financial sector has wound down most of

the excess capacity built up during the housing boom

-13% in employees and -17% in number of

branches from the peak in 2008

The recapitalisation exercise entails further

downsizing, with marked increases on the efficiency

ratios of the sector

The total number of entities has decreased from 50 in

2009 to 12 in 2012 (excluding credit cooperatives and

foreign branches)

Sizeable reduction in the former saving banks

model: from 45 to 7 entities that have been

transformed into banks

Legislation to improve, strengthen and clarify the

governance structure of former savings banks and ofcommercial banks controlled by them

Adjustment in Deposit Taking Institutions: No. of Employees and Branches

___________________________Source: Bank of Spain.

Employees Branches

17

37.000

39.000

41.000

43.000

45.000

235.000

245.000

255.000

265.000

275.000

2000 2002 2004 2006 2008 2010 2012

Employees Branches

2013


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Far Reaching Structural Reforms

18


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An ambitious reforms agenda

19

2012

Labour Market

Reform

Other Structural

Reforms

Fostering wage moderation and facilitating job creation

with lower GDP growth rates

Eliminating dualities and rigidities in the labour market

Moving beyond the model of indexation of salariesand wages

Addressing high youth unemployment levels

Has avoided 225,800 job losses during its first year of

application

Retail sector: liberalization of opening hours and

elimination of restrictions on sale activities Liberalization of the Housing rental market

Health and Education. Streamlining and cost reduction in

order to increase efficiency

The 2012 set of reforms aimed at increasing the Flexibility and Competitiveness of the

Economy


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A labour market reform to foster wage moderation andjob creation

Firm-level wage bargaining prevails over national, regional or sector agreements

Collective dismissals without administrative authorization are allowed for firms posting falling profits for

three or more consecutive quarters

Convergence of dismissals costs with the EU average

Unjustified dismissal: severance pay of 33 days per year worked up to 24 months

Justified dismissal: severance pay of 20 days per year, up to 12 months

Clarification of objective causes for justified dismissals

Creation of a new permanent contract directed at SMEs

Summary of measures adopted

20

The latest Labour Force Survey of Q2 2013 indicates that:

Employment increased by 149,000 in Q2 2013, even beyond seasonally adjusted

terms, in stark contrast to the 15,900 jobs shed in Q2 2012.

Unemployment fell by 225,000. The second largest quarterly decrease since

records are kept.

Total registered unemployment has decreased in the last 6 months by 341,000, down by

6.8%.

Social Security affiliation (registered employment) has increased in the last 6 months by

267,000 to 16.3 million.

Against an

adverse cyclical

position, the

latest

employment

data signals a

change in

labour market

dynamics


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Impact of the labour market reform: July assessment

The increase in unemployment has moderated since the reform was approved

The y-o-y rate of increase in unemployed workers has dropped to 5% in Q2-13 from 18% in Q2-12, despite the moresevere cyclical context

For the first time since the onset of the crisis, weaker growth has not led to a faster pace of job destruction in the private

sector

Self-employment has progressed more favourably in the last 9 quarters, especially since the reform was approved

More jobs would have been lost without the labour market reform. The reform would have helped prevent the destruction of

almost 226,000 jobs in the year before its implementation

After this reform, the Spanish economy will create employment with GDP growth rates of around 1%-1.2%, according to the

Ministry of Economys own estimates. Significantly below the figure before the reform, which was above 2%.

The reform is already having a positive impact on Spains labour market

21

Year-on-year change in unemployment Change in registered self-employed workers (H1 of each year)

-84.367

-14.045

6.4131.153

22.985

-100.000

-80.000

-60.000

-40.000

-20.000

0

20.000

40.000

2009 2010 2011 2012 2013

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

70,0%

80,0%

90,0%

2Q-13

1Q-13

4Q-12

3Q-12

2Q-12

1Q-12

4Q-11

3Q-11

2Q-11

1Q-11

4Q-10

3Q-10

2Q-10

1Q-10

4Q-09

3Q-09

2Q-09

1Q-09

4Q-08

3Q-08

2Q-08

1Q-08

17.8%

5%

___________________________Source: INE and Ministry of Employment and Social Security

000s workers


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Increased Competitiveness and Declining LabourCosts

Total labour costs in 2012 dropped by 0.6%,

compared to the 1.2% increase registered in2011. So far in 2013 they have fallen by 1.4%

Wage costs, which had been moderating since

the labour market reform was implemented, fell

by 1.8% in Q1 2013

This has had a positive effect on unit labour

costs which have been on a downward trend

since 2009

The declining unit labour costs are boosting

competitiveness

Unit labour costs have decreased by 3.0% in

2012. So far in 2013 they are falling by 2.6%

y-o-y

There are signs of less segmentation due to

the fall of dismissal costs

On average, dismissal costs have

decreased almost 13% in 2012 compared to

2011

Unit Labour Costs & Productivity and Labour Costs

__________________________Source: Eurostat; Ministry of Economy and Competitiveness.

Index 2008 = 100 y-o-y change

22

Evolution of ULCs in the largest European economies

Index 2005 = 100

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

90

95

100

105

110

115

2008 2009 2010 2011 2012 2013

Unit Labour Cost (Left Axis) Labour Productivity (Left Axis)

Labour Costs (Right Axis)

95

100

105

110

115

120

125

130

2005 2006 2007 2008 2009 2010 2011 2012 2013

UK Spain GER FR IT


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The Reform Programme goes on

23

2013National Reforms

Programme

Measures to Improve

the Financing

of the Economy

Fight Against

Unemployment

Reforms in

Internal Markets

&

Enhanced

Business

Framework

Modernisation and

Rationalisation

of the Public Sector

The National Reforms Programme details the Structural Reform road-map and aims to

increase the flexibility and competitiveness of the Spanish economy


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Modernization and Rationalizationof the Public Sector

24

Law of Transparency, Access to Public Information and Good Governance of all Public Administrations

Creation of the Independent Authority of Fiscal Responsibility which shall ensure the compliance of the

principle of Budgetary Stability at every level of the Administration.

To be set-up before the preparation of the 2014 budget

Improved governance practices

The basic parameters of the Social Security system will be reviewed, in light of the evolution in life

expectancy and other demographic and economic factors. New regulation to be approved throughout 2013

These measures are complemented by those that have already been approved in terms of transparency in

budgetary execution and with the measures to be adopted to fight arrears and late payments of Public

Administrations

Social Security measures: legal regulation of the sustainability factor

The Law will focus on the structure of the local administration, targeting fiscal balance, greater efficiencyand the professionalization of the political and administrative functions. Four main objectives:

To clarify local responsibilities in order to avoid duplicities and overlaps,

To rationalize the organizational structure,

To ensure financial and fiscal discipline, and

To promote a business friendly regulation

Draft Law on the rationalization and sustainability of the local administrations


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Measures to improve the financingof the economy

25

Incubator Seed Capital Start-up Expansion Maturity

Business

Angels

Network

CDTI

National

Incubator

Network

Enisa

Fondo

Isabel la

CatlicaSpain StartUp

Coinvestment

Fund

FOND ICO

Global

ICO/Axis

Sepides

Cofides

Other Capital

Markets

MARF

MAB

Risk

Development

New

Existing

A number of measures have been launched to mitigate the effects of credit restriction and to increase the

range and flexibility of the financing sources available to companies, with particular attention to

companies in internationalisation stages and SMEs

Main measures:

Securities markets: launching an alternative fixed

income market (MARF), decreasing administrative

burdens in security issuances, facilitating the

movement between alternative (MAB) and

organized stock markets Venture capital: reform of the Law of Venture

Capital entities, launching of FOND-ICO Global

and the National Network of Business Incubators,

reinforcement of business angels

Modification of the Insolvency Law.

Banking Channel: ICO lines ( 22 bn), commitment

by banks to increase SME financing by 10 bn in

2013 Loan Guarantees: reinforcement of the mutual

guarantee system, CESCE line, ICO-CAF facility


26/42

Fight against unemployment

26

Plan of Employment Policies 2013 (Q2)

Pluri-annual Strategy for Employment Activation 2014-2016

(Q4 2013)

Implementation Strategy of the dual vocational training

system (2013-2015)

Entrepreneurship and Youth Employment Strategy

2013-2016

Reform of certificates of professional competence

New management system of unemployment benefits

Creation of a Single Gateway for Employment and

improvement of public-private partnerships

Reform of active labour

market and improvement of

the employability and skills of

the unemployed


27/42

Reforms in Internal Markets and EnhancedBusiness Framework

27

Supports a favorable environment for entrepreneurs and the development and internationalization of

companies (Draft Law 24th May 2013)

Entrepreneur of limited liability

Less red tape: setting up of limited liability companies without public deeds in 24 hours and reduced

bureaucratic procedures through Access Points for the Entrepreneur

Fostering second chances: out-of-court resolution mechanisms

Fiscal support for entrepreneurs: Cash VAT

New tax deductions: profit reinvestments, R&D+I, etc.

Measures to improve entrepreneurship financing :

Fewer constraints to issue in the Alternative Fixed Income Market (MARF)

More flexible conditions for refinancing agreements

New financing instruments for the internationalization of companies Measures to spur entrepreneurial growth: elimination of binding municipal licenses and fewer obstacles for

public tender participation

Measures to foster the internationalization of the Spanish economy: fixed income instruments for

internationalization, privatization of CESCE (Spains export-credit insurance agency), and trade finance

facilities

Law on Entrepreneurship and its Internationalization


28/42

Reforms in Internal Markets and EnhancedBusiness Framework (continued)

28

To remove unnecessary barriers to professional access and exercise, and to boost competitiveness. Toreduce the number of regulated professions. Draft law approved on 2nd August

Law on Professional Services and Professional Organizations

Law on Des-indexation of the Spanish Economy

To foster competitiveness by promoting indexation mechanisms other than the automatic indexation tothe general CPI (January 2014)

Reform of the Energy Sector

To achieve the long term sustainability ofSpains power system by anticipating economic, technological

and demand changes, as well as increasing competition and the security of the supply

Measures to achieve a balance between revenues and costs of the electricity system

To improve Spains framework of corporate governance according to the highest international standards

New Code of Corporate Governance

A new visa regime for non-residents to attract investments

Reactivation of the Residential Housing Market

A new regulatory model based on the principles of free establishment and free movement of goods and

services throughout the Spanish territory. Draft Law already approved

Law on Market Unity Guarantee


29/42

Results in the Private Sector: Rebalancing of the Economy

29


30/42

Resources redeployed away from construction and real estate and into healthier sectors

The Private Sector is Deleveraging at a Fast Pace

Total private sector gross debt has fallen from 231% of GDP in June 2010 to less than 205% of GDP in Q12013

Both household debt and nonfinancial companies debt is significantly falling

Households debt is in line with EU average, 80% of GDP

The indebtedness of the construction and real estate companies explains most of the difference in the

leverage ratios vs. other economies

Indebtedness Ratios of Households Indebtedness Ratios of Non-Financial Corporations

___________________________Source: Bank of Spain.

30

Max (Q2-10): 141%Spain excl. construction

and RRE

Q4-12:

130.5%

60,0

70,0

80,0

90,0

100,0

110,0

120,0

130,0

140,0

150,0

2005 2006 2007 2008 2009 2010 2011 2012

Spain Euro Area UK USA

Max: 87.3%Q2-10

Q4-1279.7%

50,0

60,0

70,0

80,0

90,0

100,0

110,0

2005 2006 2007 2008 2009 2010 2011 2012

Spain Euro Area UK USA


31/42

Real estate prices have already fallen by c. 30% from their peak

The Real Estate Sector has Accelerated its Adjustment

The largest annual decrease so far occurred in 2012 with a correction in prices of nearly 10%

On average, nominal house prices are at 2004 levels; adjustment more intense around most populated

and coastal provinces

Relative stabilisation in house transactions, more intense in Mediterranean provinces

Housing prices decliningNominal housing price adjustment in Spain

since peak in each province (%)

___________________________Source: Ministerio de Fomento.

Q4 2011 Q4 2012

>-30 -30 -25 -20 -15 -10 -5 0

31

-29%

800

1.000

1.200

1.400

1.600

1.800

2.000

2.200


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Wage moderation has resulted in a competitiveness based expansion of exports

Rapid Expansion of the External Sector

Despite the global economic slowdown, in H1 2013, exports of goods have increased by 8% in real terms (well

above last years increase during the same period; 1.2%)

Exports of non-tourist services, mainly due to professional services and services to firms, have outpaced exports

of goods and tourist services

___________________________Source: Eurostat; Instituto Nacional de Estadstica.

Exports of Goods and Services Breakdown of Exports of Goods and Services

Index, 2005=100 Index, 2005=100

32

80

90

100

110

120

130

140

150

160

170

Germany Spain France

Italy UK Ireland

80

90100

110

120

130

140

150

160

170

180

190

2005 2006 2007 2008 2009 2010 2011 2012 2013

Goods Non-tourist services Tourist services


33/42

Spain will have a surplus in its current account by year-end 2013

External Imbalances are being Corrected

From 2007 to 2012 the adjustment in the current account has been of 9% of GDP

The Current Account is in surplus since H2-2012

This will enable Spain to decrease its net external indebtedness

The correction in the current account is of a structural nature and is due to competiveness gains stemming from an internal

devaluation. The adjustment is more sustainable than the one achieved by exchange rate devaluations in the 90s

Product diversification and product quality have resulted in a higher resilience of exports to the economic cycle

Geographical diversification of goods exports: exports to non-EU economies account for more than 40%

Product diversification: the range of exports has increased particularly in higher value added goods and services

___________________________Source: Bank of Spain. European Commission

Current Account Balance and its Adjustment Current Account Balance & Trade Balance (goods)

Cumulative Adjustment (in % of GDP) % of GDP

33

-12,0

-10,0

-8,0

-6,0

-4,0

-2,0

0,0

2,0

4,0

Current account balance Trade Balance (goods)

Forecast for 2013/14

0

2

4

6

8

10

12

0 1 2 3 4 5 6

CA '07: 10%

CA '91: 3.6%

CA'97: -0.1%

CA '13 (F): +1.3%

years since maximum current account (CA) deficit

1992: 1st and 2nd devaluations of the Peseta

1993: 3rd devaluation


34/42

The correction in the current account is of a structuralnature

While the 2009 correction in Spains current account was due to a decrease in imports and in internal demand, the

correction in 2012 and 2013 is mainly due to strong export performance

Spains exports now represent around 33% of GDP and the performance is amongst the best in the EU

___________________________Source: Ministry of Economy and Competitiveness, Eurostat

Spain: Evolution of Exports, Imports and National Demand

34

80

85

90

95

100

105

110

115

120

2007 2008 2009 2010 2011 2012

Exports (goods) Imports (goods) National demand

Index, 2008 = 100

Exports of goods and services in select countries

% GDP

20,0

22,0

24,0

26,0

28,0

30,0

32,0

34,0

36,0

2006 2007 2008 2009 2010 2011 2012 2013 (F) 2014 (F)

Spain France Italy United Kingdom


35/42

Appendix: Funding and Debt Management

35


36/42

Spain has demonstrated financial flexibility andresilience during the crisis

Despite volatility in European public debt markets, the Treasury is financing itself adequately. Average cost atissuance and average cost of debt outstanding have remained subdued

Average life of the debt portfolio has declined in the last year, mitigated by the ESM loan

(12.5 years average life) but at 6.3 years its remains longer than rating peers

Cost of Debt Outstanding and Cost at Issuance

(*As of 30th June, in %)

Average Life

(*As of 30th June, in years)

___________________________Source: General Secretariat of the Treasury and Financial Policy.

36

3,893,80

3,01 2,66

2,02,5

3,0

3,5

4,0

4,5

5,0

5,5

6,0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013*

Average cost of Debt outstanding Average cost at issuance

6,35 6,29

4,0

4,5

5,0

5,5

6,0

6,5

7,0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013*


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Comfortably on track of 2013s funding programme

Year to date, the Spanish Treasury has funded92.8bn (77%) of the maximum expected amount of medium- andlong-term gross issuance of121.3bn

Including T-Bills, the Spanish Treasury has issued165.8bn so far in 2013, around 72% of the overall programme

for the year

___________________________Source: General Secretariat of the Treasury and Financial Policy.

Funding Programme. 2013 (Gross issuance, in bi l l ion Euros , as of 27thAug ust 2013)

37

215bn-230bn

0

50

100

150

200

250

Total Medium & long term Letras

Projected Executed

77%

72%

106.3bn- 121.3bn

Variable throughout

the year

6%


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Non-resident demand of Spains bonds is picking up

In contrast to the sharp decrease in registered holdings of bonds in the first half of last year, non-resident demand

has picked up in recent months (+48.5bn vs. August 2012; gross term Investment at similar levels than in April

2011)

Change in Holdings of Non-Resident Investors

(Term Investment. bn)

Non-Resident Holdings of Unstripped Government Debt

(As a % of total)

___________________________Source: General Secretariat of the Treasury and Financial Policy .* As of May 31st 2013.

May -13

37%

Apr-13

35%

38

-40000

-20000

0

20000

40000

60000

80000

100000

120000

140000

2008 2009 2010 2011 2012 2013

Credit Institutions Other Fis

Public Administrations Pension, Insurance, Mutual

Households and non-financials Non-Resident

25%

30%

35%

40%

45%

50%

55%

60%

2011 2012 2013

Term investment Registered holdings


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A Prudent Debt Management Strategy

Redemption dates of medium- and long-term bonds (principal and coupons) match the biggest inflows oftax revenues

Excess liquidity is lent in the money market each month through repo auctions

Liquidity lines with banks provide an additional buffer

Maturity Structure of Medium- and

Long-Term Bonds (In billion Euros)Administrative Distribution of Tax Collection

___________________________Source: General Secretariat of the Treasury and Financial Policy .

0

24

6

8

10

12

14

16

18

20

22

24

26

28

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Letras Bonos

Obligaciones Foreign Currency & Other

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

Personal Income Tax

Corporate Income Tax

VAT

Excise and duties

Degree of concentration of tax collection

- +

39


40/42

Risk and Refinancing Measures

Redemptions of Euro-denominated debt remain well in line with those of peers

Maturity Structure of Medium- and Long-Term Bonds

(In billion Euros)

Relative Redemptions

(% GDP 2012. July 2013 to June 2014)

0

10

20

30

40

50

60

70

80

90

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

305.562.6

298.5

137.2

217.0

___________________________Source: General Secretariat of the Treasury and Financial Policy .

___________________________Source: General Secretariat of the Treasury and Financial Policy for Spain, and Bloombergfor other countries.

40

19,8%

15,7%16,0%

14,1%

7,4%

0%

5%

10%

15%

20%

25%

Italy

Belgium

France

Spain

Germany

311.5

63 3

11

147

201


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15-year Bono:3.5bn, 5.15%, October 2028

41

Distribution by investor type

Distribution by regionFourth syndicated benchmark deal of the year

On the 9

th

July 2013, Spain successfully priced itsnew 15-year bond: 3.5bn size, 5.15% coupon,

Oct-2028 maturity

The issue is the Kingdom of Spains first 15-year

syndicated bond since March 2011.

The deal is the fourth syndicated transaction

of the year, following two 7bn 10-year

bonds in January and May and a USD2bn 5-

year in February

The new bond was officially announced on Monday8th July and priced on Tuesday afternoon

In just under two hours the orderbook for the

transaction grew to7.5bn

Over 130 investors participated in the transaction Demand from non-domestic investors

exceeded 54% of the orderbook

With this syndicated transaction, Spain completedover 70% of its medium- and long-term funding

programme for 2013

Key summary details

Amount: 3.5bn

Issue date: 9-July-2013

Maturity date: 31- Oct- 2028

Coupon: 5.15%

Re-offer spread vs. ms: +280bp

Re-offer yield: 5.194%

The deal further evidences that Spain has full market access to the long-end of the curve

Spain;

46%

EZ; 18%

UK;

18%

US;

14%

Nordics

; 2%

Switzerland; 2%

Banks;

24%

Asset

Mngrs;

22%

Private

Banks;

4%

Hedge

Funds;

13%

Insurance and

Pension Funds;

36%


42/42

Contact details

For more information please contact:[email protected]

[email protected]

Phone: +34 91 5836043 - Fax:+34 91 5835396

Reuters: TESORO

Bloomberg: TESO

Internet: www.mineco.eswww.tesoro.es

For more information on recent developments:www.thespanisheconomy.com

42
mailto:[email protected]:[email protected]://www.mineco.es/http://www.tesoro.es/http://www.thespanisheconomy.com/http://www.thespanisheconomy.com/http://www.tesoro.es/http://www.mineco.es/mailto:[email protected]:[email protected]:[email protected]

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