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On April 30, 2013, the Bank of Spain’s Executive Commission approved a letter to be sent to regulated institutions setting out the Bank of Spain’s criteria on the application of the provisions of Circular 4/2004 on loan refinancing and restructuring (“refinancings”), as regards their definition, documentation, monitoring and review.

According to the press release attached to the letter, on the basis of the information obtained following the publication of Circular 6/2012, the Bank of Spain has observed differences in institutions’ accounting policies with respect to refinancings. The letter seeks to establish general uniform criteria.

The essential idea reflected in the criteria is that loan refinancing policy is a necessary instrument for management of risk with customers undergoing difficulties, provided such difficulties are transitory. If the customer’s difficulties prove not to be transitory, the institution must recognize that situation and reclassify the loans as doubtful or substandard, according to the severity of the difficulties experienced.