Introduction to SPAIN

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3 Introduction to SPAIN Spain is the fourth largest economy in the Eurozone. Having joined the Euro, the country experienced a very strong, albeit largely imbalanced, period of economic expansion. Largely fuelled by the booming construction sector and surging house prices, all funded by external debt, GDP growth averaged 3.6% a year between 2000 and The 2008 financial crisis precipitated the burst of the housing bubble which in turn led to a double sovereign and banking crisis. Spain has emerged from the crises after a long and painful process to reform the labour market and rebalance the economy towards industrial and export-oriented sectors. Its banking sector has been restructured and recapitalised (for EUR 40bn) under a European programme, but the State never lost access to the debt capital markets. The country is rapidly recovering. During the crisis years, the Spanish economy concentrated on its most productive companies, notably those capable of finding sources of growth abroad to compensate for the slump in domestic activity. Gains in cost-competitiveness allowed Spain to increase its market share both inside and outside the Eurozone. Spain is now entering a third consecutive year of GDP growth of close to 3% in 2017, and GDP is about to regain its pre-crisis peak level of activity. The country has taken back its position in the leading group of fast-growing countries of the euro area. The composition of GDP has dramatically changed over nine years, a reflection of the rebalancing of the economy. Compared to 2008, investment in residential construction has nearly halved, taking its weight in GDP from 10% to 5% at the end of Conversely, exports of goods and services have grown by 25%, and now represent 33% of GDP. Unemployment has been falling rapidly since the recovery began but was still above 17% in mid The country needs to maintain a pace of growth sufficiently rapid over the coming years to strengthen labour, but will also to take action to enhance the employability of job-seekers in the fastest-growing sectors (mainly business services and tourism, but also the manufacturing industry during the current catch-up period). Indeed, and in a legacy of the crisis, many current job seekers used to work in the construction sector and/or are among the long-term unemployed. This will take some considerable time and is a major challenge for the Spanish government in the next few years. It also has to put the public debt ratio (just below 100% of GDP) on a more decisive downward path. Summary BNP Paribas presence BNP Paribas has been present in Spain since 1979 when foreign banks were first allowed to operate there. Since then, the bank has become one of the largest foreign financial institutions in the country, with over 4,000 employees. BNP Paribas has four business centres across the country (Barcelona, Bilbao, A Coruna and Madrid), offering proximity to its institutional customers throughout Spain. Working with BNP Paribas BNP Paribas provides comprehensive domestic and international payment, collection, cash management and trade finance services in Spain both to mid-cap and large corporations headquartered in Spain, and Spanish subsidiaries of foreign corporations. The bank's cash management offering includes local instruments such as Pagares, Recibos, Efectos and Confirming capabilities, with comprehensive support for local AEBxx formats and flexible lockbox solutions. In addition, BNP Paribas' virtual account solutions facilitate automated reconciliation of incoming credit transfers. International trade finance solutions range from vanilla to highly specialist solutions, including supply chain management.

4 Currency Currency Spain uses the euro (EUR). Bank accounts Resident / non-resident status A company is generally considered resident in Spain if its place of effective management is located in Spanish territory or its head office is registered under Spanish law. Bank accounts for resident entities Inside Spain Outside Eurozone Local Currency Permitted without restriction, fully convertible. Permitted without restriction, fully convertible. Foreign Currency Permitted without restriction, fully convertible. Permitted but opening and closing of accounts must be reported to Banco de España, fully convertible. Bank accounts for non-resident entities Inside Spain Outside Eurozone Local Currency Permitted without restriction, fully convertible. Permitted without restriction, fully convertible. Foreign Currency Permitted without restriction, fully convertible. Not applicable. Payments & Collections Credit transfers Credit transfers are used by companies to pay salaries and suppliers, and to make tax and treasury payments. SEPA credit transfers can be settled via the SNCE and via STEP2 (accessed via the SNCE).

5 Approximately 130 banks in Spain participate in the SEPA credit transfer scheme. High-value and urgent domestic and cross-border (within the euro zone) credit transfers can be settled in real time via TARGET2-BE. High-value and urgent cross-border credit transfers can also be settled with end-of-day value via the Euro Banking Association's EURO1 system. Five banks in Spain participate directly in EURO1. Cross-border transfers can be made via SWIFT and settled through correspondent banks abroad and/or bank branch networks. In November 2017, the European Payment Council s SCTInt scheme (a pan-european 24/7 instant payment scheme for SEPA credit transfers) will go live across all SEPA countries. The scheme will enable the transfer of funds (the maximum threshold value for SCTInsts will be EUR 15,000) to another account in less than ten seconds. Direct debits Direct debits are used for regular payments, such as utility bills. SEPA direct debits can be settled on a same-day basis via STEP2 (accessed via the SNCE). Final settlement takes place in TARGET2-BE. Liquidity management Domestic: notional pooling Domestic notional cash pools can be expensive to operate in Spain because of the restrictions on banks offsetting credit and debit balances. Resident and non-resident bank accounts can participate in the same notional pool structure, as can different legal entities. Intercompany cross-guarantees are required when participating entities have different beneficial ownership structures. Spain s rules on transfer-pricing and thin capitalisation may affect intercompany cross-guarantees. Interest rate enhancement is offered by some banks as an alternative. Domestic: cash concentration Domestic cash concentration structures are available. Zero balancing (barrido de saldos) is the most commonly used structure. Resident and non-resident bank accounts can participate in the same cash concentration structure, as can different legal entities. Transactions with a value above EUR 50,000 between a resident account and a non-resident account must be reported to the Banco de España every ten days. Cross-border notional pooling Cross-border notional pooling structures are available but are not typically located in Spain because of the restrictions on banks offsetting credit and debit balances. Intercompany cross-guarantees are required when participating entities have different beneficial ownership structures. Spain s rules on transfer-pricing and thin capitalisation may affect intercompany cross-guarantees.

6 Cross-border cash concentration Cross-border cash sweeping structures are widely available. Transactions with a value above EUR 50,000 (or the equivalent in a foreign currency) between resident accounts and accounts held by non-residents must be reported to the Banco de España every ten days. If a resident entity s aggregated transactions on an account held abroad are greater than EUR 600,000 per annum, the resident entity must report the information to the Banco de España on an annual basis. If a resident entity s aggregated transactions on an account held abroad are greater than EUR 3 million per month, the resident entity must report the information to the Banco de España on a monthly basis. International trade General trade rules As a member of the European Union (EU), Spain follows the EU customs code and applies all associated regulations and commercial policies. Trade with countries in the European Economic Area and Switzerland is exempt from tariffs and other controls. Imports / exports Imports Machinery and equipment Fuels Primary Import sources Germany (14.4%) Exports Export markets Chemicals Semi-finished goods Foodstuffs Consumer goods France (11.7%) China (7.1%) Italy (6.5%) Netherlands (5.0%) UK (4.9%) Machinery Motor vehicles Foodstuffs Pharmaceuticals Medicines Other consumer goods France (15.7%) Germany (11%) Italy (7.4%) UK (7.4%) Portugal (7.1%) USA (4.5%) Import / export volumes Measuring and medical control instruments

7 goods USD m 288, , , , ,553 - services USD m 122, , , , ,123 - goods USD m 325, , , , ,201 - services USD m 64,328 63,242 68,359 64,697 70, Exports Imports Current account as % GDP Source: IMF, International Financial Statistics, July Market data updated as of

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