The European Commission has approved to the restructuring plans of the Spanish banks BFA-Bankia, Banco Novagalicia, Catalunya Banc and Banco de Valencia, thus allowing these entities to receive aid from the European Stability Mechanism (ESM). In order to receive this aid each bank will have to reduce its balance sheet more than 60% by 2017 compared to 2010.

The approval granted by the European Commission to the restructuring plans of the four Spanish State-owned banks, meets one of the requirements set forth in the Memorandum of Understanding (MOU) signed between Spain and the Eurogroup in July 2012. According to the Commission, these plans comply with EU rules on state aid and contain a series of safeguards to limit potential distortions of competition in the market due to the aid.

The proposed restructuring plans provide for a series of commitments from the banks and includes the transfer of some impaired assets to the national entity created for the management of assets coming from the bank restructuring (Sareb) that will reduce capital needs. Capital needs for these four banks will be of €17,960 million in the case of BFA-Bankia, €5,425 million for Novagalicia, €9,080 million for Catalunya Banc and €4,500 million for Banco de Valencia, bringing the total capital needs of Spanish State-owned banking sector to €36.965 million.

Among the measures to be applied, the Spanish authorities and the Commission have agreed on the sale of Banco de Valencia that will disappear as such and will be integrated into CaixaBank. Regarding BFA-Bankia, Catalunya Banc and Novagalicia Bank, the Commission has concluded that these three banks are viable in the long term. However, their business models will focus on retail and SME lending, limiting their presence in the wholesale business and dropping lending to real state development.

All banks have committed to divest a number of industrial equity stakes and subsidiaries to help finance the restructuring and to limit the remuneration in State-owned banks, a ban on coupon payments until measures on burden-sharing measures on hybrid entities are fully implemented and the commitment to not use the aid to introduce more aggressive commercial strategies or make acquisitions.