Andorra’s banking sector: Facts & Figures

Updated December 2021 – For earlier editions of Facts & Figures click here

The Principality of Andorra is a European micro-State located in the Central Pyrenees between Spain and France with a population of around 80,000 and receives 8 million tourists each year. The Andorran economy is focussed on services, being an important touristic centre for shopping and for winter sports activities.

Due to the unexpected Covid-19 health pandemic which brought the world to a halt, the optimistic perspectives predicted for Andorra in 2020 were slightly reversed. The country has seen a general contraction in economic activity overall, mainly linked to the decline in revenue from tourism and imports. The last estimates indicate a decrease in national GDP of 11% in 2020.

The Andorran banks have given their support to the economic measures launched by the Andorran Government to mitigate the effects of Covid-19 and support businesses, work places, households and the public administration.

Additionally, the sector has provided liquidity to the system through the soft loan programmes approved by the Government and the sector-wide moratoria supplementing the legislative one, all of which represent a 4% of the credit investment portfolio, well below the 22% European average due to the structure of the Andorran economy, with good levels of capitalisation and low debt ratios that have been able to absorb the impact of the crisis without increasing the debt position.

In spite of the unusual situation created by the pandemic, and after coming a long way in its efforts for a greater integration at an international level, in the last quarter of 2020 Andorra achieved a significant milestone becoming the 190^th member of the International Monetary Fund.

The financial sector is a cornerstone of Andorran’s economy due to its significant contribution to the country’s GDP (together with the insurance sector, the financial sector accounts for approximately 20%, while employing 5% of the workforce), with its banking system at the core. It comprises five banking groups, eight financial investment firms, three asset management firms and 29 insurance companies, 15 of which are branches of foreign insurance companies authorized to do business in the Principality.

The banking sector has 90 years of experience in the business with a presence in 11 countries and as of today is comprised by a total of five banks which together manage over €51.7 billion of assets. Out of the five banks, three are Andorran-owned, one is a subsidiary of a Spanish bank and the other is owned by an American fund.

The banks offer a full range of banking services including loans and credit, asset management and financial consultancy, operations with liabilities, financial analysis and other services (credit cards, transfers, etc.). They also have specialized subsidiaries of financing, insurance and asset management firms.

One of the challenges for the Andorran banks is to continue improving client services, both through face-to-face and remote channels. In the last few years, Andorran banks have spent up to €120 million in promoting digital transformation mainly to adapt to changes in their customers’ habits and to deal with the new challenges arising. Among the banking transactions that can be carried out over the Internet, those that have grown the most are money transfers and transactions in securities. Moreover, the COVID-19 crisis has revealed the benefits of the digitalisation strategy initiated by Andorran banks as it has ensured that banking operations were conducted at full capacity. 

In the scope of payment services, Andorra implemented the payment services and electronic money directive in 2018 and in 2019 became a SEPA participant, as did the banks. Subsequently, banks adhered to the credit transfer and the direct debit SEPA schemes.

In the last years, the Andorran banking industry has aligned itself with the unstoppable trend of sustainability. Its ultimate goal is to safeguard sustainability not only through corporate social responsibility, where banks have devoted up to 6% of their profits, but also through their management of savings and investments. The last major step taken that has brought about a major improvement in Andorran banks has been the launch of in-house investment funds managed exclusively using Environmental, Social and Governance policies.

In a year marked by Covid-19, Andorran banks closed 2020 with an aggregate result of €84 million having made an extraordinary provision of €33 million to offset the impact of Covid-19 following the recommendations of the supervisory body and international institutions. However, the results demonstrate the resilience of the Andorran banks and their ability to attract business, closing 2020 with €51,735 million in assets under management (4% more than in 2019), a record high for the sector.

Credit investment increased up to €6,368 million, 4.5% more than in 2019, as did customer deposit standing at over €10.6 million.

The strong position of the Andorran banking sector is also bolstered by a 5.46% ROE compared to 2% for European banks; a CET 1 solvency of 18% compared to 15.5% according to the EBA and a liquidity rate (LRC) of 187% compared to 173% published by the EBA. 

Contributor: Natàlia Marimón Allan n.marimon@andorranbanking.ad