The Bank of Spain is studying the establishment of stricter criteria in the valuation of properties that act as a real guarantee in credit operations. It intends to make banks revise periodically the valuation of properties acting as a guarantee for loans, as well as of those received as payment for debts. In normal operations, this frequency will be of one year for the commercial properties and of three years for the rest, unless these last ones are joined to loans that exceed three million Euros or 5% of the resources of the institution.
In substandard operations, the finished properties will also be revised annually and in any case the doubtful operations. The Bank of Spain is also proposing additional criteria for certain levels of risk in reference to the valuation, in case of restructuring of the financing or “always when the market conditions or other circumstances indicate that the prices of the assets could be experiencing important decreases”, among other cases.
Additionally it considers that if the financial institution does not have a revision of the value according to these criteria, it should reduce the value of the asset in 20% from the last valuation. It also plans to reinforce the transparency of the valuation companies, which will have to submit documentation to the Bank of Spain and have a Code of Behavior, as well as a certain independence from their clients.
Finally, it also establishes new procedures for the “responsible granting of loans and credits to consumers”, especially if they are related to operations in foreign currencies