Annual Report 2013
Table of Contents
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0. Key figures 1. Letters from the Chairman and the CEO 2. World Economic Review 2013 3. World Economic Outlook 2014 4. Auditor’s Report 5. Financial Statements Andbank Group 6. Risk Management 7. Governance Structure 8. Locations and Addresses
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0. Andbank Group Key figures 2013
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VOLUME
2013
Total Assets AuMs Loans and Receivables
2012
4,042,977
3,701,021
13,473,266
11,047,789
1,767,835
1,825,144
481,946
446,269
Core Capital In thousands of euros
RESULTS
2013
2012 43,439
56,013
194,611
189,692
Net Operating Income
86,389
72,216
Profit before Taxes
71,306
59,325
Consolidated Profit
64,080
56,581
Net Interest Income Gross Operating Income
In thousands of euros
RATIOS
2013
2012
ROE
13.81%
12.53%
ROA
1.65%
1.54%
Efficiency
50.61%
46.69%
Solvency
20.69%
21.39%
752
634
Employees
RATING (FITCH RATINGS)
2013
2012
Long Term IDR
A-
A-
Short Term IDR
F2
F2
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1. Letter from the Chairman
Manel Cerqueda. Chairman of the Board
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013 was another challenging year, economically speaking, though not as adverse as the years immediately following the onset of the global economic and financial crisis in 2008. Even so, we are optimistic about the future. We foresee a gradual upswing in global economic activity over the next few years (at a rate we expect will pick up somewhat, reaching 3.25% in 2014).
Quantitative easing (QE) is apparently being scaled back. The market interprets this scaling back in a negative light because of the implications it may have for asset prices in the short term – but we see it as positive in the medium and longer term. QE produced a weak dollar and high oil prices, which prevented the global adjustment mechanism from operating, thus obstructing the start of a new cycle. That is why at Andbank we interpret the gradual withdrawal of QE as a positive factor for the future. We also consider that the withdrawal of these massive stimuli may act as a catalyst to reactivate productive investment and economic activity in general. In recent years, companies’ surplus cash has not been channelled into investment (which has actually declined since 2012), but mostly into dividends and share buybacks, which are two ways of returning capital to shareholders. Gradually putting an end to the expansion of the monetary base and zero interest rate policies (ZIRP) may therefore, in our opinion, improve the chances of a new business investment cycle, as it will bring us closer to a natural, more credible situation as regards the price of money and exchange rates. In recent years, however, in this environment of global economic difficulty, with constant regulatory changes in the financial industry, our bank has succeeded in adapting to current requirements and has been actively working to build a more stable, more solvent financial sector, with a focus on providing support for value-creating initiatives. Our business model, based on lasting relationships with our clients and a firm commitment to prudence, discipline and risk control, has been key in overcoming these environments of crisis and has earned the approval of both regulators and rating agencies. 7
Despite the adverse economic and financial environment, Andbank ended financial year 2013 on a very positive note, having met the targets set in the Strategic Plan 2009-2013 with room to spare. •
We have accomplished the objectives of the Strategic Plan, doubling the size of, and diversifying, the bank’s balance sheet and improving performance to pre-crisis levels.
•
We have increased the volume of customer assets under management to €13.4Bn. The bank is growing organically at a rate of more than 20% per year on a recurring basis.
•
We are the number one banking group in Andorra in assets under management.
•
At the end of 2013 international jurisdictions accounted for practically 60% of the Group’s AuMs.
This year, all the jurisdictions have contributed positively to growth, demonstrating the tremendous vigour of the Andbank Group. Some international jurisdictions have grown more than 40%, and none by less than 20%. One of the most important transactions carried out in 2013 was the acquisition of the retail business of Banco Inversis in Spain. Added to our bank’s existing business in Spain, this will make us one of the country’s largest private banks. Similarly, Inversis’s retail business will provide access to a cutting-edge IT platform, which will give us a significant competitive advantage both in Spain and in Latin America. In Miami we are integrating the business of the U.S. firm Swiss Asset Advisors, which specialises in wealth management. In Brazil, LLA Investimentos has had an exceptional year, with remarkable growth of 22%, laying the foundations for future expansion. And in Mexico, Columbus passed the threshold of €2Bn dollars of assets under management, reaffirming its steady growth in recent years. At the start of 2014 we opened two new offices. In the Bahamas we have moved to larger, more modern premises. And in Punta del Este we have opened a branch of the representative office in Uruguay. In 2013 (coinciding with the completion of the Strategic Plan) the Group strengthened its presence in the 11 countries in which it is established and drove operating results to record high levels. This achievement was accompanied by the hiring of new talent to join our team of experienced, ambitious professionals of 28 different nationalities, who have helped make our success possible and will ensure that it continues. As regards the income statement, the year ended with net profit of €64.1M, up 13.3% on the previous year, despite the increase in expenses due to international growth and the adoption of a prudent approach to provisioning. Andbank’s capital structure and liquidity remained consistently high during 2013. At Andbank we have a sound liquidity ratio of 67.33% and maintain a very good solvency position, with an outstanding capital adequacy ratio of 20.69%.
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In its latest Strategic Plan the Group centres its attention on finding the best solutions for its clients. By offering discretionary management and creating new financial solutions it has been able to offer a high quality service. Good corporate governance, internal control and process control have become increasingly important factors in ensuring sustainable growth in a rapidly changing world. In a highly adverse environment we have shown ourselves capable of doubling the bank’s assets under management in just five years – or tripling them if the foreseeable contribution of Inversis is included. We have gone from being a local bank to being a multinational group, while maintaining good profitability and a credit rating that puts us among the top performers in the sector. The new Strategic Plan 2014-2017 reaffirms our determination to be a leading independent player in the private banking sector; a family-owned bank that is a benchmark in each of the jurisdictions in which we are present. Of course, the next few years will not be easy: they will require, once again, a great effort of work and adaptation. As shareholders we are convinced of our growth potential. We start from a differential value proposition, considerable geographical diversification and a solid, independent capital base. Most important of all, we are a group that offers a project that is attractive to top professionals and so are able to recruit talent. Andbank is a privately held group, which allows us to think long-term, leaving us free to define our strategy without external pressure. Our track record, with more than 80 years’ experience in private banking, is our guarantee and underpins the continuity and duration of our relationship with our clients and those who work with us. Most of all, what sets Andbank apart is its team of top professionals who are committed to the project. I am convinced that this will be the key to becoming a leader in the international financial sector. To conclude, I would like to thank our clients and employees for their trust and loyalty. Without them and their trust, this project would not be a reality.
Manel Cerqueda Chairman of the Board
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Letter from the CEO
Jordi Comas. Chief Executive Officer
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T
he forecasts for the next few years are for a change in the international economic cycle, especially in the markets in which the recession has bitten deepest. The economic recovery will not be sufficient, however, for the banking sector to return to the levels of profitability seen prior to 2008. The new regulations are already having, and will continue to have, a structural impact on the banking sector in general and private banking in particular. Higher capital and liquidity requirements and the cost of regulatory compliance will have a particularly heavy impact. Andbank amply meets both the capital adequacy requirements and the standards of regulatory compliance set by the regulator. It is our conviction that transparency and strict compliance with international standards provide a competitive advantage. The results we have achieved in 2013 confirm the strengths of our private banking business model, in which international jurisdictions play an increasingly important role. Our flexible, dynamic value proposition is based on a broad range of services, tailored to our clients’ increasingly varied needs and hinging on an open architecture, multi-custody and multijurisdiction solutions, and speed of execution. It is a value proposition designed to benefit the client. The Andbank group has gone from ₏11Bn of assets under management in 2012 to ₏13.4Bn in 2013, an increase of more than 20%. This increase has been achieved almost entirely through organic growth. For the first time in history, Andbank has become the largest Andorran bank in terms of assets under management. Once again, the non-Andorran jurisdictions have been the main driver of growth. At the close of 2013 the international area accounted for practically 60% of assets under management, giving the Group a very high degree of geographical diversification.
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In terms of margins, gross operating income was up 2.6%, while net operating income rose to €86.4M (+19.6%). Despite the adverse economic environment, further investment in international expansion and a strengthening of control structures, the Group was able to increase its net profit to €64.1M (+13.3%). This ability to significantly grow assets under management and margins is even more remarkable considering the new business paradigm our sector is facing. As the burden of international regulation has increased and clients have become more demanding, all institutions are having to work harder to anticipate future needs. We have carried out major internal structural reforms aimed at adapting our service and processes to meet the highest international standards. We have also continued to strengthen internal control areas, both centrally and in each jurisdiction, giving special emphasis to the areas of regulatory compliance, audit, legal advisory and risk control. The quality of the bank’s strategy, management and risk profile is acknowledged by Fitch Ratings, which has assigned us a long-term rating of A- and has lifted the rating outlook from negative to stable. These ratings are based on the growth of the private banking activity, solid international, national and niche expansion, an acceptable level of profitability, dynamic management and a very good level of liquidity. We have more than accomplished the mission we set ourselves at the start of 2008. The Strategic Plan we established was far from easy and we started it in an environment that our generation had never seen before. In five years we have gone from being a local bank to being a clearly international, multi-jurisdictional and increasingly efficient institution. Our independence and flexibility allow us to adapt and respond to our clients’ needs. The new 2014-2017 plan, approved by the bank’s Board, sets goals that are no less ambitious: we still think big and aspire to be one of the industry’s important banks, one that is recognised in each jurisdiction as a benchmark in wealth management. Spain and the Latin American markets are our chief priorities and we aspire to become a bank of reference in these regions. The acquisition of Banco Inversis’s retail business in Spain will put us in a privileged position from which to deploy our full potential. In this new strategic plan, regulatory compliance will continue to be a guiding principle for the whole group, together with continuous improvement in transactions, so as to deliver the best service to our clients. In this new plan, the international jurisdictions are expected to continue to grow organically at rates above 30% per year. By the time the Strategic Plan is completed, the international area should account for more than 60% of the Group’s profit. We believe that the key to our success is, and will continue to be, our people. It is their talent and their commitment to the organisation and its clients that makes the difference. Acquiring and retaining talent has been one of our main obsessions throughout these years. Our ambitious project calls for an experienced team. We aim to continue to recruit the best professionals, as they are the key to Andbank’s success.
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We shall continue to pursue an enriching project that makes the bank attractive to the best professionals, creating a demanding yet, meritocratic work environment, in which value creation, rigour and honesty are the core values of all who work here. Looking ahead to 2014, we expect to amply exceed the target of ₏20Bn euros of assets under management and, buoyed by strong international growth, will continue to build a very diversified Andbank. We therefore expect that by the end of 2014 Spain will have taken over Andorra as the Group’s largest jurisdiction and that none of the 11 jurisdictions will account for more than 30% of the total. By end of 2014 we expect international business to represent around 75% of the total. To conclude, I would like to thank our clients for the trust they have placed in us over the last years and give a warm welcome to those who have recently joined us. We are committed to continuing to relentlessly do everything we can to deserve their trust. And we hope to be able to continue to share our passion and experience with you all for many years to come.
Jordi Comas Chief Executive Officer
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2. World Economic Review 2012 2013
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Performance of the global economy
Change in real GDP compared to % Y/Y 2013
Introduction The global economy expanded at a moderate but gradual pace throughout 2013, supported mainly by a definite stabilisation (and subsequent improvement) of conditions in most of the advanced economies. These conditions were underpinned by an aggressively accommodating monetary policy, a gradual improvement in the balance sheets of households and companies and, not surprisingly, some positive confidence effects arising from the stabilisation of peripheral debt and European banks.
1Q1
2Q
3Q
4Q2
Europe
-0.7%
0.0%
0.3%
0.8%
North America
1.4%
1.5%
1.9%
2.0%
Asia EM
6.2%
5.9%
6.6%
5.0%
LatAm
2.6%
2.9%
2.6%
3.1%
World
1.5%
2.0%
2.3%
2.2%
Andbank, Factset Economics Standardized Database. (1)Region Synopsis - Factset Research Systems. (2)Economic Report Euro Zone – Factset Research Systems.
In the world of emerging economies, although activity remained reasonably high during 2013, growth was less vigorous as a result of certain supply effects to do with surplus capacity and also political tensions in some of these countries (including Thailand, Turkey, Ukraine and Argentina).
Eurozone Following two consecutive quarters (second and third) of positive real GDP, the growth continued during the fourth quarter. Initial expectations of a gradual recovery have therefore been confirmed.
In general terms, the year ended with the global Purchasing Managers Index (PMI) at a more than healthy 53.9, with increases in services (54.3) and new orders (54).
In line with the third Eurostat estimate for the national accounts, the eurozone grew 0.3% q/q in the fourth quarter, up from the 0.1% observed in the third quarter.
In line with this gradual but steady global growth, international trade gathered momentum in the latter stages of the year, confirming the improvement.
Domestic demand and changes in inventories were the factors that had the greatest impact on observed growth. Private consumption maintained rates of expansion in the region of 0.4%0.5% on an annual basis throughout much of the year, breaking six straight quarters of negative growth. The latter part of the year, however, witnessed some curious changes in consumption, which slackened overall.
According to the latest report of the CPB Netherlands Bureau for Economic Policy Analysis, the volume of global imports grew 2% in November 2013 on a quarterly basis (8% on an annual basis). This is the highest reading since March 2011 and a clear reflection of improved global economic conditions, both in the developed economies and the emerging countries (with the exception of Latin America).
We observed a positive leap in demand for retail consumer goods, while the demand for services flagged somewhat. New car sales, on the other hand, posted a strong gain of 5.1% q/q in the fourth quarter (compared to -0.1% in the third quarter), although this sharp increase may reflect the bringing forward of consumption in anticipation of the introduction of an increase in taxes on consumption by some Member States at the beginning of 2014.
Confirming this idea is the positive reading of the latest global PMI for manufacturing exports, which remains firmly in expansion territory. Pending the review of the published GDP data for the fourth quarter of 2013, the growth dynamics in the different parts of the world would be as follows:
In general terms, however, it is difficult to calibrate the exact state of domestic consumption. On the one hand, the PMI remained 15
Latin America
slightly below the threshold (50) that separates expansion from contraction; on the other, the European Commission’s indicator of retail trade confidence grew moderately in the fourth quarter, as did the consumer confidence surveys for the euro area.
The worries over ballooning current account deficits persisted throughout the year, which was a decisive factor in the course of the turbulence in Latin America. Nevertheless, although the deterioration in some parts of the region is alarming, most of the countries are now much less vulnerable.
Gross capital formation (investment) increased in the second half of the year, breaking a run of eight consecutive quarters of falls. It is interesting to note that the biggest increases were in residential investment.
In line with the slowing of the rates of expansion experienced by the region during the latest 18 months, many already say that the favourable winds that have so benefitted Latin America over the last decade are now dissipating.
In industrial production, activity in capital goods rallied in the fourth quarter (+3% MoM in November), bringing the quarterly rate to nearly +0.6%, representing an acceleration compared to the rates observed in the third quarter (+0.1%).
There is a growing acceptance that Chinese demand for raw materials cannot continue at the pace observed in recent years. Also, 2014 is expected to see a tightening of monetary conditions, as the U.S. Federal Reserve starts to scale back its asset purchase programme, with adverse implications for Latin America. This has been a credible threat since May, when Mr. Bernanke first insinuated this possibility. Since then, the dynamic in the region (both on the economic front and in the financial markets) have been plain disappointing.
Behind this overall improvement we find a very accommodating monetary policy, which has allowed an improvement in financing conditions (for public sector agents in particular), which are partly explained by a more favourable perception of the debt markets in general. The markets have put a positive interpretation on the progress made in overall fiscal consolidation in the region and the advances in the structural reforms in certain problematic countries.
Andbank’s analysis suggests that the bulk of the economic fluctuations in the region are explained by the changes in global economic conditions. It should be noted, in this regard, that the external conditions which Latin America has had to cope with over the last decade have been more favourable than at any time since 1970.
Economic activity in the region has also been supported by a gradual strengthening of external demand, with the result that the external sector made a net positive contribution to GDP in the year as a whole, although in the last quarter the external sector lost steam, contributing negatively to quarterly GDP for the first time since the start of 2010. This is nothing to worry about for the time being, considering the wide range of variation in this factor in recent quarters.
The upshot of all this is a clear dependency on external global conditions, which though stabilising, still raised many doubts in 2013: doubts that have had a clear impact on these countries’ economic data.
Meanwhile, the labour market remains depressed, albeit stable. That comes as no surprise to us, as the constant adjustment of public and private balance sheets is obviously not permitting the hoped-for acceleration of growth, with the consequent improvement in the labour market.
Latin America probably ended 2013 expanding at a rate of 2.3%, well below the average observed in the last decade, which was 4%. The dispersion of growth rates within the region brings no surprises. Colombia, Peru and Chile were the best performers, with
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growth rates of 3.5%, 5.5% and 4.3%, respectively. Expanding at a slower rate were Brazil (below 2%) and Mexico and Argentina (both around 2%).
In December, against the background of a general improvement in economic conditions in the country and in mid-term projections, the Fed decided to start to scale back its asset purchases aimed at stimulating the economy and the financial markets from USD 85 to 75 billion per month.
United States Economic activity remained robust in the latter stages of the year. According to the first GDP estimate made by the Bureau of Economic Analysis, real GDP showed growth of 0.8% on a quarterly basis (or 3.2% on an annual basis). In fact, this represented a slowdown compared with the figure for the third quarter (1% q/q), but can still be considered a healthy rate.
The reduction is split equally between purchases of mortgagebacked securities and Treasuries. At the same time, the Fed decided to maintain its forward guidance on interest rates, confirming that it was appropriate to maintain the target range for the Fed’s rates once unemployment fell below the 6.5% threshold, especially if projected inflation continues to remain below the long-term target set by the Fed, which is 2%.
The expansion, in this case, was bolstered by additional gains in personal consumption and a higher contribution from inventories for the second quarter in a row. In contrast, residential investment and public expenditure declined slowly over the course of the year. It should be borne in mind that despite the increase in state and local government spending, public expenditure was more than offset by the sharp drop in federal spending as a result of the continuous wrangling between the two main forces in U.S. politics.
Japan In Japan, the latest Purchasing Managers Index (PMI) data suggest an upswing in activity in the last quarter of the year. The general PMI was clearly in expansion territory (55.2) in December, while the Bank of Japan’s Tankan Survey also reflected increases in business confidence indicators in large, medium and small companies alike.
The labour market showed both an increase in hiring and an improvement in the unemployment rate. The pace of job creation slowed in the last part of the year, however, partly because of the unusually adverse weather conditions.
In industrial activity, production reached rates of expansion of up to 1.9% on a quarterly basis in the fourth quarter, according to preliminary data. As regards inflation, the trend was positive throughout the year and continued to expand in the last quarter, reaching a rate of price increase of 1.6% in December on a year-on-year basis (above the 1.5% rate recorded in November and leaving behind the deflationary levels seen in January 2013, with inflation of -0.7% on an annual basis).
Despite the improvement in the unemployment rate, it has to be acknowledged that the figures may have been influenced by the trickle of people leaving the labour force (this group has grown from 88 to 92 million) or economically active population. Nevertheless, the gradual but steady upward trend in hirings is undeniable (the number of wage earners grew from 135 to 137 million). The jobless rate in the U.S. today stands at 6.6%.
United Kingdom
In terms of inflation, the economy was particularly slow, ending December with the price level growing at a rate of 1.5% year on year. It is worth noting that although the rate of GDP growth was higher in 2013 than in 2012, the level of inflation was lower (1.5% in 2013 as against 2.1% in 2012).
The United Kingdom experienced robust growth throughout 2013, especially in the second half of the year. In the fourth quarter the economy expanded at a quarterly rate of 0.7% (2.8% annualised), driven mainly by the services sector.
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The labour market situation continued to improve very markedly during the year and full-time employment, in particular, showed significant improvements. The unemployment rate fell to 7.1%, moving towards the 7% threshold set in the BoE’s forward guidance. That means that once the threshold is reached, we could, in theory, see a first rate increase by the UK central bank.
Indonesia, +5.8%; Malaysia, 5.1%; Philippines, +6.5%; Taiwan, +2.3%, and Thailand, +0.6%.
Behaviour of the financial markets in 2013 Fixed-income market Fixed income in EUR: The benchmark 10-year bund yield rose from 1.31% at the start of the year to 1.94% at the end of 2013. The increase was not linear, however, as the first quarter saw yields fall from the initial level to 1.20%. The slope of the yield curve also increased, bringing the spread between the 10-year and 2-year rates to 170 bp (up from 130 bp at the start of the year).
As regards prices, the United Kingdom did not escape the global dynamics of contained prices and in December saw further reductions in the rate of inflation, which reached 2% on a year-on-year basis. Emerging economies of Asia Economic activity slowed in China during the fourth quarter of 2013, although growth rates remained strong.
Fixed-income securities in USD: The benchmark 10-year Treasury yield rose from 1.75% at the start of the year to 3% at the end of 2013. This increase was not linear either and there were many similarities with the movement of the German bund, as in the first quarter yields fell from the initial levels to reach values in the region of 1.50%. The slope of the yield curve also increased, in this case much more sharply, bringing the spread between the 10-year and 2-year rates to 265 bp (well above the 150 bp recorded at the start of the year).
GDP expanded at 7.7% year on year in the fourth quarter, slightly below the rate for the third quarter (7.8%). Real GDP growth for the year as a whole also came out at 7.7%, slightly above the government’s target, which was 7.5%. The loss of impetus observed in the fourth quarter was explained mostly by the more moderate rate of growth in fixed investment and industrial production. This is partly explained by credit and monetary conditions, which were gradually tightened by the authorities over the course of the year.
European sovereign debt 2013 was a year in which risk premiums once again very clearly decreased. Greece headed this asset class, with a 200 bp drop in the yield on the 10-year bond (from 10% at the start of the year to 8% at the close). Portugal’s bond, despite a far more erratic performance and heavy losses in July stemming from the political crisis that threatened the governing coalition, ended the year with excellent performance, as the yield was down 100 bp (from 7% to 6% at the end of 2013). Spain’s treasury bond also posted extraordinary performance, with the cost (interest) falling 91 bp, from 5.09% to 4.18%. Italy, too, saw the interest on its 10-year bond fall 35 bp, from 4.5% to 4.15%. Even Ireland, which started with a much lower yield (4%), ended the year below 3.5%.
The PBoC’s goal is to control the growth of leverage of households, and of the economy as a whole, bringing it back towards more balanced rates. Even so, credit continues to expand at rates faster than nominal GDP. As regards inflation, prices slowed their growth towards a healthy 2.5% year on year in December. In terms of underlying prices, the rates are around 1.8%, while the rates of PPI growth are deflationary. Generally speaking, the rest of the region’s economies showed healthy rates of expansion in 2013, with year-on-year growth rates reaching the following levels in December: India, +5.6%; 18
Equity
Currencies
2013 was definitely a good year for the equity markets, with the sole exception of Latin America.
The euro continued to play its new role as a strong currency in the market, as despite the higher rate of growth observed in the U.S. and the imminence of tapering, the European currency rose against the dollar, taking the EUR-USD pair from 1.32 at the beginning of the year to 1.39 of the end of 2013.
The stock market that achieved the best result in 2013 was the Japanese market, with an appreciation of 54.8%. It was followed by the U.S. market, where the S&P climbed 32.4%, and the European market, where the Eurostoxx 50 and the Stoxx 600 both rose 21%. Behind these two were the Asian stock markets (ex. Japan), which also performed strongly, with an average appreciation of 9.9%.
The same happened with the EUR-JPY pair, where the single currency appreciated considerably to reach 145 JPY per EUR (up from 115 at the beginning of the year). At the same time, the USD, which, as already mentioned, depreciated considerably against the EUR, rose significantly against the JPY, taking the USD-JPY pair from 86.8 to 105 JPY per USD.
The stock markets of Latin America were the only ones that experienced losses on a regional scale, with the MSCI EM LatAm falling -4.4%.
Meanwhile, the CHF remained relatively stable against the EUR, with a slight depreciation, bringing the CHF-EUR exchange rate from 1.21 to 1.23. In the CHF-USD pair the Swiss currency appreciated against the USD, from 0.96 to 0.89 CHF per USD.
Commodities Energy commodities rose 9.10% overall during 2013. Natural gas was the best-performing component (+26.7%), followed by WTI oil (+7.2%). At the opposite extreme, of course, was coal, which continued to fall (-6.4% in the year).
The emerging Asian currencies have suffered across the board since Mr. Bernanke insinuated for the first time in May that the Fed would cut back its asset buying programme. The hardest hit currency was the Indonesian rupiah (-20%), followed by the Thai baht, the Philippine peso and the Malaysian ringgit, all of which fell 7% against the USD. In contrast, the Chinese yuan continued along its particular path of gradual, controlled (managed) appreciation, rising, as usual, at an annual rate of 3.5%-4%.
Agricultural products fell 12% overall during 2013. Maize (-43%) and wheat (-22%) were the hardest hit. Sugar fell 15%, while other agricultural raw materials rose in price: cotton (+15%) and soybeans +5.3%. Minerals and industrial products also fell over the course of 2013 by an average of 7.5%. The worst performer was nickel (-18.3%), followed by aluminium (-13.4%), copper (-6.5%) and iron ore (-5.5%). The only increases were in zinc (+2.5%).
The currencies of Latin America suffered a similar fate: all of them, without exception, fell in price against the USD. The worst hit was the Argentine peso (-25%), followed by the Brazilian real (-13%). Finally, there is the group of currencies belonging to the Pacific Alliance (Chilean peso, Peruvian sol and Colombian peso), all of which depreciated by around 8% against the USD. The one that held up best was the Mexican peso, which remained more or less unchanged against the USD (-1%) during 2013.
Precious metals also fell in 2013 by 12.2%. The steepest falls were in silver (-35%), followed by gold (-28%) and platinum (-11%). Only palladium saw a rise in price, albeit a modest 2%.
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3. World Economic Outlook 2014
Outlook for the global economy
a fall in global PMIs, which could slip from the current level of 54 to 52.5 by March or April, a prospect which the markets will see as a risk factor, causing some jitters, but which Andbank does not expect to go beyond the necessary slackening of pace.
Introduction The level reached by the global PMIs at the end of 2013 (nearly 54), together with the observed acceleration in services (54.3) and new orders (54), suggest greater stability in the underlying trend of global economic activity and trade for 2014.
This falling off of global economic activity has already been noticeable in the beginning of 2014 and will be magnified by the decision of the Chinese authorities to apply anticyclical policies (curbing the expansion of credit) and also the effects of the extraordinarily harsh weather conditions in the United States.
In fact, as mentioned previously, the latest report of the CPB Netherlands Bureau for Economic Policy Analysis indicates that the volume of global imports grew 2% in November 2013 on a quarterly basis (i.e., an annual rate of 8%). This is the highest reading since March 2011 and a clear reflection of improved global economic conditions.
This circumstance may justifiably heighten concerns over the health of the global economy and so intensify the perception of risk. Once again, however, we must remember that, considering the global dynamics (and this recent slowdown in the rates of expansion), we can expect to see a stabilisation of PMIs, which are unlikely to fall below 52.5 in April. Let’s not forget, either, that these are still levels indicative of economic expansion and are compatible with global industrial growth of 3.5% year on year.
So if Andbank is not mistaken, our data point to a slight easing of the rates of economic activity (quarter on quarter) during the early part of the year, giving way to a rebound in global growth from the second quarter and, in particular, throughout the second half of the year. It should be noted that global industrial production and retail consumption posted robust growth in the last quarter of the year (5% on an annualised basis).
All in all, we believe that the global economy will continue to follow the trend of gradual, steady expansion, with a rate of GDP growth that could easily exceed 3.25%, a scenario driven by the moderate recovery of the Western countries and the benefits it will bring to the manufacturing exports of some emerging countries. The outlook may be less
Clearly, these rates cannot be sustained for many quarters in a row, which is why we anticipate a certain easing during the first (and perhaps also the second) quarter. In fact, we foresee
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optimistic, however, for emerging countries whose exports are commodity-based. The large global surplus capacity in minerals and metals means that the pressure on commodity prices will continue, forestalling any increase in the nominal value of these countries’ exports and making it impossible for them to undertake new investments in these sectors.
cultural and idiosyncratic reasons for questioning whether that it is possible. Ultimately, any attempt to do so would probably take the country to a place a long way from the point of equilibrium. Yet this line of thought is also mistaken in another premise: it claims that Germany is enjoying a higher cost-of-capital advantage, yet while ECB rates are the same for all Member States, the natural and necessary money interest rate (related to the rates of economic activity and therefore of profit) is substantially higher in Germany than in, say, Italy. That means that the real cost of money is relatively lower in Germany, which means it can continue to do what it does best, namely, reinvest the gains in its powerful export industry and so continue to widen the gap with the rest.
Eurozone In Andbank’s opinion the euro area will be influenced by six broad themes, which will dominate 2014: 1) the persistent current of opinion regarding the non-viability of some EU Member States and their eventual exit from the euro; 2) the possibility of a reflation and reactivation of the German economy; 3) the strength of the euro and its influence; 4) the new status of competitiveness on the periphery; 5) the capacity of the peripherals to overcome fiscal obstacles; and 6) the banking system.
In this respect, we are also optimistic because we have observed how the ECB manages its monetary policy with an eye to the periphery rather than to Germany. We will find this thesis fully ratified if we note how, in spite of the better economic dynamics in Germany, which would call for a certain tightening of monetary policy, the ECB has maintained (and continues to maintain) a policy aimed at favouring convergence in the cost of capital for all Member States. This has become apparent with the significant narrowing of the risk premiums of all the problematic countries. Accordingly, we are optimistic and expect economic and industrial activity on the periphery to continue to regain ground, as these countries begin to enjoy the advantages of a lower cost of capital, so that the fight no longer centres exclusively on lowering the cost of the other factors of production (salary deflation).
As things stand, it is impossible to predict the region’s future development on a social and economic level without having at least some idea on each of these themes. As regards the persistent current of opinion in the Englishspeaking world regarding the hypothetical non-viability of some Member States as a result of the austerity policies emanating from Berlin and the consequent non-viability of the euro, we must say that we understand some of the arguments put forward, but only some. Our view is closer to the idea that the euro and the euro area are not only viable but also capable of becoming a stable core of the global economy.
A second reason why we are optimistic as regards achieving growth well above 1% in the region (euro area) in 2014 is the possibility of an acceleration (reflation) in Germany. The following circumstances make this more likely: 1) the participation of the SPD in the coalition government in Germany; and 2) the fact that, once it has achieved the legal requirement of zero deficit, Germany has no fiscal hurdle to overcome in 2014 (see figure).
Anglo-American economic commentators criticise the German authorities for focusing their recovery so intensively on exports, rather than on the development of domestic demand, and argue that Germany’s cost-of-capital advantage will end up destroying the industries of the countries of the periphery. In our opinion this line of thought comes unstuck in claiming that domestic demand can be driven artificially in all countries. In the specific case of Germany there are historical,
21
Structural Fiscal Balance - Germany
10Yr Yields - Peripheral Bonds
1
1
0
0
-1
-1
Projected
35
35
30
30
25
25
20
20
-2
-2
15
15
-3
-3
10
10
5
5
-4
'0 3
'0 4
'0 5
'0 6
'0 7
'0 8
'0 9
'1 0
'1 1
'1 2
'1 3
'1 4
'1 5
'1 6
'1 7
'1 8
-4
0
IMF WEO - World Economic Outlook
0 '12
Weo Forecast, General Government Structural Balance, % Of Potencial GDP
Italy
©FactSet Research Systems
'13
Spain
Andbank, JPM Chase
A third reason for optimism lies in the third great theme we expect to dominate 2014: the strength of the euro and its influence. Many voices (mostly local) attribute the reduction of the cost of borrowing on the periphery to the implementation of fiscal adjustments and structural reforms. As we see things, however, these factors have not been the only drivers of the good performance of these assets. In Andbank’s opinion, it is the ECB’s more orthodox and conventional monetary policy, with the gradual contraction of the monetary base once the liquidity problems had dissipated, that has been the main cause of the dynamics observed in the euro debt markets.
Greece
Portugal
Ireland
©FactSet Research Systems
Fourth, we foresee that so long as this approach to monetary policy holds sway in the ECB council (which is more than likely, with the chairmen of the central banks of the Baltic states now permanent members of the ECB Governing Council), the stability of the euro will continue to be seen as a support for all euro-denominated assets. The costs of capital for public and private economic agents in the euro area will continue to decrease, encouraging investor activity. Fifth, the new competitiveness position of the economies of the south of Europe, resulting from massive internal adjustments, are likely already to be bearing fruit. We believe that these adjustments will not be reversed in the medium term (because of the huge pressure on salaries as a result of the high rates of unemployment), but that their effects have yet to be felt, allowing external balances to continue to improve and contribute to GDP.
More specifically, this conventional policy, in contrast to the other unconventional policies (competitive devaluations), has resulted in the euro naturally becoming one of the most stable currencies in the world today. International investors, who today are looking not only for asset stability but also for stability of the currency in which the assets are denominated, have taken good note of this fact and have considerably increased their demand for euro-denominated assets. The result is plain to see.
To conclude, the banking system continues to adjust in a process that should lead to a situation of equilibrium of systemic risks. Smaller (or better capitalised) and more regulated banks must become the basis of a financial industry capable of financing a future new economic cycle. The result of Andbank’s analysis translates into growth prospects for the euro area clearly above 1%, with Germany as
22
the engine (+1.8% of forecasted GDP) and with all the countries of the periphery growing at around 1% on average.
a tightening of credit, it is also true that the authorities in Beijing have been doing this for more than a year already. At least, the Chinese economy was able to end 2013 with GDP growth of 7.7% (above target, which was 7.5%). And although the rate of growth of credit slowed considerably (around 20% year on year), it is still expanding much faster than nominal GDP (11%). All in all we are optimistic that the evolution of demand from Asia in general and China in particular will be satisfactory.
Latin America It would be a serious mistake to consider Latin America as a homogeneous whole in terms of economy, society and politics simply because the countries are linked through a shared language and a similar culture.
That said, it is important to first identify and then differentiate the countries that are best positioned in this respect (degree of readiness to export to Asia). According to the results of Andbank’s analysis, Chile and Peru are currently the best positioned to benefit from the dynamics in Asia, which we think will continue to be satisfactory in general terms. The worst positioned are Argentina and Mexico (with scant export exposure to the Asian region).
Today the region is a mass of contradictions, strategic moves and interest groupings, forcing us to deploy a much more selective analysis, which inevitably results in a multi-faceted view. To illustrate this, in order to consider and understand the basic principles of the blocs that dominate the region today, we need to take into account that: 1) on the one hand, there is the Pacific Alliance, with Chile, Mexico, Peru and Colombia; 2) on the other, there is an antagonistic current, the Bolivarian Alliance - Trade Treaty, made up of Cuba, Venezuela, Nicaragua, Ecuador and Bolivia; and 3) there are various association agreements that have never really worked properly (Mercosur, UNASUR, etc.).
Latin America Exports to China (% GDP) 8 7
2000
6
2012
5
At Andbank we try to project the future dynamics of a region by identifying the factors that are likely to dominate the behaviour of the economic aggregates. For Latin America we consider that the dominant factors will be: 1) the demand from Asia; 2) global monetary conditions under the new regime of “tapering”; 3) the domestic vulnerabilities of each country in the region; 4) the countries’ competitiveness positioning in the current global environment; 5) the speed with which the level of private borrowing in certain economies in the area has built up; and 6) the perennial problem of out-of-control inflation in some of these economies and the consequent deterioration of real income from employment.
4 3 2 1
M ex ico
Co lom bia
Ar ge nt ina
Br az il
La tA m
Ve ne zu ela
Pe ru
Ch ile
0
Thomson Datastream
The second factor that will dominate the region in 2014 will be global monetary conditions. The scaling back of the Fed’s monetary expansion programmes will obviously reinforce the feeling that the era of easy money is over. The market will therefore probably assume that the countries with the worst current account balance will need to raise funds on a less liquid
Starting at the beginning, we have to say that the future demand from Asia is not a subject that greatly concerns us. While it is true that China will be applying anticyclical policies, specifically
23
international market in order to adjust (i.e., fund) their current account deficit. At Andbank we prefer to compute all of an economy’s financing needs, so we consider the fiscal deficit and the current account deficit together (the so-called twin deficit). In this perspective the best placed is Colombia and the worst, Brazil.
borrowing. The worst-off countries in this respect are, of course, Argentina (with inflation >25%) and Brazil (>6%). The best, again, are Chile and Peru. In short, the countries of Latin America are positioned very differently to face the main factors that will dominate 2014. Generally speaking, we like the countries that make up the Pacific Alliance: Chile, Peru, Mexico and Colombia (for which we expect GDP growth of 4.3%, 5.5%, 3% and 4%, respectively). Our arguments are: a better relative positioning in each of the dominant themes, and also the bloc they have formed. This bloc (the Pacific Alliance) accounts for 40% of Latin American GDP, while trade between the countries of the bloc makes up 50% of Latin American trade, with combined exports of more than USD 500 billion. With a population of some 200 million people, it could hypothetically represent the world’s eighth largest economy. It is a bloc made up of countries with similar political systems that tend to converge in values and principles; a bloc that aims to establish stable markets, economic development, free trade and competitiveness; a bloc that has overcome the preconceptions and anti-capitalist discourses still so deeply rooted in other areas of the region. An aspect that tends to go unnoticed is the actual name of the bloc: Pacific Alliance. It is the latter term, Pacific, that we like in particular, given our favourable outlook for the Pacific region in the near future.
The third factor that will influence the region (and the most important for Andbank) will be each country’s domestic vulnerabilities. These vulnerabilities are inescapably linked with historical tradition in the area of investment. Most notable in this respect is the extremely low level of investment (past and present) in Brazil (17% of GDP), compared with the high level of investment seen in countries such as Chile and Peru (25% of GDP). Investment (% of GDP) 30 25 20 15 10 5
Andbank’s forecast for the region as a whole, however, is for fairly low GDP growth, 2.6%, well below the average of 4% observed in the last decade. Brazil is unlikely to exceed 2% GDP growth and Argentina will probably return to economic contraction (with GDP growth between -1% and 0%).
0
Peru
Chile
Mexico
Argentina
Uruguay
Brazil
National Central Banks 2013 / 2012
This means that, in terms of competitiveness, Brazil and Argentina are very badly positioned, with loading and shipping costs of USD 2,300 and 1,700 per container, respectively, well above the average of the emerging countries (USD 1,400) and far above the costs in Asia (USD 500). The best, once again, are Chile and Peru (USD 900).
United States There is a broad consensus regarding the capacity of the U.S. economy to grow at a comfortable rate in 2014. Most market participants speculate on rates well above 3%. At Andbank, while agreeing that GDP in the U.S. will definitely expand, we feel comfortable projecting rates of expansion at the lower end of the range estimated by the market. In Andbank’s view the
The other important factor, inflation, will largely determine the evolution of each country’s currency and the nominal cost of 24
growth of the U.S. economy in 2014 is likely to lie somewhere between 2.5% and 3%.
certainly leaves room for new lending, but according to the numerous studies on this subject it is still insufficient to allow hopes of a renewed credit and debt cycle.
Our projections are founded on what we believe will be the main themes for the U.S. economy and will dominate 2014: 1) the quality of the employment that is being created, which is bringing about a structural change in average income; 2) the current state of leverage or, in this case, deleveraging; 3) the latent risk of what Andbank calls the new trigger point for the U.S.; and 4) maintenance of the so-called ZIRP (zero interest rate policy) and its medium and long-term implications.
The third key factor will be the way the Fed is able to control what Andbank calls the new trigger point in the U.S. This factor has a lot to do with the spread between the profit that business owners can make on the money they borrow and the cost of that money. At Andbank we measure this latter cost (the cost of capital) using the observed IRR of USD-denominated bonds issued by companies with a BBB rating (average rating in the U.S.). To calibrate the profit earned with the borrowed capital, we use GDP growth as a proxy (following the precepts of the founder of the Stockholm School, Knut Wicksell). To make these metrics comparable, we treat them in real terms. This thesis states that when the cost of borrowing is around 200 bp above what a company can earn in profit, companies automatically stop increasing liabilities and so stop investing. The current situation is very similar to that, although it may be slowly improving. That is why Andbank does not anticipate significant growth (via liabilities) in company balance sheets in 2014 and expects only a moderate expansion of business activity during the year.
Starting from the beginning, it is undeniable that the number of hirings continued to recover in 2013 and will probably do so again in 2014. We have detected, however, that the total number of part-time contracts created in recent years (nearly 4 million) coincides with the total number of full-time contracts destroyed over the same period. If intuition serves us right, that means that there are 4 million people with significantly lower employment income. Andbank’s analysis actually shows how the change in average income (for the whole country) in the last seven years has been negative by around USD 4,000 per year. So if our math does not fail us, knowing that there are around 140 million wage earners, we arrive at the conclusion that there is around USD 560 billion less employment income available for use in consumption. Quite simply, that makes it very difficult for us to project a rapid recovery of the consumption cycle, as seen in previous crises. Secondly, we have seen how the deleveraging of the various economic agents in the U.S. economy continued overall in 2013. It is the banks that have made the biggest effort to clean up their balance sheets, going from debt equivalent to 120% of GDP in 2009 to 84% at present. Companies, meanwhile, have reduced their liabilities from 81% in 2009 to the current 78% and households, from 100% to the current 81%. This whole private sector debt reduction exercise has been offset by an unprecedented increase in the federal debt, which has gone from 60% to 102%. Taking all the figures together, we come to the conclusion that between 2009 and 2013 the U.S. national debt (public and private) fell from 371% to 350%. This reduction
Cost of capital Vs return on capital 10
10 8
8
6
6
4
4
2
2
0
0
'84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
-2
'12
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-2 -4
-4
Cost '88 of capital '84 '86 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12
1510
Return on SPREAD, COST OFcapital CAPITAL Vs RETURN ON CAPITAL COST OF CAPITAL Vs RETURN ON CAPITAL
USA recession period 8 Andbank, Federal Reserve System, BEA 10 6
ST OF CAPITAL Vs RETURN ON CAPITAL
25
15 10 8 15 ŠFactSet Research Systems 6 10
Spread, cost of capital Vs return on capital 10
10
Trigger point
8 10
6 4 2 0
Instead, all that liquidity has been used to pay dividends and buy back shares. Dividends paid increased from USD 500 billion in 2010 to USD 880 billion in 2013. The story was much the same with share repurchases, which went from USD 0.3 trillion in 2010 to USD 0.5 trillion in 2013. These mechanisms are simply two different ways of returning capital to shareholders. Basically, when management does not know (or does not dare decide) how to invest, what it does is pass the buck to shareholders. The question everybody is asking is, Why?
8
15
COST OF CAPITAL Vs RETURN ON CAPITAL
10
8 6 4 2 0 -2
8 10
-4 -6
-4 -6
6
6 4 2 0 0-2
4
5
'84 '86 '88 '88'90'90 '92 '96'98'98 '02'06'04'08 '06 '08 '10 '84 '86 '92 '94 '94 '96 '00 '00 '02 '04 '10 '12
2 0
In Andbank’s opinion no manager of any company can make an investment decision based on information (received from the international monetary system) that is perceived to be manipulated. Yet that is exactly what companies perceive: that the monetary information they receive (the price of local money and foreign money) is manipulated.
'12 '13
USA recession period Spread. Cost vs return on capital Andbank, Fede ral Reserve System, BEA
©FactSet Research Systems
Andbank, Federal Reserve System, BEA
©FactSet Research Systems
Nor must we forget the imbalances that the unconventional policy is causing. U.S. companies have been spending a large part of the liquidity they held on their balance sheets during 2012-2013, but this liquidity has not gone to investment (see figure for how investment has been falling).
So long as these policies are maintained (as they have been), investment decisions will continue to be postponed. This factor makes it impossible for us to predict major upswings in economic activity as a result of an increase in investment.
Corporate cash & Capex 4
Positive Financing Gap = Companies in negative Cash Flow
3
On the positive side, the Fed’s zero interest rate policies, together with persistent deflation, will make it possible to keep the yields on government bonds with longer maturities structurally low. This should allow a gradual recovery of the real estate sector, although it will be a recovery financed without credit and therefore driven by a mid to high sector of society.
25 20 15
2
10
1
5
0
0
-1
Another positive element that justifies Andbank’s positioning on U.S. GDP growth above 2% is the fact that the federal government already carried out a major fiscal adjustment in 2012 and 2013, bringing the deficit down from USD 1.6 trillion in 2010 to USD 0.9 trillion at the end of 2013. This may mean that the fiscal drag need not be as strong in the next few years.
-5
-2
-10
Negative Financing Gap = Companies in positive Cash Flow
-3
-15 -20
-4 '84
'86
'88
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
Financing GAP as % of GDP (% 1YR) Private Fixed Investment - Nonresidential Andbank, Federal Reserve System, BEA
©FactSet Research Systems
26
Emerging economies of Asia
Government Debt. Percent of GDP
Emerging Asia continues to increase its share of global GDP (now above 30%) at a rate that has accelerated since 2009 (25%).
2006
2004
2002
91.3
84.4
69.3
67.0
66.9
64.4
India
4.8
46.9
48.2
51.2
57.7
63.1
Indonesia
13.2
15.0
16.6
20.0
27.3
32.5
Malaysia
53.3
51.1
39.8
10.6
-
-
Philippines
51.4
52.4
54.7
61.4
-
-
Thailand
30.9
29.7
23.5
24.9
27.9
31.0
Asia Emerging Total
40.7
40.1
39.7
42.7
47.8
52.9
FactSet Economics Standardized Database
2) A labour market that continues to evolve in a positive direction, with an unemployment rate that has fallen throughout the period of global financial crisis (from 4.7% before the crisis to the current level of 4.2%). This full employment situation will ensure an acceptable domestic consumption dynamic.
7.8% 1.6% 2.6%
2008
Regional aggregates are calculated using real GDP weighted averages, fixed to 2011
Emerging Asia Internanual Growth 3erd Q 2013
2.4% 6%
2010
World Total
Despite the slowdown observed in 2013, the region maintained more than acceptable rates of expansion (close to 6% year on year). More importantly, as usually happens, it accelerated in the latter half of the year, with growth of 3.2% in the third quarter (13% on an annual basis).
4.2%
2012
7.5% 5% 5.6%
3) Standards of living that continue to converge with the West, with retail sales growing at double-digit rates. 1.6
2.6
3.7
4.7
5.7
6.8
7.8
4) Manufacturing activity that is growing at 7.2% per year, offsetting the decline in commodity-related export activity.
ŠFactSet Research Systems
Andbank’s forecast is that the region will experience similar rates of expansion in 2014, around 6%, with China growing fastest (at 7%), followed by the Philippines (6.5%), Indonesia (5.5%), Vietnam (5.5%), India (5%) and Malaysia (5%). After this group come Thailand, Taiwan and Singapore (with more modest rates, close to 3%).
5) A very healthy stock of international reserves, bringing the external (public) debt coverage ratio to nearly 0.5 times. 6) Although some countries, including India and Indonesia, have experienced difficulties in their current account balances, the region has a current account balance close to zero (with a deficit equivalent to 1.2% of GDP). Even so, the measures taken by India (prohibition of gold imports) and Indonesia (prohibition of nickel exports) have reduced the deficit of these two economies to 1.2% and 1.8%, respectively (down from 5.5% and 4.5%, respectively), which will probably mean that, at regional scale, the current account deficit will have disappeared.
The arguments that lend support to our moderately optimistic outlook for the region are as follows: 1) Very healthy public sector metrics, with a level of borrowing equal to 40.7% of GDP, and budget execution dynamics that are generally balanced.
27
United Kingdom
7) Net external borrowing requirements are very small, equivalent to just 8% of GDP for the next 18 months.
Robust growth throughout 2013 (+/-1%), especially in the latter part of the year (0.7% in the fourth quarter of 2013 or 2.8% annualised).
8) Inflation is well under control in all these economies, with a regional level of 4%, despite the uptick prompted by the abolition of petrol subsidies in some countries. Once the base effect is eliminated in less than one year, the region’s inflation could reach around 3.8%. China is exercising strict control of price levels and the results are starting to show, with inflation of 2.4% in 2013.
The relatively better labour market situation and, in particular, the significant increase in full-time employment brought the jobless rate to 7%, which is the threshold level at which the BoE may decide to amend its forward guidance and lay the ground for an increase in rates.
Japan
The main point about the UK economy is that the improvement has been achieved in an environment in which the chairman of the BoE decided to halt any stimuli through expansion of the monetary base. It is therefore a more genuine growth than that seen in Japan, for example.
The Japanese economy ended 2013 with strong activity rates, with the general PMIs in expansion territory (55) and the Tankan Survey showing rallies in business confidence indicators. The Bank of Japan’s stimulus policy appears to be having the desired effects (at least, in part) on economic activity and prices (1.5% inflation).
We predict that economic activity in the United Kingdom will expand at a rate of 1.5%-2% in 2014, with contained prices (as everywhere), resulting in inflation of 1.7%.
We expect this policy of reflating the economy through an asset purchase programme (long-term government bonds) to continue for some time, maintaining downward pressure on yields (the yield on the 10-year Japanese bond currently stands at 0.50%) and pushing down the cost of mortgage lending. Until when? This is a policy that also seeks to devalue the currency in order to reactivate the external sector. The Japanese authorities already devaluated the yen once before, to 130 against the USD (currently 103) and 170 against the EUR (currently 140). We expect them to continue to implement these policies until the currency approaches the levels just indicated.
Financial market performance in 2014 Fixed-income market Andbank’s general view on the evolution of inflation is the determining factor in shaping our outlook and strategy with respect to interest rates and fixed-income assets. This view could be summed up as follows: a global environment of very low inflation rates, lower than the market anticipates today through the swap curves.
Estimated GDP growth 1.25%-1.5% for 2014. Inflation accelerating moderately to 2%.
Our deflationary arguments are based on the premise that we have detected six clearly deflationary structural forces that will dominate the next few years: 1) There are two types of countries in the world: price monetizers (which prosper in commodity inflationary
28
Fixed-income securities in USD: Structurally low yields on benchmark bonds in USD. Range for the 10-year Treasury 2.5%3%. Need to start to increase duration from 3%. Aggressive buy above 2.25%-2.5%. Sell at 2.50%.
environments, an example being the emerging countries); and volume monetizers (which prosper from the expansion of volumes rather than of prices, as in the case of the developed economies, intensive in services, financial products, health, etc.). Now, the fact that the emerging economies showed relatively worse dynamics than the developed countries even in 2013, together with the fact that yields in the West have been falling without a break, indicate quite clearly that we are in a deflationary environment.
European sovereign debt Further narrowing of risk premiums during 2014. Estimated yields for these governments’ 10-year bonds 100 bp lower than the levels at year-end 2013: Spain, target of 3.25%; Italy, 3.25%; Portugal, below 5%, down from 6% in December 2013; Ireland, 3%; Greece, below 7%.
2) The policies of the Fed, the BoJ, the BoE, etc. (known as ZIRP) prevent the global self-adjustment mechanism (dollar up, oil down) from taking effect, thus blocking the start of a new economic cycle (based on an increase in the purchasing capacity of U.S. consumers, precisely due to a higher dollar and lower oil). Because a new cycle cannot start in the traditional way, prices and global inflation will not be able to rise either.
These estimates suggest double-digit yields in all these assets in 2014. Equity
3) Massive investment in the mining (and metals) industry has led to the largest excess capacity ever seen in history. This is a huge deflationary force.
U.S.–S&P: In 2014 we expect sales growth in the companies in the index to reach 6.2%, while margins remain stable at 9.6%, resulting in earnings per share (EPS) of USD 116.27, up 6.2%. We forecast an LTM P/E ratio of 15.9, which gives a target price for this index of 1,849 (2.5% potential appreciation for the year as a whole).
4) The internationalisation of the renminbi basically allows China to assist the industrial development of relatively undeveloped economies through cheap Chinese credit. That explains how the number of textile factories in Vietnam, paper factories in Cambodia and shoe factories in Bangladesh continues to grow.
Europe–Stoxx 600: In 2014 we expect sales growth in the companies in the index to reach 3.9%, while margins increase by 6.5%, resulting in earnings per share (EPS) of EUR 22.80, up 22.7%. We forecast an LTM P/E ratio of 14.5, which gives a target price for this index of 370 (14.8% potential appreciation for the year as a whole).
5) Companies’ historical ability to replace human labour with machinery. Today this ability is simply unprecedented, with more companies devoted to designing robotics than ever before. This, too, is a major deflationary force.
Asia Emerging - FDSAG except Japan: In 2014 we expect sales growth in the companies in the index to reach 9.05%, while margins increase by 7.75%, resulting in earnings per share (EPS) of USD 67.43, up 15.3%. We forecast an LTM P/E ratio of 13.7, which gives a target price for this index of 925 (20.4% potential appreciation for the year as a whole).
In short, more products are being produced with less money and fewer people. Fixed income securities in EUR: Structurally low yields on benchmark bonds in EUR. Range for the 10-year bund 1.5%2%. Need to start to increase duration from 2%. Aggressive buy above 2.25%-2.5%. Sell at 1.50%.
29
Commodities
Agricultural products: are well priced.
Commodities in general are at a good price after the falls in recent years. We do not anticipate large movements in the general indices (CRB), as the main driver of a price boom already dissipated in 2013, with a structural downward shift in the growth rate of heavy industry in China (which has fallen from 20% per year in the 2000-2008 period to the current rate of 10%). This decline is structural (not cyclical), so it makes no sense to talk of a new upward cycle in commodity prices.
Preferred commodities: 1) In the energy commodities family we prefer gas. With a cumulative price change over 10 years of -14% (-1.4% per year throughout the period), we consider gas to be very cheap, particularly as it is increasingly coming into use in production processes. 2) In the minerals or metals family the standout is nickel, which is trading at a very large discount due to the large excess of supply. However, the decision of Indonesia (the world’s main producer) to prohibit nickel ore exports may get rid of this excess in a single year. Nickel will maintain its strong presence in industrial processes (superalloys, rechargeable batteries, coin minting, foundries, metal, catalysis, etc.).
Having said that, there are reasons to be optimistic and abandon the thesis of further declines: 1) the CPB Netherlands Bureau for Economic Policy Analysis index shows an increase in global imports that points to an uptick in shipping and the real demand for commodities; and 2) investment in the construction of new ships in the south of Europe was EUR 9.5 billion, for a loading capacity of 24 million deadweight tonnes (or 275 new cargo ships).
3) In the agricultural products family, corn appeals, following the fall of 42% in 2013. Commodities to be avoided: all precious metals (gold, silver and palladium), metals and minerals such as aluminium and steel, and associated minerals. Also on the list of expensive materials is copper. In energy, avoid coal.
Industrial metals: to be avoided. This structural decline in industrial activity in China has caught metal producers by surprise, with capacity at the highest level ever seen. Despite the closure of some investment projects, the large surplus capacity will continue to exert considerable pressure on the price of industrial metals (and some minerals).
Currencies EUR: will continue playing the role of strong currency. We maintain a fundamental target of 1.40 for the EUR-USD. Entry levels in EUR below 1.30 (which we are likely to see if the Fed implements tapering aggressively).
Precious metals: to be avoided. In real terms, gold remains expensive, even compared with the evolution of oil and equities. The reduced monetary stimulus will necessarily provide less support to these assets. India will continue to limit gold purchases, and the debt crisis in Europe (the great systemic risk factor that supported gold purchases in 2012) is being managed satisfactorily. Japan will continue to reduce its stock of gold as part of its asset (bond) buying programme. Andbank’s long-term target for gold is USD 900 USD/ounce.
JPY: to be avoided against the EUR and USD (target is gradual depreciation to 160 and 130, respectively). GBP: stable. Range of 0.82-0.86 against the EUR. MXN: target of 12.75 against the USD. Positive BRL: target of 2.60 against the USD. To be avoided.
30
Asian currencies: Andbank’s indicator (Asian Currency Diffusion Index) suggests that there is a lot of value in these currencies. The price of these assets will vary with the rate of tapering and could depreciate a little more. Despite this, bearing in mind the valuation at December 2013, we think there is value in IDR, PHP and MYR.
31
4. Auditor’s Report
32
33
5. Financial Statements Andbank Group Andorra Banc Agricol Reig, SA and Subsidiaries Translation of a report originally issued in Catalan based on our work performed in accordance with International Standards on Auditing and of consolidated financial statements originally issued in Catalan and prepared in accordance with the accounting principles and standards generally accepted for the Andorran financial system (see Notes 2 and 25). In the event of a discrepancy the Catalan-language version prevails
34
Consolidated Balance Sheets at 31 December 2013 and 2012 ASSETS
Cash and at central banks of the OECD
Expressed in thousands of Euros
2013
2012
37,265
42,197
210
210
578,430 579,195 762 (1,527)
537,038 537,463 (425)
Loans and receivables (notes 4 and 6) Loans and advances to customers Customer account overdrafts Customer discounted notes Provisions for loan losses
1,727,661 1,632,542 128,009 7,284 (40,174)
1,792,920 1,673,952 140,642 10,550 (32,224)
Investment securities (notes 4 and 7) Bonds and other fixed-income securities Provisions for loan losses Securities valuation reserve Investments in Group companies Securities valuation reserve Other investments Securities valuation reserve Shares and other variable-income securities Investment funds Securities valuation reserve
1,147,427 1,139,076 (3,904) (16,958) 4,420 (8) 4,781 (58) 6,278 16,094 (2,294)
993,937 984,488 (3,256) (9,891) 3,474 (50) 4,781 290 16,232 (2,131)
34,912
33,664
Intangible assets and amortisable costs (note 8.a) Intangible assets and amortisable costs Provision for amortisation
19,173 55,183 (36,010)
14,161 47,482 (33,321)
Tangible assets (note 8.a) Tangible assets Provision for depreciation Provision for depreciation of tangible assets
147,343 235,877 (79,878) (8,656)
133,681 215,223 (72,031) (9,511)
37,751 35,190 2,561
56,764 54,643 2,121
312,805 5,897 13 65,640 237,691 3,564 4,042,977
96,449 24,966 13 28,373 41,699 1,398 3,701,021
INAF (Andorran National Institute of Finance) (note 22) Financial intermediaries on sight, banks and credit institutions (notes 4 and 5) Banks and credit institutions Other financial intermediaries Provisions for loan losses
Gains on consolidation (note 8.b)
Prepayments and accrued income Interest accrued and not collected Prepaid expenses Other assets (note 13) Operations in progress Inventories Options purchased Other Taxes
TOTAL ASSETS
The accompanying notes 1 to 25 form an integral part of these consolidated financial statements.
35
Expressed in thousands of Euros
LIABILITIES
2013
2012
2,058
1,278
3,332,281 641,253 301 2,690,727
3,029,557 447,949 1,102 2,580,506
Debt securities (note 4)
81,258
68,149
Provisions for risks and contingencies (note 9) Provisions for pensions and similar obligations Other provisions
11,713 6,816 4,897
9,885 6,701 3,184
-
-
5,393
4,193
26,124 25,086 1,038
23,595 22,694 901
102,204 24,029 3,387 59,509 15,279
118,095 102 27,660 3,392 86,941 -
78,842 78,842
78,061 78,061
Reserves (note 11) Legal reserve Guarantee reserves Statutory reserves Voluntary reserves Consolidation reserves Revaluation reserves (note 8) Share premiums Translation differences
357,068 15,612 24,025 169,279 12,780 61,912 73,441 19
330,126 15,612 20,900 149,322 12,363 61,912 69,999 18
Profit (notes 10 and 11) Profit for the year Interim dividend
46,036 64,080 (18,044)
38,082 56,581 (18,499)
-
-
4,042,977
3,701,021
INAF (Andorran National Institute of Finance) (note 4) Creditors (note 4) Banks and credit institutions Other financial intermediaries Customer deposits
Subordinated liabilities General risks reserve (note 11) Accrued expenses and deferred income Unpaid accrued expenses Deferred income Other liabilities (note 13) Dividends payable Operations in progress Options issued Suppliers and other creditors Taxes Share capital (note 11) Subscribed capital
Minority interests TOTAL LIABILITIES The accompanying notes 1 to 25 form an integral part of these consolidated financial statements..
36
Consolidated Memorandum Accounts at 31 December 2013 and 2012 MEMORANDUM ACCOUNTS
Expressed in thousands of Euros
2013
2012
73,895 73,835 60 -
67,700 67,500 200 -
348,050 340,523 7,527
277,216 269,277 7,939
Futures operations (note 14) Outstanding forward currency purchases and sales Forward financial instrument operations
8,209,787 1,716,465 6,493,322
5,782,708 1,412,456 4,370,252
Security deposits and other securities held in custody (notes 19 and 20) Security deposits and other securities held in custody of third parties Security deposits and other securities in own custody
8,701,609 7,978,278 723,331
7,306,208 6,698,508 607,700
Other memorandum accounts exclusively for administrative control Guarantees and commitments received Other memorandum accounts (note 21)
1,425,699 1,203,530 222,169
1,498,314 1,286,775 211,539
18,759,040
14,932,146
Contingent liabilities Guarantees, bonding, sureties and other Documentary letters of credit issued to or received from and confirmed by customers Notes and similar accepted Commitments and contingent risks Commitments and operational risks Commitments and actuarial risks
TOTAL MEMORANDUM ACCOUNTS The accompanying notes 1 to 25 form an integral part of these consolidated financial statements.
37
Consolidated Income Statement for the years ended 31 December 2013 and 2012 INCOME STATEMENTS
Expressed in thousands of Euros 2013
2012
Interest and similar income INAF and financial intermediaries on sight and term Loans and receivables Bonds and other fixed-income securities
111,104 49,257 38,100 23,747
96,577 28,762 40,629 27,186
Interest and similar charges INAF and financial intermediaries Customer deposits Others
(68,621) (34,140) (34,403) (78)
(40,681) (13,164) (27,421) (96)
956 956
117 117
43,439
56,013
111,002 127,638 (16,636)
105,082 124,716 (19,634)
39,281 (7,288) 2,254 33,733 5,419 3,711 1,452
27,490 (3,177) 3,927 21,821 605 3,732 (18) 600
889
1,107
194,611
189,692
Personnel expenses Personnel, board of directors and severance indemnities Social Security Other personnel expenses
(64,168) (54,909) (4,290) (4,969)
(60,103) (48,718) (4,198) (7,187)
Overheads Material External services Taxes (note 20) Other overheads
(34,337) (283) (23,982) (1,897) (8,175)
(43,871) (1,601) (20,087) (17,030) (5,153)
Amortisation and depreciation of fixed assets, net of recoveries (note 8) Charge to the provision for amortisation and depreciation of intangible and tangible assets
(7,411) (7,411)
(8,902) (8,902)
Provisions for amortisation and depreciation of fixed assets, net of recoveries (note 8)
(2,306)
(4,600)
Income from variable income securities Investments in Group companies NET INTEREST MARGIN Net fees and commissions on services Fees and commissions accrued on services rendered Fees and commissions accrued on services received Gains or losses on financial assets or liabilities Net charges to securities valuation reserve (note 7) Foreign exchange gains Profit on securities operations Losses on futures operations Other Exchange gains/losses on consolidation Share of profit of equity accounted companies Other profit from ordinary activity GROSS MARGIN
38
Expressed in thousands of Euros NET OPERATING MARGIN
86,389
72,216
(13,640) (13,640) -
(14,630) (14,630) -
Provisions for risks and contingencies, net of recoveries (note 9.b) Charges to provisions for risks and contingencies Recoveries of provisions for risks and contingencies
(1,334) (1,875) 541
5,175 (1,561) 6,736
Charges to general risks reserve (note 11.g)
(1,200)
(2,000)
70,215
60,761
1,091
(1,436)
71,306
59,325
(7,813)
(2,620)
587
(124)
64,080
56,581
Provisions for loan losses, net of recoveries Charges to the provision for loan losses (notes 5, 6 and 7) Recoveries of provision for loan losses
PROFIT FROM ORDINARY ACTIVITY Extraordinary profit/(loss) PROFIT BEFORE INCOME TAX Income tax (note 15) Foreign income tax CONSOLIDATED PROFIT Profit attributed to minority interests
-
Profits attributed to the Group
64,080
The accompanying notes 1 to 25 form an integral part of these consolidated financial statements.
39
56,581
Consolidated Statements of Source and Application of Funds for the years ended 31 December 2013 and 2012 Expressed in thousands of Euros SOURCE OF FUNDS
2013
2012
98,021 64,080 13,640 2,306 7,288 2,534 7,411 1,026 (262)
87,290 56,581 14,630 4,600 3,177 8,902 (600)
Increase in liabilities less assets INAF and financial intermediaries Banks and credit institutions (Liabilities-Assets) Other financial intermediaries (Liabilities-Assets) Other items (Liabilities-Assets)
173,895 780 151,573 21,542
166,261 244 164,915 1,102 -
Net increase in liabilities Creditors: customers Debt securities
123,330 110,221 13,109
59,334 59,334
62,379 4,932 57,310 137
5,924 5,924
-
255 255 -
4,222 4,222 -
-
461,847
319,064
Funds generated from operations Profit for the year Net charges to provision for loan losses Net charges to provision for fixed asset depreciation Net charges to securities valuation reserve Net charges to other provisions (pension funds and general risks) Amortisation and depreciation of intangible and tangible assets Loss on sale of fixed assets Loss on sale of own shares and investments Profit on sale of fixed assets Profit on sale of own shares and investments Other Losses contributed by equity accounted companies (-)
Net decrease in assets Cash and central banks of the OECD Loans and receivables: customers Securities portfolio, less investments Sale of non-current investments Sale of investments Sale of fixed assets Funds from financing activities External capital contributions Other equity items Dividends from non-current investments TOTAL SOURCE OF FUNDS The accompanying notes 1 to 25 form an integral part of these consolidated financial statements.
40
Expressed in thousands of Euros APPLICATION OF FUNDS
2013
2012
-
5,290 3,175 2,115
235,294 1,563 233,731
33,798 33,798
-
22,861 22,861
160,575 160,575
177,825 2,305 113,314 62,206
Acquisition of non-current investments Acquisition of investments Acquisition of fixed assets
29,243 888 28,355
21,147 21,147
Funds applied to financing activities Interim dividend for the year Complementary dividends from prior year Decrease in reserves Other equity items
36,735 18,044 18,691 -
58,143 18,499 36,999 2,645
461,847
319,064
Funds used in operations Application of other funds (pension funds, etc.) Other Increase in assets less liabilities INAF (Assets-Liabilities) Banks and credit institutions (Liabilities-Assets) Other financial intermediaries (Assets-Liabilities) Other items (Assets – Liabilities) Net decrease in liabilities Creditors: customers Net increase in assets Cash and central banks of the OECD Loans and receivables: customers Securities portfolio, less investments
TOTAL APPLICATION OF FUNDS The accompanying notes 1 to 25 form an integral part of these consolidated financial statements.
41
2. Basis of Presentation and Consolidation Principles
Notes to the Consolidated Financial Statements for the year ended 31 December 2013
a. Fair presentation
1. Activity
The accompanying consolidated financial statements comply with the format established by the Decree approving the normalised Accounting Plan to be implemented by all operators in the financial system by 19 January 2000, as published in the Official Gazette of the Principality of Andorra Number 5, year 12, on 26 January 2000. The consolidated financial statements were prepared on the basis of Andorra Banc Agrícol Reig, S.A.’s accounting records and those of its subsidiaries as at 31 December 2013, to present fairly the equity and financial position of the Group, the consolidated results, and consolidated source and application of funds at that date.
Andorra Banc Agrícol Reig, S.A. is a limited liability company incorporated in 1930, protected by the law of Andorra, with registered offices in Escaldes-Engordany (Principality of Andorra). At an extraordinary meeting held on 10 May 2002, the shareholders adopted a resolution to change its registered name from Banc Agrícol i Comercial d’Andorra, S.A., to Andorra Banc Agrícol Reig, S.A. (hereinafter Andbank or the Bank), together with a corresponding modification of article 1 of its articles of association. The Bank’s statutory activity is to carry out banking activities, as defined by the regulations of the Andorran financial system. In addition, it can undertake any activity related to or which complements its statutory activity.
The figures included in the documents that comprise these consolidated financial statements are expressed in thousands of Euros.
In order to adapt to Law 7/2013 of 9 May 2013 and prior to approval of the Board of Directors on 28 June 2013, the Bank requested that the INAF give its approval (received on 23 December 2013) to expand its statutory activities to all those activities that Andorran financial system legislation allows banking entities to carry out and that it may also perform as many operations and activities which are accessory or complementary to the principal activity.
The consolidated financial statements of the Group and of the subsidiaries comprising the Group are pending approval by the shareholders at their respective general meetings. However, management considers that they will be approved without significant changes. The financial statements for 2012 were approved by the shareholders at their general meeting on 27 March 2013. The financial statements of Andorra Banc Agrícol Reig SA at 31 December 2013 and 2012 have been presented separately from the aforementioned financial statements. The key financial indicators disclosed in the aforementioned financial statements are as follows (expressed in thousands of Euros):
Andbank is the Parent of the Andorra Banc Agrícol Reig, S.A. Group (hereinafter the Andbank Group), which comprises the companies listed in notes 2.d and 7.b. As a member of the Andorran financial system, Andbank is subject to the supervision of the Andorran National Institute of Finance (INAF), which is the Andorran financial system’s authority and which performs its functions independently from the General Administration. The Bank is also subject to compliance with local Andorran legislation (see note 22).
Expressed in thousands of Euros 2013 2012 Total assets Share capital and reserves Profit for the year
42
3,373,575
3,138,469
423,111
395,806
61,912
53,124
b. Comparative information
regulatory change been taken into consideration when presenting the balances for 2011, “Gains on consolidation - Amortisation” and “Reserves - Consolidation reserves” would have both increased by Euros 5,601 thousand.
The information relating to 2012, contained in the consolidated financial statements for 2013, is presented exclusively for comparative purposes and does not therefore constitute the Group’s consolidated financial statements for 2013.
c. Significant Accounting Principles
The balances for 2013 and 2012 presented in these consolidated financial statements are comparative considering the following: •
•
These consolidated financial statements have been prepared following the generally accepted accounting principles described in note 3. There are no mandatory accounting principles which have not been applied that would have a significant effect on preparation of the consolidated annual accounts.
Income tax: On 1 December 2011 the Principality of Andorra´s General Council approved Income Tax Law 95/2010 of 29 December 2010, pursuant to which companies pay a general tax rate of 10%, although a reduction of 50% was applied to net tax payable in 2012 (see notes 3.n and 15). Through its communiqué 226/12 of 28 December 2012 the Andorran National Institute of Finance established a framework for the accounting treatment and presentation of income tax.
d. Consolidation principles applied to the financial statements The consolidated financial statements of the Group at 31 December 2013 and 2012 have been prepared by the management of the Bank. The most significant subsidiaries of Andorra Banc Agrícol Reig, SA at 31 December 2013 and 2012 and their main corporate data is as follows (expressed in thousands of Euros):
Differences on first-time consolidation and Goodwill: As established in INAF communiqués 227/12 of 28 December 2012 and 228/12 of 31 December 2012, respectively, effective as from 1 January 2012 and in line with International Accounting Standards, gains on consolidation and goodwill are not amortised and from that date new goodwill is recognised as the difference between the amount paid for the shares of the subsidiary and the part of goodwill less any impairment after the acquisition date. In addition, the Bank charges part of its annual profit to an non-distributable reserve equivalent to 10% of the difference on first consolidation or goodwill up to 100% of the carrying amount. These communiqués were first applicable as from 1 January 2012, the date on which the entities governed by the Accounting Plan for the Andorran Financial System were required to reverse unused amortisation reserves recognised during 2012 to offset impairment at that date, against reserves (in the case of goodwill) or consolidation reserves (in the case of gains on consolidation). Had this
43
2013
Expressed in thousands of Euros COMPANY
COUNTRY
ACTIVITY
% DIRECT OWNERSHIP
% INDIRECT OWNERSHIP
AUDITED COMPANY
INTERIM DIVIDEND
EQUITY
CAPITAL
RESERVES
PRIOR YEARS’ PROFIT(LOSSES) PENDING APPLICATION
PROFIT/ (LOSS)
Caronte 2002, SLU
Andorra
Services
100%
-
Yes
-
38
32
6
-
-
Clau d’Or, SL
Andorra
Real estate
100%
-
No
-
30
-
-
-
-
Món Immobiliari, SLU
Andorra
Real estate
100%
-
No
-
27
-
-
-
-
Andorra Gestió Agrícol Reig, SAU
Andorra
Investment fund management
100%
-
Yes
1,750
2,732
1,000
1,200
-
2,282
Andbank Bahamas (Limited).
Bahamas
Bank
100%
-
Yes
2,500
33,519
21,500
7,853
-
6,666
Nobilitas N.V.
Dutch Antilles
Holding
100%
-
No
-
428
1,000
8,933
(9,606)
101
11,468
(8,302)
(52)
1,637
88
Egregia B.V.
Holland
Special purpose vehicle
-
100%
No
-
3,294
180
Zumzeiga Coöperatief U.A
Holland
Special purpose vehicle
-
100%
No
-
2,276
551
Savand, SAU
Andorra
Financial services
100%
-
Yes
-
2,181
2,100
41
-
40
Andorra Assegurances Agrícol Reig, SAU
Andorra
Insurance
100%
-
Yes
1,000
3,336
2,404
481
-
1,451
AndPrivate Wealth S.A.
Switzerland
Asset management
-
100%
Yes
-
3,318
3,290
-
-
28
Columbus de México, S.A.C.V. Quest Capital Advisers Agente de Valores, S.A. Andbank Asset Management Luxembourg.
Mexico
Asset management
-
50%
Yes
-
834
679
8
69
78
Uruguay
Securities broker
-
100%
Yes
-
2,582
10
1
405
2,166
Luxembourg
Investment fund management
-
100%
Yes
-
2,567
3,000
-
(1,309)
876
Andbank Luxembourg S.A.
Luxembourg
Bank
100%
-
Yes
-
50,324
54,100
-
(4,938)
1,161
Andbank España, S.A.
Spain
Bank
100%
-
Yes
-
18,719
20,000
(140)
1,971
(3112)
Andbank Asset management, SGIIC, SAU
Spain
Securities broker
-
100%
Yes
-
571
1,004
187
(645)
25
Medipatrimonia Invest, S.L.
Spain
Investment services company
-
51%
Yes
-
433
54
1,732
(802)
(551)
AndPrivate Consulting, S.L.
Spain
Services
100%
-
No
-
(2,133)
3
-
(1,665)
(471)
Andbanc Asset management LLC
USA
Holding
-
100%
No
-
(3,773)
2,714
-
(4,738)
(1749)
Andbanc Advisory LLC
USA
Advisory services
-
100%
Yes
95
4
-
19
72 (142)
Andbanc Brokerage LLC
USA
Financial services
-
100%
Yes
-
12
872
-
(718)
APW International Advisors Ltd.(*)
British Virgin Islands
Asset management
100%
-
Yes
-
715
7
612
-
96
APW Consultores Financeiros, Lda
Brazil
Financial services
100%
-
Yes
-
(4,320)
297
-
(3,232)
(1385)
AND PB Financial Services, S.A
Uruguay
Representation office
100%
-
Yes
-
185
171
-
(54)
68
Andorra Capital Agrícol Reig BV
Holland
Special purpose vehicle
100%
-
Yes
-
77
18
-
28
31
Andbank (Panamá) S.A.
Panama
Bank
100%
-
Yes
289
5,330
5,067
-
(380)
932
Andbank Luxembourg Limited Hong Kong
Hong Kong
Services
-
100%
Yes
-
93
-
-
-
-
And Private Wealth (Chile)
Chile
Financial services
-
100%
No
-
-
-
-
-
-
Andbanc Monaco S.A.M.
Monaco
Bank
100%
-
Yes
-
25,188
21,000
2,352
1,279
557
Tonsel Corporation
Belize
Special purpose vehicle
100%
-
No
-
(248)
36
-
(284)
-
Mangusta Antilles Holding, N.V.
Curaçao
Special purpose vehicle
-
100%
No
-
(109)
-
-
-
(25)
LLA Participaçoes Ltda
Brazil
Portfolio and collective investment undertaking management company
51.63%
-
Yes
-
26
7
-
18
2
(*) Data from 31 December 2012
44
2012
Expressed in thousands of Euros
COMPANY
COUNTRY
ACTIVITY
% DIRECT OWNERSHIP
% INDIRECT OWNERSHIP
AUDITED COMPANY
INTERIM DIVIDEND
EQUITY
PROFIT/(LOSS)
Caronte 2002, SLU
Andorra
Services
100%
-
Yes
-
35
-
Clau d’Or, SL
Andorra
Real estate
100%
-
No
-
30
-
Món Immobiliari, SLU
Andorra
Real estate
100%
-
No
-
27
-
Andorra Gestió Agrícol Reig, SAU
Andorra
Investment fund management
100%
-
Yes
750
4,810
2,610
Andbanc Bahamas (Limited).
Bahamas
Bank
100%
-
Yes
2,832
31,734
4,831
Nobilitas N.V.
Dutch Antilles
Holding
100%
-
No
-
(1,781)
(2,564)
Savand, SAU
Andorra
Financial services
100%
-
Yes
-
2,140
(36)
Andorra Assegurances Agrícol Reig, SAU
Andorra
Insurance
100%
-
Yes
250
3,348
463
AndPrivate Wealth S.A.
Switzerland
Asset management
-
100%
Yes
-
3,329
(305)
Columbus de México, S.A.C.V.
Mexico
Asset management
-
50%
Yes
-
800
51
Quest Capital Advisers Agente de Valores, S.A.
Uruguay
Securities broker
-
100%
Yes
-
2,331
1,896
Andbank Asset Management Luxembourg.
Luxembourg
Investment fund management
-
100%
Yes
-
1,450
(212)
Andbank Luxembourg S.A.
Luxembourg
Bank
100%
-
Yes
-
20,877
3,201
Andbank (Luxembourg),S.A., Sucursal en España
Spain
Bank
-
100%
Yes
-
(3,358)
(3,358)
Medivalor AV Agencia de Valores, S.A.U.
Spain
Securities broker
-
100%
Yes
-
564
(137)
Spain
Investment services company
-
41.89%
Yes
-
265
(463)
Spain
Services
100%
-
No
-
(1,341)
(591)
-
(2,810)
Medpatrimonia Invest, S.L. AndPrivate Consulting, S.L. Andbanc Asset management LLC
USA
Holding
100%
No
-
(2,337)
Andbanc Advisory LLC
USA
Advisory services
100%
Yes
-
15
12
Andbanc Brokerage LLC
USA
Financial services
100%
Yes
-
205
(713)
APW International Advisors Ltd.
British Virgin Islands
Asset management
100%
-
Yes
-
987
132
APW Consultores Financeiros, Lda
Brazil
Financial services
100%
-
Yes
-
(454)
(766)
AND PB Financial Services, S.A
Uruguay
Representation office
100%
-
Yes
-
(20)
17
Andorra Capital Agrícol Reig BV
Holland
Special purpose vehicle
100%
-
Yes
-
45
21
Andbanc (Panamá) S.A.
Panama
Bank
100%
-
Yes
-
4,910
1,322
Andbank Luxembourg Limited Hong Kong
Hong Kong
Services
-
100%
Yes
-
98
-
And Private Wealth (Chile)
Chile
Financial services
-
100%
No
-
-
-
Andbanc Monaco S.A.M.
Monaco
Bank
100%
-
Yes
-
24,775
226
Tonsel Corporation
Belize
Special purpose vehicle
100%
-
No
-
-
-
Brazil
Portfolio and collective investment undertaking management company
51.63%
-
Yes
-
42
87
LLA Participaçoes Ltda
45
Nobilitas N.V. owns 100% of Egregia B.V. and 99% of Zumzeiga Coöperatief. Egregia B.V. owns 100% of AndPrivate Wealth, S.A. and 50% of AndPrivate Wealth, S.A. (Chile), while Zumzeiga Coöperatief U.A. owns 100% of Quest Capital Advisers Agente de Valores, S.A., 100% of Andbanc Asset management LLC, 50% of Columbus de México, S.A. and the remaining 50% of AndPrivate Wealth, S.A. (Chile). The purchase agreement for Quest Capital Advisers, S.A. includes potential deferred payments depending on the company’s future results. At 31 December 2013 the Parent (Andorra Bank Agrícol Reig, S.A.) has extended loans to Zumzeiga Coöperatief U.A., through Nobilitas N.V., for an amount of US Dollars 26,428 thousand (US Dollars 18,444 thousand in 2012), which the subsidiary has used for the creation and acquisition of its subsidiaries.
The company originally had a share capital of Swiss Francs 6,430,000 comprising 6,430 shares of Swiss Francs 1,000 par value each and, as a result of this transaction, it now has share capital of Swiss Francs 4,028,455 comprising 4,028,455 shares of Swiss Francs 1 par value each. The equity situation of this company has therefore been redressed in compliance with Swiss legislation. At the date these financial statements were authorized for issue the aforementioned capital reduction still has not been registered by the INAF. Columbus de México, S.A. is an asset management company that operates in the Mexican market. The Group acquired a 50% investment in its share capital in 2008 through its affiliate Zumzeiga Coöperatief.U.A.
Andorra Gestió Agrícol Reig, SAU is an investment fund management company, whose funds are marketed by Andorra Bank Agrícol Reig, S.A. Both the management company and the investment fund are subject to the supervision and control of the INAF.
Quest Capital Advisers, S.A. is a portfolio management company with registered offices in Montevideo. It was acquired by the Andbank Group in 2009. On 17 April 2012 the INAF approved that its name be changed to Quest Capital Advisers Agente de Valores, S.A. On 28 June 2013 the Bank informed the INAF that the deferred payments which had to be made in 2012 and 2013 for the acquisition of this company, as well as the last payment to be made in 2015, have been less than those originally planned, because the initially estimated results were lower and the scheduled payment to the shareholder was deferred. For this reason, it is estimated that the purchase of the company has generated goodwill of US Dollars 14,095 thousand, instead of the US Dollars 17,990 thousand initally recognised.
Andorra Assegurances Agrícol Reig, S.A. is the Group’s insurance company. Resident in Andorra, its principal activity is management of unit-linked life insurance, as well as other types of life and health insurance. AndPrivate Wealth, S.A. is a portfolio management company headquartered in Geneva. On 19 December 2012 the Institut Nacional de Finances (INAF) authorised AndPrivate Wealth, S.A. to increase the company’s share capital by means of an injection of funds in the form of a direct contribution to equity, recognised under reserves, amounting to Swiss Francs 500,000 through Nobilitas N.V. and Egregia B.V. On 3 May 2013 the INAF authorised AndPrivate Wealth, S.A. to reduce its share capital by partially eliminating accumulated losses amounting to Swiss Francs 2,952,071 at 31 December 2012. From this amount losses of Swiss Francs 550,526 were offset against reserves, with the remaining Swiss Francs 2,401,545 being offset by reducing the company’s capital by this amount, reducing the par value of each share.
Andbanc Asset management LLC is a financial services company with registered offices in the United States. It was created during 2010 as a subsidiary of Zumzeiga Coöperatief U.A. On 26 September 2013 the Bank requested prior authorisation from the INAF for the acquisition of a portfolio comprising US Dollars 290 million which would be managed by Andbanc Advisory LLC (a subsidiary of Andbanc Asset management LLC). Likewise, in relation to the aforementioned transaction, on 24 October 2013 the Company requested authorisation from the INAF to be able to increase share capital by US Dollars 1,950 thousand through the capitalisation of the 46
Andbanc Bahamas Limited is a bank that started operations in 2001, having obtained a banking license on 9 July of that year under the name of Banc Agrícol (Bahamas) Limited - Banking and Trust Licencee. It is supervised by the Bank Supervision Department of the Central Bank of the Bahamas and the Securities Commission.
credit facilities extended to the Company. The INAF authorised this transaction on 13 December 2013. On 10 December 2013 the Bank requested authorisation from the INAF to be able to increase capital of the subsidiary Andbanc Asset Management LLC by US Dollars 2,980 thousand and subsequently increase the capital of Andbanc Brokerage, LLC by US Dollars 240 thousand. The share capital increase was carried out by capitalising loans through Nobilitas, NV.Zumzeiga Coöperatief U.A, Andbanc Asset Management LLC and Andbanc Brokerage, LLC. The INAF authorised this transaction on 30 January 2014.
Andbanc (Panamá), S.A. is a bank and brokerage firm that started operations in 2009 after obtaining its international banking license from the Panama Superintendency of Banks (Superintendencia de Bancos de Panamà), by which it is supervised in conjunction with the Panama Superintendency of the Securites Market. On 19 July 2013 the Panama Mercantile Registry filed the company’s change of name to Andbank (Panamà), S.A. At the date of these financial statements this change in name has still not been recorded in the corresponding INAF registry.
APW International Advisors Ltd, with registered offices in BVI, is an asset management and investment fund management company that joined the Group in 2007. APW International Advisors is a direct subsidiary of Andorra Banc Agrícol Reig, S.A. and is under the supervision of the BVI Financial Services Commission.
Andbank Luxembourg, S.A. is a bank founded in 2010 that started operating that same year. As a bank with registered offices in Luxembourg, it is supervised by the Commission de Surveillance du Secteur Financier and by Banque Centrale du Luxembourg. The bank was definitively registered by the INAF on 5 May 2011.
And PB Financial Services, S.A. is a company created for the establishment of the Bank’s representative office in Uruguay. On 20 December 2012 the INAF approved a share capital increase by the company by means of an “accordion” operation to reduce share capital to absorb accumulated losses and subsequently increase share capital to reach the maximum legal limit required of Uruguayan Pesos 5,000,000 (approximately Euros 300 thousand). This share capital increase was performed by capitalising the company’s liabilities with the shareholder by an amount of Uruguayan Pesos 4,346 thousand, capitalising the revalued fixed assets of the company by an amount of Uruguayan Pesos 384 thousand and a direct cash contribution of Uruguayan Pesos 1,408 thousand. This transaction was recorded in the corresponding INAF register on 29 October 2013.
On 26 December 2011 Andbank Luxembourg, S.A. received authorisation from the Banco de España, subject to compliance with the established procedure, to start banking activities in Spain through its branch Andbank Luxembourg S.A., Sucursal en España. On 20 July 2012 the company received authorisation from the Spanish Ministry of Economy and Competition to transform the branch into a subsidiary. On 28 February 2013 the INAF authorised Andbank Luxembourg, S.A. to increase share capital by a maximum amount of Euros 25 million. The purpose of this increase was to offset losses accumulated by the branch prior to it becoming a subsidiary and to fix the share capital of the subsidiary at Euros 20 million, which exceeds the minimum amount required by Spanish legislation.
Savand, S.A.U. is a company specialising in provides financial services to private customers in Andorra. It is 100% directly owned by Andorra Banc Agrícol Reig, S.A. On 28 June 2013 the board of directors of the company agreed unanimously to file a request with the INAF to take the initial steps for the merger by absorption done by the Bank Savand SAU. 47
Pursuant to the INAF’s authorisation mentioned in the paragraph above, Andbank Luxembourg, S.A. increased capital by Euros 24,100 thousand by issuing 24,100 shares of Euros 1,000 par value each. At that moment share capital stood at Euros 46,100 thousand and was recorded in the corresponding INAF registry on 29 May 2013. From the share capital increase of Euros 24,100 thousand, an amount of Euros 4,100 thousand was destined to offset the accumulated losses of the branch incurred prior to 28 February 2013 through the legal form of a specific provision of funds to offset losses.
and asset management company. On 25 March 2013 the company received authorisation from the Spanish Ministry of the Economy and Competition to convert Mediavalor AV Agencia de Valores, S.A.U. into a collective investment undertaking management company and change its name to Andbank Asset management, SGIIC, SA. This application was filed with the Spanish National Securities Commission on 30 April 2013. This company is registered in the INAF with effect as of 30 June 2012. On 1 October 2013 the Company requested authorisation from the INAF to be able to carry out the following legal businesses:
Share capital increase was increased again by Euros 8,000 thousand in 2013, through the issue of 8,000 shares of Euros 1,000 par value each, which was recorded in the corresponding INAF registry on 18 June 2013, with the total share capital of Andbank Luxembourg, S.A. reaching Euros 54,000 thousand, comprising 54,100 shares of Euros 1,000 par value each. On 1 July 2013 Andbank España SAU was incorporated as a bank subsidiary in Spain through the contribution of assets and liabilities from the branch Andbank Luxembourg, S.A., as on the same date it received approval from the Commission de Surveillance du Secteur Financier (CSSF) to be able to carry out this transaction. On 14 March 2012 Andbank Luxembourg, S.A. acquired 100% of the share capital of Medivalor AV Agencia de Valores, S.A.U. for an amount of Euros 1,730 thousand and 26% of the share capital of Medpatrimonia Invest, S.L. for an amount of Euros 170 thousand. On 25 July 2012, the share capital of Medpatrimonia Invest, S.L. was increased by Euros 938 thousand through the capitalisation of a participating loan. Following this operation, Andbank Luxembourg, S.A. owns 41.89% of the entity’s share capital. On 8 March 2013 the Company requested authorisation from the INAF to increase the share capital of Medpatrimonia Invest, S.L. by Euros 8,159 with a share premium of Euros 803,185, in order to be able to increase Andbank Luxembourg, S.A.’s interest in this company to 51%. The INAF registered this transaction with effect in October 2012. On 15 May 2012 the INAF approved an amendment to the statutory activity of Medivalor AV Agencia de Valores, S.A.U., which became a collective investment undertaking management 48
•
Andorra Banc Agrícol Reig, SA acquires 100% of the shares representing the capital of the Spanish subsidiary of Andbank Luxembourg, S.A., ie. Andbank España SAU, at their carrying amount at 30 September 2013 for approximately Euros 19.2 million. As a result of this transaction all the Andbank España SAU shares are transferred to Andorra Banc Agrícol Reig, SA.
•
Andbank España, SAU increases capital by Euros 4,000 thousand, with the issue of 4,000 thousand shares at Euro 1 par value each, which will be fully subcribed by Andorra Banc Agrícol Reig, SA.
•
Andbank España, SAU acquires 100% of Andbank Asset management S.G.I.I.C., S.A., a company wholly owned by Andbank Luxembourg, SA for Euros 1,795 thousand, corresponding to the purchase of 16,700 shares from the management company at the same price agreed by the Group with the Barcelona College of Physicians upon Andbank Luxembourg, SA’s purchase, therefore transferring all the shares from Andbank Asset management S.G.I.I.C., S.A. to Andorra Banc Agrícol Reig, SA.
•
Andbank España, SAU acquires the total 51% interest that Andbank Luxembourg, SA holds in Mediapatrimonia Invest, SL. The share capital of this company stands at Euros 54,000 and the total price to be paid is Euros 1,932 thousand, corresponding to the initial amount paid by
the Group to Grup Med Corporatiu, SAU and to successive share capital increases until reaching 51%.
2011. This entity was registered by the INAF on 9 November 2011. On 31 October 2012 Andbanc Monaco, S.A.M. increased its share capital by Euros 6,000 thousand, resulting in total share capital of Euros 21,000 thousand. The share capital increase was performed through the issue of 60,000 new shares of Euros 100 par value each. This capital increase was recorded in the corresponding INAF register on 3 May 2013.
On 13 December 2013 the INAF authorised all of these transactions, except for the purchase of the subsidiary Andbank Asset management, S.G.I.I.C, S.A. and the subsidiary Medipatrimonia Invest, S.L., which were authorised at a later date on 17 February 2014.
LLA Participaçoes Ltda is the holding company of a group of portfolio and collective investment undertaking management companies. The Andbank Group acquired 50% of the holding company’s shares on 25 October 2011.
Andbank Asset Management Luxembourg, S.A. is a collective investment undertaking management company with registered offices in Luxembourg, founded by Andorra Banc Agrícol Reig, SA in 2009 as part of its internationalisation process and supervised by the Commission de Surveillance du Secteur Financier. The company is fully owned by Andbank Luxembourg, S.A. On 20 April 2012 the INAF approved the share capital of the company by an amount of Euros 1,000 thousand, resulting in total share capital of Euros 3,000 thousand.
On 14 October 2013 the Bank requested authorisation from the INAF to register the operation to spin off the investment of the Brazilian company LLA Asset Participaçoes Ltda. (asset division), a company which forms part of the Brazilian nonfinancial holding LLA Participaçoes Ltda. Nevertheless the Bank still holds an unchanged interest in LLA Participaçoes, despite having sold its interest in the asset division.
Andbank Luxembourg Limited Hong Kong was created in 2010 and is wholly owned by Andbank Luxembourg, S.A. for the purpose of having a representation office in Hong Kong. The local regulator has informed the Group that firstly Andbank Luxembourg Limited Hong Kong will have to be wound up and liquidated and the measures to do so, as stipulated by the local regulator, are being taken during 2014.
Tonsel Corporation Belize is the holding company that holds interests in Mangusta Antilles HDG NV (100% held directly) and Balistes BV and Mangusta Amsterdam BV (100% held indirectly). On 27 June 2013 and 14 June 2013 Mangusta Amsterdam BV and Balistes BV, respectively, were taken off the Amsterdam Mercantile Registry and wound up.
Andorra Capital Agricol Reig, BV is a company with registered offices in Holland. Created in 2010, it issues fixed-income securities, which are traded by the Group.
On 27 November 2013 the INAF was requested to file Balistes BV and Mangusta Amsterdam BV in its liquidation register. Prior authorisation was also requested from the INAF to firstly liquidate Mangusta Antilles Holding, N.V. and then its shareholder Tonsel Corporation Belize.
The asset management company AndPrivate Wealth, S.A. and APW Consultores Financeiros, Lda. have been set up to provide financial services to residents in Chile and Brazil, respectively.
The Bank also owns 100% of various companies that provide services distinct from those that constitute the Group’s principal activity, with registered offices in Andorra (Caronte 2002, SLU -Company in liquidation-, Clau d’Or, S.L. and Món Immobiliari SLU) or in Spain (AndPrivate Consulting, SL).
Andbanc Monaco, S.A.M. is a bank that was acquired by the Bank in 2011. Based in Monaco, it is supervised by the Banque de France and by the Autorité de Contrôle Prudentiel, as well as by the Commission de Contrôle des Activités Financières. The Andbank Group acquired 100% of its shares on 30 June 49
On 12 July 2013 the Bank reached an agreement with Banca March to acquire the private retail banking business of Banco Inversis, SA for a total of Euros 179.8 million (see note 13.a. included under Other receivables). Since 12 July 2013 this amount has been deposited in a Banca March current account. On 12 July 2013 the CNMV was informed of this agreement and the transaction is subject to the approval of the competent Spanish and Andorran authorities.
Full consolidation consists of including in the balance sheet of the Parent all the assets, rights and obligations that comprise the equity of the subsidiaries and in the income statement all items of income and expenses which determine the profit and loss of the subsidiaries. All subsidiaries in which the shareholding of the Group is greater than 50% whose activity is not different to that of the Bank itself are consolidated in this manner and they constitute, with the Bank, one decision-making unit.
APW International Advisors Ltd, Clau d’Or, SL and Món Immobiliari, SLU are not consolidated, as they are immaterial with respect to the Group’s aggregate data.
Under proportionate consolidation the balance sheet and income statement items of the investee to be consolidated are proportionate to the capital representing the interest, adjusting where necessary to maintain consistency. In all other respects the process is similar to that of full consolidation. Jointly controlled entities whose activities are similar to the Group’s are consolidated by this method.
The definition of the Group is in accordance with the Decree approving the Accounting Plan of 19 January 2000, issued by the Andorran Government. The consolidation methods used are as follows: •
Consolidation by equity method consists of substituting the carrying amount by which an investment is stated in the balance sheet with an amount relating to the corresponding percentage held by the Parent in the equity of the investee company. The profit and loss of the companies consolidated by the equity method have been incorporated into the consolidated income statement. The subsidiaries which have been consolidated are those where the direct and/or indirect holdings of Andorra Banc Agrícol Reig, S.A., are equal or greater than 20% without exceeding 50% or, if they exceed 50%, where the activity is different from that of the Bank.
Full consolidation for the following companies: Andorra Gestió Agrícol Reig SA, Andbanc Bahamas Limited, Nobilitas N.V., Egregia, B.V., Zumzeiga Coöperatief, AndPrivate Wealth S.A., APW Consultores Financeiros Lda, AND PB Financial Services, Andbanc Asset management LLC, Andbanc Advisory LLC, Andbanc Brokerage LLC, AndPrivate Consulting, S.L., Andbank Luxembourg Limited Hong Kong, Savand S.A.U., Caronte 2002 SLU, Andorra Capital Agrícol Reig, B.V., Quest Capital Advisers Agencia de Valores S.A., Andbank Asset Management Luxembourg, Andbank (Panama) S.A., AndPrivate Wealth S.A. (Chile), Andbank (Luxembourg), S.A., Tonsel Corporation, Andbanc (Monaco), S.A.M., Andbank España, S.A.U., Andbank Wealth Managment S.G.I.I.C, S.A.U. and Medipatrimonia Invest, S.L. (using equity method in 2012).
•
Proportionate consolidation for Columbus de México, S.A.C.V. and LLA Participaçoes, Ltda.
•
Equity method for Andorra Assegurances Agrícol Reig, SAU.
All significant balances and transactions between consolidated companies have been eliminated in the consolidation of the financial statements. Where necessary, adjustments are made to the individual financial statements of subsidiaries to bring their accounting policies into line with those used by the Group.
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3. Accounting Principles and Valuation Criteria
Gains or losses from these translations and the result of operations in foreign currencies conducted during the year are recognised at their net value under results of financial operations in the consolidated income statement.
The accounting principles and valuation criteria applied are as follows: a. Accruals principle
Forward contracts in foreign currencies are valued according to the exchange rate on the last business day before the reporting date. Exchange gains and losses from forward contracts are fully recognised at their net value in the consolidated income statement.
Income and expenses are recognised on an accruals basis. All income accrued and expenses incurred or accrued are recognised, except for the interest on doubtful and very doubtful loans, which are recognised when they are collected.
The other memorandum accounts in foreign currencies are translated into Euros using international market exchange rates, according to the rate on the last business day before the reporting date.
In accordance with this principle, income/ expenses accrued and not yet received/paid and expenses/income paid/received in advance are recognised under Prepayments and accrued income and Accrued expenses and deferred income.
Income and expenses in foreign currencies are translated into Euros at the rates prevailing on the date of the operations.
b. Recording principle All of the Group’s rights and obligations, including those of a contingent and future nature, are recognised when they arise, either in the accounts or memorandum accounts, where applicable.
The assets, liabilities and profit and loss for the year of subsidiaries denominated in currencies other than the Euro have been translated to Euros using the market exchange rates prevailing at the reporting date.
Variations or transformations of the value of previous rights and obligations are recognised as soon as they are known.
d. Provision for loan losses The provision for loan losses covers losses that could occur in the recovery of loans and receivables or other credit and counterparty risks. The provision is credited by charges recognised in profit or loss and is debited by the write off of loans considered as non-recoverable and by the recovery of amounts previously provisioned.
In accordance with banking practice, transactions are recognised on the date on which they take place, which may differ from the corresponding value date, on the basis of which interest income and expenses are calculated. c. Valuation of foreign currency transactions Assets and liabilities denominated in currencies other than the Euro, and spot currency transactions for hedging, have been translated into Euros using the market exchange rates prevailing at the reporting date.
In accordance with the Andorran financial system’s Accounting Plan the provision for loan losses is calculated according to the following criteria: •
51
The specific provision, which covers all types of assets and memorandum account items, is determined based on individualised studies of the quality of the risks contracted
f. Securities portfolio
with the principal debtors and borrowers on the basis, mainly, of guarantees available and the time expired since the maturity date. •
The general provision is based on 0.5% of the net loans and fixed-income securities with banking institutions and 1% of the net loans to customers and fixed-income securities, except for the part covered by cash pledged by contract or collateralised quoted securities up to the market value of these securities, mortgage-backed loans and loans and credits on income securities issued by the central administrations of Andorra and the OECD countries or expressly guaranteed by these institutions.
•
The country risk provision is determined by a global analysis of the above-mentioned risks with the criteria of maximum caution to determine the necessary coverage. For the global risk evaluation, the development of the payment balances, the debt level, the charges to cover the debt, the debt rates in international secondary markets, as well as other indicators and circumstances in the country are considered.
Securities held in the Group’s portfolio at 31 December 2013 are classified according to the following criteria:
Since 2010, in compliance with INAF Technical Communiqué 198/10, independent experts are commissioned to review the appraisals of the mortgage collateral for the loan portfolio, and additional provisions for loan losses were recognised based on the results of the appraisals (see note 6).
•
The trading portfolio includes the securities acquired for short-term sale. The securities assigned to this portfolio are stated at their quoted price as at year end or, if there is none, at the price calculated by an independent expert. The differences arising from the net valuation variations are recognised net (excluding the accrued interest on fixedincome securities), whether they are positive or negative, under Gains or losses on financial assets and liabilities in the consolidated income statement.
•
The securities assigned to the held-to-maturity investment portfolio, which includes the securities that the Bank has decided to hold to maturity, are shown at their adjusted acquisition price (the difference between the acquisition price and the redemption value is apportioned periodically). The differences, including accrued interest, are recognised under Interest and similar income in the consolidated income statement. The results of any sales that may arise are recognised in the consolidated income statement as an extraordinary result. In case of gains, they are accrued on a straight-line basis over the residual life of the security sold under Profit on securities operations.
e. Unused credit facilities
This portfolio requires no securities valuation reserve for variations between the market value and the adjusted acquisition price. However, irreversible losses are recognised in the income statement.
Credit facilities extended to customers are recognised in the accompanying consolidated balance sheet at the amount drawn down, and the undrawn amounts are recognised in the memorandum accounts under Commitments and contingent risks - Commitments and operational risks.
This portfolio includes the fixed-income securities and unlisted funds acquired in 2008 from the money market funds managed by Andorra Gestió Agrícol Reig, SAU. In accordance with the authorisation from the INAF any gains generated are taken to voluntary reserves (see note 11) whereas in the event of writedowns they would
52
be recognised as profit or loss. During 2013 a significant volume of sales has been carried out, with a residual balance (see note 7 a) from these monetary funds remaining in the Bank’s portfolio. •
•
In order to recognise the corresponding losses, a securities valuation reserve has been created which reduces the assets of the accompanying consolidated balance sheet. g. Gains on consolidation
The permanent investments portfolio includes investments in variable-income securities of subsidiaries and investee Group companies consolidated using the equity method, as well as the minority interests in companies whose activity is complementary to financial activity and which are used to service the Bank’s activities on a permanent basis. The latter companies are stated at their acquisition price. If this value is higher than their underlying carrying amount, a provision is made for the difference and is recognised in the consolidated income statement.
Gains on consolidation show gains arising on the acquisition of the shares of companies consolidated using the full consolidation method, the proportionate consolidation method, or the equity method (see note 8.b). As established in INAF communiqué 227/12 regarding differences on first-time consolidation and communiqué 228/12 regarding goodwill, gains on consolidation and goodwill are not amortised but, following internationally recognised valuation criteria on this matter in the sector, assets are tested for impairment and if any signs of impairment are detected, the corresponding irreversible loss is recognised in the income statement. When the impairment of an investment in a subsidiary shows impairment of the investment in the portfolio, the value of the subsidiary is adjusted in the corresponding individual financial statements. In addition, a non-distributable reserve is constituted for an amount equal to the gain on first-time consolidation and a minimum of 10% of this amount is appropriated annually to the reserve through the distribution of profit for the year.
The ordinary investment portfolio includes fixed-income or variable-income securities not included in the portfolios mentioned above. The fixed-income securities are stated at their adjusted acquisition price (the difference between the acquisition price and the redemption value is apportioned periodically). Potential net losses due to changes in market price or, if no market price is available, due to changes in the value calculated by an independent expert are provided for in the securities valuation reserve (equal to the total of the positive and negative differences, up to the negative limit) charged to the income statement.
The acquisition of Columbus de México, S.A. in April 2008, Quest Capital Advisers Agente de Valores, S.A. in December 2009, Andbanc (Monaco), S.A.M. in June 2011, LLA Participaçoes in October 2011 and Andbank Asset management SGIIC, SAU (formerly Medivalor AV Agencia de Valores, S.A.U.) generated goodwill on consolidation of Euros 3,572 thousand, Euros 13,556 thousand, Euros 11,347 thousand, Euros 10,482 thousand and Euros 1,052 thousand, respectively.
The variable-income securities included in the ordinary investment portfolio are recognised in the consolidated balance sheet at the lower of acquisition cost or market value. The market value is determined according to the following criteria: • •
Listed securities: quoted price on the last working day of the year.
Gains on consolidation are fully covered by voluntary reserves (see note 11.b).
Unlisted securities: underlying carrying amount taken from the latest available consolidated balance sheet.
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h. Tangible and intangible assets
When an asset of this type is retired, any corresponding amounts recognised in the revaluation reserve may be transferred directly to voluntary reserves.
Fixed assets are normally stated at their acquisition value, less the accumulated straight-line amortisation and depreciation at rates adequate to carry fixed assets at their residual value at the end of their useful lives.
i. Non-operating tangible assets Non-operating tangible assets are those not directly related to banking activity and foreclosed assets.
Amortisation and depreciation rates used are:
These include land, buildings, installations and furniture; which are recognised at their acquisition cost and depreciated over their estimated useful lives using the same percentages applied to operating fixed assets.
ANNUAL PERCENTAGE Buildings for own use Installations and machinery Office furniture and machinery IT equipment Computer software Vehicles
3% 10% 20% 20-33% 20% 20%
Foreclosed assets include land and buildings valued at the lower of their foreclosure cost or market value, after deducting provisions determined by the schedule set down by prevailing legislation.
The cost of the multi-owned assets classified as intangible assets is amortised on a straight-line basis over a period equal to the residual life of the respective contract.
j. Financial derivatives The Bank has used these instruments in a limited way, both in hedging of its equity positions and in other operations.
Where fixed assets, due to their use or obsolescence are irreversibly depreciated, the loss or decrease in value of the corresponding asset is recognised directly.
Futures contracts are included as memorandum accounts as specified by the INAF regulations and are associated with currency and interest rate, market or credit risk, and specifically:
The depreciation of capitalised work and installations in relation to leased assets is related to their estimated useful life or until the lease agreement terminates. As indicated in note 8, buildings used in operations acquired or built prior to 30 November 2008 were revalued on that date and a revaluation reserve was created at that time for the difference between the estimated market value and the acquisition cost, net of accumulated depreciation. At 31 December 2012 the Bank revalued the carrying amount of buildings used in operations, recognising an impairment provision of Euros 1,330 thousand against revaluation reserves (see notes 8 and 11). Because this revaluation is carried out every two years, the aforementioned provision for impairment has not been increased during 2013 and therefore, revaluation reserves have remained stable. 54
•
Outstanding currency purchases and sales and swaps in foreign currency are recognised as spot or forward transactions depending on whether they mature in less or more than two business days. These swaps are recognised at the nominal amount of each of the cash flow exchange agreements implicit in the swap operations contracted by the Bank with its usual counterparties (see note 14).
•
Forward rate agreements (FRAs), interest rate swaps, and other futures contracts outside organised markets are recognised at the principal amount of the operation.
Transactions which are aimed at eliminating or significantly reducing currency, interest rate or market risks associated with equity positions or other transactions, are considered as hedges. Gains or losses on hedging transactions are recognised in the income statement symmetrically to income or expenses relating to the hedged item.
m. Provisions for risks and contingencies
Non-hedging operations, also called trading transactions, which have been undertaken in organised markets are valued in accordance with their quotations. Gains or losses arising from the changes in quotations are recognised in the consolidated income statement on the basis of their daily settlement.
The personnel from what was previously called Banc AgrĂcoli Comercial d’Andorra, S.A. , who retired before 22 December 1995 have a defined benefit retirement pension plan created in 1989. Employees who joined the Bank after 1 May 1995, except for certain groups belonging to a defined contribution scheme, do not belong to the retirement pension plan.
Provisions for pensions and similar obligations The Bank has recognised different commitments in relation to personnel: retired employees, early retirees, and an internal defined contribution pension fund for current bank employees.
Profit or loss on trading transactions contracted outside these markets is not recognised in the income statement until it has been effectively settled. However, the positions are valued and provisions made against the results for potential net loss for each kind of risk that may arise from these valuations. The type of risks considered for such purposes include interest rates (by currency), market price (by issuer) and currency (by currency).
The Bank signed individual early retirement agreements with a number of employees in prior years. Under the agreements signed by retired personnel, the Bank has to make supplementary remuneration payments. At 31 December 2013, a fund of Euros 755 thousand was set up for these obligations (Euros 808 thousand in 2012). Furthermore, there is an internal fund of Euros 433 thousand at 31 December 2013 (Euros 646 thousand in 2012) for early retirees, which coincides with the obligations accrued at that date.
k. General risks reserve The general risks reserve includes amounts estimated by the Group to cover general risks and the risks inherent to banking and financial activities.
The actuarial variables and other assumptions used in the valuation at 31 December 2013 and 2012 for retired personnel and early retirees are as follows:
Charges to the reserve are reflected under charges to the general risks reserve in the consolidated income statement and the recoveries under extraordinary profit and loss. l. Prepayment/accrual of interest
Mortality tables Nominal discount rate Nominal rate of salary growth Annual rate of pension growth Retirement age
The Group uses the interest method (i.e. internal rate of return or resulting cost), to calculate the prepayment or accrual of interest, with maturities of more than 12 months. For operations under 12 months, the Group can choose between this method and the straight-line accrual method.
55
RETIREES
EARLY RETIREES
GRMF-95 3.5% 1.6% -
GRMF-95 3.5% 1.6% 65
The charge to the internal pension fund for current personnel in 2013 was 1.5% higher than contributions in 2012, and the interest rate for pension funds held on the balance sheet was set at 1.5% in 2013 (see note 9).
Payment on account is calculated by applying 50% to the net tax payable for the prior year. Taxable income is determined using the direct determination method and is calculated by adjusting the accounting profit, in accordance with the Accounting Plan for the Financial Sector, applying the principles and criteria of classification, valuation and temporary recognition set out in the requirements of the Income tax law, which permit off-balance sheet adjustments. Income tax expense represents the sum of the income tax expense for the year and the effect of the changes in deferred tax assets and liabilities and tax credits.
Current personnel belonging to the defined contribution pension scheme can, upon request, transfer their pension funds to an investment fund managed by the Bank off the balance sheet (see note 9). As at 31 December 2013 pension funds managed off the balance sheet amounted to Euros 1,038 thousand, whilst internal funds classified as Provisions for for risks and contingencies amount to Euros 5,629 thousand. Other provisions
Both positive and negative off-balance sheet tax adjustments can be permanent or temporary according to whether they are reversed or not in subsequent tax periods.
This balance sheet item includes the amount recognised for the valuation of all the trading derivatives entered into on unregulated markets in which the Bank is a counterparty (see note 3.j).
The income tax expense for each year is calculated based on profit before tax, adjusted for permanent differences with fiscal criteria and less any applicable tax credits and deductions. The tax effects of temporary differences, unused credits for tax losses and rights to deductions and credits pending application are included, where applicable, in the corresponding balance sheet captions, classified on the basis of the term according to the forecast review or realisation period.
n. Income taxes On 1 December 2011 the General Council of the Principality of Andorra approved Law 17/2011 of 1 December 2011 amending Law 95/2010 of 29 December 2010 on income tax (published in edition 80 of the Official Gazette of the Principality of Andorra (BOPA), dated 28 December 2011). This Law came into force the day after it was published in the BOPA and applies to taxation periods starting after 1 January 2012. The Bank pays tax at a rate of 10%.
Deferred tax assets and liablities include temporary differences identified as those amounts which are payable or recoverable for differences between the carrying amounts of assets and liabilities and their tax value, as well as tax loss carryforwards and credits for tax deductions not applicable for tax purposes. These amounts are recognised by applying the temporary difference or credit at the tax rates at which they are expected to be recovered or settled.
On 13 June 2012 the Andorran Government approved the Regulation regulating Law 95/2010 of 29 December 2010 on income tax and Law 96/2010 of 29 December 2010 on taxation of economic activities, which establishes the formal obligations of the parties required to pay these taxes as well as the system for managing, settling and monitoring the aforementioned taxes.
Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets identified with temporary differences, unused tax losses and unused tax credits are only recognised to the extent that it is considered probable that the Company has future taxable profit against which they can be utilised. 56
p. Non-resident income tax
At each reporting date, recognised deferred tax assets and liabilities are reviewed for the purpose of verifying that they remain effective and the appropriate corrections are made on the basis of the results of the analysis carried out.
In accordance with Law 94/2010 of 29 December 2010 on non-resident income tax (hereinafter Law 94/2010) which taxes the income obtained in Andorra by individuals and entities considered by law as non-resident for tax purposes, the Bank is subject to withholding and has applied withholding of 10% on non-resident suppliers of services since 1 April 2011, the enactment date of this law. On 1 December 2011 the General Council of the Principality of Andorra approved Law 18/2011 of 1 December 2011 amending Law 94/2010 which will be applicable as of 1 January 2012.
The aforementioned expense is recognised under Income tax in the accompanying income statement at the amount accrued during the year and in the balance sheet under Other liabilities at the amount payable through this company and under Other assets at the amount of the withholdings and payments on account. o. Indirect tax on goods delivered, services rendered and imports
Non-resident income tax is included under Taxes in the accompanying income statement for the amount accrued during the year and under Other liabilities on the balance sheet for the amount payable through this Company.
At its session held on 21 June 2012 the General Council of the Principality of Andorra approved the law governing indirect general tax (IGI), which entered into force on 1 January 2013. Indirect general tax is levied on goods delivered, service rendered and imports made by onerous contract in Andorra by business people or professionals usually or occasionally as part of their economic activity, irrespective of the purpose or the results achieved in the economic activity or in each particular transaction, including the condition of importer.
q. Memorandum accounts Own and third party shares and securities under custody are always measured, where possible, at market price. Where no market prices are available, the Bank applies the following hierarchy to determine the market value of shares and securities:
The general tax rate is 4.5%, with a reduced rate of 1% and an increased rate of 9.5%, which is only applied to banking and financial services rendered. The settlement period depends on the annual net turnover for all of the activities carried out by the tax payer in the immediately previous year. Payments can be made half-yearly, quarterly or monthly. Tax payers have to determine the tax debt in each settlement period, reducing the general indirect tax payable during the period by the general indirect tax installments receivable, which are deductible in nature. The entry into force of Law 11/2012 of 21 June 2012 governing indirect general tax and subsequent amendments repeals the Law governing indirect taxation on the rendering of banking and financial services of 14 May 2002.
57
•
Price given by the issuer of the security;
•
Generally accepted measurement techniques. The most frequently used measurement methodologies are discounted cash flow models such as Black Scholes, Cos Ross Rubinstein, Monte Carlo Simulation, Hull & White, Libor Market Model or variations on these models. Observable market data is used to measure the different shares and securities or, in the absence of observable data, estimates are applied based on the information provided by over the counter (OTC) markets, or according to internal interpolation methods based on observable data in organised markets.
•
When none of the above mentioned methods can be used, shares and securities are measured at cost.
4. Residual Maturity of Assets and Liabilties The breakdown by maturities of gross loans and receivables, balances payable and gross balances with banks and credit institutions at 31 December 2013 and 2012 is as follows: Expressed in thousands of Euros 2013
OVERDUE
UP TO 1 MONTH
FROM 1 TO 3 MONTHS
FROM 3 MONTHS TO 1 YEAR
FROM 1 YEAR TO 5 YEARS
MORE THAN 5 YEARS
NO MATURITY
TOTAL
INAF
-
-
-
-
-
-
210
210
Banks and credit institutions and other financial intermediaries
-
402,764
-
177,161
-
-
32
579,957
5,322
67,177
85,551
344,185
304,882
822,703
2,722
1,632,542
46,309
-
-
-
-
-
81,703
128,009
-
2,994
601
1,111
2,578
-
-
7,284
FROM 1 YEAR TO 5 YEARS
MORE THAN 5 YEARS
NO MATURITY
Loans and advances to customers Customer account overdrafts Customer discounted notes
Expressed in thousands of Euros 2012
OVERDUE
UP TO 1 MONTH
FROM 1 TO 3 MONTHS
FROM 3 MONTHS TO 1 YEAR
TOTAL
INAF
-
-
-
-
-
-
210
210
Banks and credit institutions and other financial intermediaries
-
391,843
1,554
1,537
142,529
-
-
537,463
Loans and advances to customers
22,682
134,652
60,488
315,633
570,088
570,409
-
1,673,952
Customer account overdrafts
53,105
-
-
-
-
-
87,537
140,642
-
4,652
630
1,711
3,557
-
-
10,550
Customer discounted notes
58
The breakdown by residual maturities of bonds and other fixed-income securities in the accompanying consolidated balance sheet at 31 December 2013 and 2012 is as follows: 2013
OVERDUE
Bonds and other fixed-income securities
2012
UP TO 1 MONTH
105,618
OVERDUE
Bonds and other fixed-income securities
FROM 1 TO 3 MONTHS
15,165
UP TO 1 MONTH
36,078
5,970
FROM 1 TO 3 MONTHS
22,079
FROM 3 MONTHS TO 1 YEAR 162,093
FROM 3 MONTHS TO 1 YEAR
64,000
77,758
FROM 1 YEAR TO 5 YEARS 410,338
FROM 1 YEAR TO 5 YEARS 453,595
MORE THAN 5 YEARS
Expressed in thousands of Euros NO MATURITY TOTAL
366,859
MORE THAN 5 YEARS
73,033
1,139,076
Expressed in thousands of Euros NO MATURITY TOTAL
330,978
-
984,488
The maturities of the INAF deposits and balances payable at 31 December 2013 and 2012 are as follows: Expressed in thousands of Euros 2013
OVERDUE
UP TO 1 MONTH
FROM 1 TO 3 MONTHS
INAF
-
1,848
-
Banks, credit institutions and other financial intermediaries
-
236,413
Customer deposits
-
Debt securities
FROM 3 MONTHS TO 1 YEAR
FROM 1 YEAR TO 5 YEARS
MORE THAN 5 YEARS
NO MATURITY
TOTAL
210
-
-
-
2,058
148,071
44,064
60,000
153,006
-
641,554
1,002,114
91,643
456,692
8,465
7,779
1,124,034
2,690,727
-
3,770
18,859
2,248
14,610
41,771
-
81,258
OVERDUE
UP TO 1 MONTH
FROM 1 TO 3 MONTHS
FROM 1 YEAR TO 5 YEARS
MORE THAN 5 YEARS
NO MATURITY
INAF
-
1,068
-
210
-
-
-
1,278
Banks, credit institutions and other financial intermediaries
-
183,386
1,579
18,602
134,535
110,949
-
449,051
Customer deposits
-
225,564
176,352
481,402
60,487
1,480
1,635,221
2,580,506
Debt securities
-
13,175
39,959
12,515
2,500
-
-
68,149
Expressed in thousands of Euros 2012
FROM 3 MONTHS TO 1 YEAR
59
TOTAL
Details by currency of gross loans and receivables, balances payable and the gross securities portfolios at 31 December 2013 and 2012 are as follows: 2013
EUROS
INAF
Expressed in thousands of Euros TOTAL
OTHER CURRENCIES 210
-
210
235,927
344,030
579,957
1,495,479
137,063
1,632,542
Customer account overdrafts
99,232
28,777
128,009
Customer discounted notes
7,282
2
7,284
970,704
199,887
1,170,649
Banks, credit institutions and other financial intermediaries Loans and advances
Securities portfolio
Expressed in thousands of Euros 2012
EUROS
INAF
OTHER CURRENCIES
TOTAL
210
-
210
339,209
198,254
537,463
1,509,536
164,416
1,673,952
Customer account overdrafts
107,863
32,779
140,642
Customer discounted notes
10,543
7
10,550
606,702
402,563
1,009,265
Banks, credit institutions and other financial intermediaries Loans and advances
Securities portfolio
Details by currency of the INAF deposits and balances payable in the accompanying consolidated balance sheets at 31 December 2013 and 2012 are as follows: 2013
EUROS
INAF Banks and credit institutions and other financial intermediaries Customer deposits Debt securities
60
Expressed in thousands of Euros TOTAL
OTHER CURRENCIES 2,058
-
2,058
417,710
223,844
641,554
1,972,757
717,970
2,690,727
81,258
-
81,258
2012
EUROS
INAF Banks and credit institutions and other financial intermediaries Customer deposits Debt securities
Expressed in thousands of Euros TOTAL
OTHER CURRENCIES 1,278
-
1,278
408,354
40,697
449,051
1,979,958
600,548
2,580,506
42,032
26,117
68,149
Debt securities include fixed-income securities issued by Andorra Capital AgrĂcol Reig, B.V. These issues comprised two issues during 2012 of Euros 2,248 thousand falling due in 2014; five issues during 2013 of Euros 22,629 thousand falling due in 2014; two issues during 2013 of Euros 7,021 thousand falling due in 2016; two issues during 2013 of Euros 6,000 thousand falling due in 2017; one issue during 2013 of Euros 1,589 thousand falling due in 2018; five issues during 2013 of Euros 25,200 thousand falling due in 2020 and four issues during 2013 of Euros 16,571 thousand falling due in 2023.
5. Financial Intermediaries on Sight and Banks and Credit Institutions Details of this caption at 31 December 2013 and 2012 are as follows: 2013 Current accounts Banks and credit institutions Other financial intermediaries Time deposits Banks and credit institutions Other financial intermediaries
Less, provision for loan losses
61
Expressed in thousands of Euros 2012
534,529 762
437,560 -
535.291
437.560
44,666 -
99,903 -
44,666
99,903
(1,527)
(425)
578,430
537,038
Movement in the provision for loan losses during 2013 and 2012 is as follows: SPECIFIC RISKS Balance at 31 December 2011 Charges Applications Recoveries
Expressed in thousands of Euros TOTAL
GENERAL RISKS -
266
266
-
159
159
-
Balance at 31 December 2012 Charges Applications Recoveries Balance at 31 December 2013
-
-
425
425
-
1,102 -
1,102 -
-
1,527
1,527
At 31 December 2013 and 2012 no outstanding or doubtful balances with financial intermediaries on sight or banks and credit institutions exist.
6. Loans and Receivables Details of this caption of the accompanying consolidated balance sheet at 31 December 2013 and 2012, by credit status and guarantee type, are as follows: Expressed in thousands of Euros Credit status Loans and advances to customers Customer account overdrafts Customer discounted notes
2013 Normal
Overdue
Doubtful
Total
1,608,139 80,306 7,278
2,450 1,176 -
21,953 46,527 6
1,632,542 128,009 7,284
Expressed in thousands of Euros Credit status Loans and advances to customers Customer account overdrafts Customer discounted notes
2012 Normal
Overdue
Doubtful
Total
1,652,213 86,594 10,550
6,932 1,549 -
14,807 52,499 -
1,673,952 140,642 10,550
62
Expressed in thousands of Euros 2013 Guarantee type Loans and advances to customers Customer account overdrafts Customer discounted notes
Mortgage
Monetary
Securities
Personal – secured and others
Total
880,306 42,658 -
23,862 -
393,336 58,704 -
335,038 26,647 7,284
1,632,542 128,009 7,284
Expressed in thousands of Euros 2012 Guarantee type Loans and advances to customers Customer account overdrafts Customer discounted notes
Mortgage
Monetary
Securities
Personal – secured and others
Total
915,687 45,211 -
40,919 -
348,668 68,843 -
368,678 26,588 10,550
1,673,952 140,642 10,550
Customer account overdrafts at 31 December 2013 include loans for which legal action has been initiated, for an amount of Euros 46,327 thousand (Euros 51,638 thousand in 2012), Euros 30,863 thousand of which are secured by guarantees. Movement in the provision for loan losses during 2013 and 2012 is as follows: SPECIFIC RISKS Balance at 31 December 2011 Charges Recoveries Applications Other Balance at 31 December 2012 Charges Recoveries Applications Other Balance at 31 December 2013
63
Expressed in thousands of Euros TOTAL
GENERAL RISKS 23,781
3,913
27,694
13,795 (35) (9,342) (242)
361 (7) -
14,156 (42) (9,342) (242)
27,957
4,267
32,224
13,207 (4,836) 32
434 (887) -
13,641 (5,723) 32
36,360
3,814
40,174
The charge for 2013 includes the effect of the review of the mortgage guarantees mentioned in note 3.d, in the amount of Euros 2,193 thousand (Euros 1,781 thousand in 2012). Details of loans from public sector entities at 31 December 2013 and 2012, which represent loans and credits, are as follows: Expressed in thousands of Euros 2013 2012 Central government Local government
44,288 27,811
68,020 34,811
72,099
102,831
7. Investment Securities a. Bonds and other fixed-income securities Details of this caption at 2013 and 2012 are as follows: Expressed in thousands of Euros 2013
2012
55,506
55,506
OECD countries’ public debt
466,377
417,714
Other bonds and marketable fixed-income securities
617,193
511,268
1,139,076
984,488
Principality of Andorra’s public debt (see note 22)
At 31 December 2013 Other bonds and marketable fixed-income securities include Euros 30,712 thousand (Euros 102,627 thousand at 31 December 2012), Euros 9,526 thousand relating to interest-rate structured notes and the rest to credit notes, acquired from the money market funds managed by the Group (see note 3.f ). This caption also includes portfolio products for a nominal amount of Euros 96,424 thousand on which the Bank signed an agreement in December 2013 for their liquidation. At 31 December 2013 the Bank has a provision for the total losses incurred, having recognised an amount of Euros 7,080 thousand in the income statement.
64
b. Investments in Group companies Details of investments in Group companies at 31 December 2013 and 2012 are as follows: Expressed in thousands of Euros 2013
REGISTERED OFFICES
% DIRECT OWNERSHIP
SHARE CAPITAL
PROFIT/(LOSS) DIVIDEND FOR TOTAL EQUITY FOR THE YEAR THE YEAR
NET ASSET VALUE
Clau d’Or, S.L. (real estate)
Andorra
100%
30
-
-
30
30
Mon Immobiliari, S.L.U. (real estate)
Andorra
100%
30
-
-
27
8
Investments in Group companies accounted for using the equity method (see note 2)
-
-
-
-
2,181
Other investments
-
-
-
-
88 4,420
Expressed in thousands of Euros 2012
REGISTERED OFFICES
% DIRECT OWNERSHIP
SHARE CAPITAL
PROFIT/(LOSS) DIVIDEND FOR TOTAL EQUITY FOR THE YEAR THE YEAR
NET ASSET VALUE
Clau d’Or, S.L. (real estate)
Andorra
100%
30
-
-
30
30
Mon Immobiliari, S.L.U. (real estate)
Andorra
100%
30
-
-
27
8
Investments in Group companies accounted for using the equity method (see note 2)
-
-
-
-
3,348
Other investments
-
-
-
-
88 3,474
65
Details of investments in Group companies accounted for using the equity method at 31 December 2013 and 2012 are as follows: Expressed in thousands of Euros 2013
% INVESTMENT
Andorra Assegurances Agrícol Reig, SA (insurance company)
SHARE CAPITAL
100%
NET ASSET VALUE
2,404
TOTAL EQUITY 3,336
DIVIDENDS IN 2013
3,336
1,000
Expressed in thousands of Euros 2012
% INVESTMENT
Andorra Assegurances Agrícol Reig, SA (insurance company) Medipatrimonia Invest, S.L.(*)
SHARE CAPITAL
NET ASSET VALUE
TOTAL EQUITY
DIVIDENDS IN 2013
100%
2,404
3,348
3,348
250
41.89%
46
265
265
-
(*) Indirect interest in this company
c. Other investments Other investments include investments in other companies where the Group does not hold a majority of the shares or have decision-making power. Other investments at 31 December 2013 and 2012 are as follows: Expressed in thousands of Euros 2013 COMPANY NAME AND ACTIVITY Serveis i mitjans de pagament XXI, SA Túnel d’Envalira, SA (infrastructures)(*) S.E.M.T.E.E. (leisure and health) (*)
REGISTERED OFFICES Andorra Andorra Andorra
DIRECT OWNERSHIP 20% 10% 12%
SUBSCRIBED CAPITAL 60 8,400 29,403
TOTAL EQUITY 73 14,492 49,530
PROFIT FOR THE YEAR (14) (55) 904
DIVIDENDS FOR THE YEAR -
COST
SECURITIES VALUATION RESERVE
12 840 3,929
3 55 -
4,781
58
* Data from the financial statements for 2012 Expressed in thousands of Euros 2012 COMPANY NAME AND ACTIVITY Serveis i mitjans de pagament XXI, SA Túnel d’Envalira, SA (infrastructures)(*) S.E.M.T.E.E. (leisure and health) (*)
REGISTERED OFFICES Andorra Andorra Andorra
DIRECT OWNERSHIP 20% 10% 12%
SUBSCRIBED CAPITAL 60 8,400 31,591
* Data from the financial statements for 2011
66
TOTAL EQUITY 60 15,885 46,694
PROFIT FOR THE YEAR (706) 2,012
DIVIDENDS FOR THE YEAR -
COST
SECURITIES VALUATION RESERVE
12 840 3,929
-
4,781
-
d. Shares and other variable-income securities
Expressed in thousands of Euros
Shares and other variable-income securities include all listed or unlisted shares and securities in the Bank’s held for trading portfolio, which represents shareholdings in the capital of other companies with which there is no long-term relationship and where the purpose of such shareholdings is not to contribute to the Bank’s activity.
Trading portfolio Fixed-income Variable-income Investment funds Ordinary investment portfolio Fixed-income Investment funds Variable income Held-to-maturity portfolio Permanent investment portfolio
e. Investment funds Details of gross investment funds by management entity at 31 December 2013 and 2012 are as follows: Expressed in thousands of Euros 2013 2012 9,603 6,491
10,472 5,760
16,094
16,232
2012
244,460 235,694 448 8,318 281,118 267,512 7,777 5,829 635,870 9,201 1,170,649
182,193 172,439 290 9,464 201,189 194,422 6,767 617,628 8,255 1,009,265
The market value or fair value of the held-to-maturity and ordinary investment portfolios at 31 December 2013 is Euros 661,242 thousand and Euros 273,477 thousand, respectively (Euros 607,417 thousand and Euros 198,763 thousand at 31 December 2012). Of the total market value of the heldto-maturity portfolio, Euros 432,196 thousand relate to listed instruments and the rest, Euros 229,046 thousand to marked-to-model and unlisted instruments (see note 3.f ). Of the total fair value of the ordinary investment portfolio, Euros 222,804 thousand relate to listed securities and the rest, Euros 50,673 thousand, to marked-to-model or unlisted instruments.
Managed by: Entities related to the Group Entities not related to the Group
2013
The investment funds managed by the Group at 31 December 2013 include: Alternative Investment Conservative-A, Alternative Investment Growth-A, Astra FCP Short-Term, and Alternative Investment Private Equity-A. f. Portfolio valuation
4.44% of the market value of the trading portfolio has been calculated based on models developed by an independent expert and the rest using quoted prices.
The securities as at 31 December 2013 and 2012 classified by valuation categories described in note 3(f ), are as follows:
67
g. Securities valuation reserve Movement in the securities valuation reserve during 2013 and 2012 is as follows: Expressed in thousands of Euros Balance at 31 December 2011
9,723
Charges to the ordinary porfolio Charges to the permanent investments portfolio Recoveries
2,349 -
Balance at 31 December 2012
12,072
Charges to the ordinary portfolio Charges to the permanent investments portfolio Recoveries
7,426 -
Balance at 31 December 2013
19,318
h. Provision for loan losses Expressed in thousands of Euros Balance at 31 December 2011
3,455
Net charges to provision
(199)
Balance at 31 December 2012
3,256
Net charges to provision
648
Balance at 31 December 2013
3,904
As 31 December 2013 and 2012 the provision for loan losses relates solely to the general provision on the investment portfolio.
68
8. Fixed Assets a. Movement in tangible assets, intangible assets and amortisable costs Movement in intangible assets and amortisable costs during 2013 and 2012 and related amortisation is as follows: Expressed in thousands of Euros TRANSFERS 31/12/2013
31/12/2012
ADDITIONS
DISPOSALS
537 34,220 12,725 47,482
20 913 6,768 7,701
-
6,078 (6078) -
557 41,211 13,415 55,183
(130) (26,220) (6,971) (33,321)
(10) (2,415) (264) (2,689)
-
-
(140) (28,635) (7,235) (36,010)
14,161
5,012
-
-
19,173
31/12/2011
ADDITIONS
538 31,215 11,210 42.963
2,245 4,142 6.387
(1) (29) (1,838) (1.868)
789 (789) -
537 34,220 12,725 47.482
(119) (23,788) (6,003) (29,910)
(11) (2,580) (975) (3,566)
21 7 28
127 127
(130) (26,220) (6,971) (33,321)
13,053
2,821
(1,840)
127
14,161
Cost Multi-owned assets Computer software Other Total Amortisation Multi-owned assets Computer software Other Total AMORTISATION Total NET
Expressed in thousands of Euros TRANSFERS 31/12/2012
DISPOSALS
Cost Multi-owned assets Computer software Other Total Amortisation Multi-owned assets Computer software Other Total AMORTISATION Total NET
Intangible asset additions in 2013 comprise mainly the purchase of a new investment portfolio integral management application. Movement in tangible assets during 2013 and 2012 and their depreciation is as follows:
69
Expressed in thousands of Euros 31/12/2012
ADDITIONS
DISPOSALS
TRANSFERS
REVALUATIONS
31/12/2013
Cost OPERATING Land Buildings Furniture Installations IT equipment Vehicles Fixed assets under construction
47,714 44,533 5,581 30,270 24,257 1,462 1,547
326 1,078 1,383 153 1,498
(83) -
78 (78)
-
47,714 44,533 5,907 31,348 25,718 1,532 2,967
155,364
4,438
(83)
-
-
159,719
44,776 10,641 4,304 92 35 11
18,694 7
(2,502) (17)
117 -
-
61,085 10,641 4,304 92 35 1
59,859
18,701
(2,519)
117
-
76,158
215,223
23,139
(2,602)
117
-
235,877
(14,872) (5,080) (21,613) (21,099) (471)
(1,885) (203) (1,369) (913) (161)
-
(309) 2 -
-
(16,757) (5,283) (23,291) (22,010) (632)
(63,135)
(4,531)
-
(307)
NON-OPERATING Buildings Installations IT equipment Furniture
(4,531) (4,241) (92) (32)
(271) (16) -
-
(2,722) -
-
(7,524) (4,257) (92) (32)
Subtotal
(8,896)
(287)
-
(2,722)
-
(11,905)
(72,031)
(4,818)
-
(3,029)
-
(79,878)
(9,511)
(2,301)
247
2,912
-
(8,656)
133,681
16,020
(2,358)
-
-
147,343
Subtotal NON-OPERATING Buildings Land Installations IT equipment Furniture Vehicles Subtotal Total TANGIBLE ASSETS Depreciation OPERATING Buildings Furniture Installations IT equipment Vehicles Subtotal
(67,973)
Depreciation
Total DEPRECIATION Provision for depreciation Total NET TANGIBLE ASSETS
70
Expressed in thousands of Euros 31/12/2011
ADDITIONS
DISPOSALS
TRANSFERS
REVALUATIONS
31/12/2012
Cost OPERATING: Land Buildings Furniture Installations IT equipment Vehicles Fixed assets under construction Subtotal NON-OPERATING Buildings Land Installations IT equipment Furniture Vehicles Subtotal Total TANGIBLE ASSETS
46,632 45,615 5,404 30,700 21,779 1,374 996
151 524 2,502 173 1,895
(16) (1,908) (30) (85) (342)
1,082 (1,082) 42 954 6 (1,002)
-
47,714 44,533 5,581 30,270 24,257 1,462 1,547
152,500
5,245
(2,381)
-
-
155,364
32,851 10,641 4,304 92 33 3
14,137 2 8
(2,212) -
-
-
44,776 10,641 4,304 92 35 11
47,924
14,147
(2,212)
-
-
59,859
200,424
19,392
(4,593)
-
-
215,223
(12,902) (4,902) (21,784) (20,014) (373)
(1,970) (194) (1,589) (1,116) (178)
16 1,760 31 80
-
-
(14,872) (5,080) (21,613) (21,099) (471)
(59,975)
(5,047)
1,887
-
-
(63,135)
(4,260) (4,223) (92) (32)
(271) (18) -
-
-
-
(4,531) (4,241) (92) (32)
(8.607)
(289)
-
-
-
(8.896)
(68,582)
(5,336)
1,887
-
-
(72,031)
(3,320)
(4,600)
94
(355)
(1,330)
(9,511)
128,522
9,457
(2,611)
(355)
(1,330)
133,681
Depreciation NON-OPERATING Buildings Furniture Installations IT equipment Vehicles Subtotal Depreciation NON-OPERATING Buildings Installations IT equipment Furniture Subtotal Total DEPRECIATION Provision for depreciation Total NET TANGIBLE ASSETS
71
Additions of operating fixed assets under construction in 2013 comprise work in progress to improve fixed assets used in operations.
The acquisition of Quest Capital Advisers, S.A. on 17 December 2009 generated goodwill of Euros 13,556 thousand, of which Euros 7,482 thousand was capitalised in 2010 to recognise deferred payments relating to the acquisition and recognised under Other liabilities in the balance sheet at 31 December 2013.
Additions of non-operating assets in 2013 comprise foreclosed assets. During 2013 and 2012 no interest or exchange differences relating to fixed assets have been capitalised.
The acquisition of Columbus de MĂŠxico, S.A. on 11 April 2008 generated goodwill on consolidation of Euros 3,572 thousand.
With express authorisation granted by INAF on 9 December 2008, the Bank revalued the carrying amount of the buildings housing its headquarters and branches with effective date 30 November 2008 (see notes 3.h and 11). Every two years, through an appraisal conducted by an independent expert, the aforementioned assets are tested to determine whether their market value is greater than their carrying amount, the appropriate provisions being recognised where this is not the case. At 31 December 2012 the Bank revalued the carrying amount of buildings used in operations, recognising an impairment provision of Euros 1,330 thousand against revaluation reserves (see note 11.d). During 2013 this impairment provision has not been increased and therefore, revaluation reserves have remained stable.
The acquisition of Andbanc (Monaco), S.A.M. on 30 June 2011 and of LLA Participaçoes, Ltda. on 25 October 2011 generated goodwill on consolidation of Euros 11,347 thousand and Euros 10,482 thousand, respectively (see notes 2 and 3.g). The acquisition of Medipatrimonia Invest, SL and Andbank Wealth management SGIIC, SAU (formerly Medivalor AV Agencia de Valores, S.A.U.) by Andbank Luxemburg, S.A. generated goodwill on consolidation of Euros 1,052 thousand.
b. Gains on consolidation Expressed in thousands of Euros Balance at 31 December 2011 Acquisitions Exchange losses Balance at 31 December 2012 Acquisitions Exchange gains Balance at 31 December 2013
33,951 (287) 33,664 1,052 196 34,912
72
9. Provisions for Risks and Contingencies a. Provisions for pensions and similar obligations Movement in pensions and similar obligations during 2013 and 2012 is as follows: Expressed in thousands of Euros RETIREMENTS
EARLY RETIREMENTS
PENSION FUNDS
TOTAL
Balance at 31 December 2011
817
608
5,034
6,459
Charge for the year against income statement Payments made to pensioners and surrenders for the year Other movements
3 (78) 66
11 (198) 225
599 (286) (100)
613 (562) 191
Balance at 31 December 2012
808
646
5,247
6,701
Charge for the year against income statement Payments made to pensioners and surrenders for the year Other movements
2 (76) 20
6 (189) (30)
599 (552) 335
607 (817) 325
Balance at 31 December 2013
754
433
5,629
6,816
The charge to the pension fund is recognised under Other personnel expenses in the income statement. In 2013 this charge includes Euros 72 thousand (Euros 84 thousand in 2011) in financial charges. Other movements include the Andbanc Monaco, S.A.M. defined contribution pension plan. Payments made to pensioners and early retirees during 2013 are recognised against the provision. The pension fund, which relates to current employees, is secured by deposits transferred to the interbank market. Current personnel belonging to the defined contribution pension scheme can, upon request, transfer their pension funds to an investment fund managed by the Bank off the balance sheet (see note 9). At 31 December 2013 pension funds managed off the balance sheet amounted to Euros 1,038 thousand, whilst internal funds classified as Provisions for for risks and contingencies amounted to Euros 5,302 thousand.
73
b. Other provisions The movements in these provisions are mainly the result of the additional provisions recognised in 2013 and 2012 to cover possible losses on certain written options. Movement in other provisions during 2013 and 2012 was as follows: Expressed in thousands of Euros 31/12/2012
RECOVERIES
CHARGES
APPLICATIONS
31/12/2013
Other provisions
3,184
541
1,772
-
4,897
TOTAL
3,184
541
1,772
-
4,897
CHARGES
APPLICATIONS
31/12/2012
Expressed in thousands of Euros 31/12/2011
RECOVERIES
Other provisions
7,123
(6,736)
3,122
(325)
3,184
TOTAL
7,123
(6,736)
3,122
(325)
3,184
10. Distribution of Profit The directors of Andorra Banc AgrĂcol Reig, SA will propose to the shareholders at their annual general meeting that the profit for 2013 be distributed as follows: Expressed in thousands of Euros 2013 Legal reserve Voluntary reserves Interim dividend Complementary dividend
156 24,609 18,044 19,103 61,912
The charge to the voluntary reserve includes an amount of Euros 3,960 thousand relating to the annual charge to the nondistributable reserve for gains on consolidation (see note 3.g) During 2013 the Bank has distributed interim dividends for 2013 of Euros 18,044 thousand. Distribution of profit for the year ended 31 December 2012, approved by the shareholders at their annual general meeting on 27 March 2013, was as follows:
74
Expressed in thousands of Euros 2012 Legal reserve Voluntary reserves Interim dividend Complementary dividend
15,934 18,499 18,691 53,124
11. Movement in Equity and General Risks Reserve Movement in the Group’s equity during 2013 and 2012 is as follows: SHARE CAPITAL
Balance at 31 December 2011
LEGAL RESERVE
GUARANTEE RESERVES
SHARE PREMIUM
REVALUATION RESERVES
VOLUNTARY RESERVES
78,061
15,612
21,619
69,999
63,242
131,965
Distribution of profit for 2011
-
-
-
-
-
15,876
Consolidation adjustments
-
-
-
-
-
-
Other (note 3f )
-
-
-
-
-
762
Revaluation of guarantee reserves Profit for 2012
-
-
-
-
(1,330)
-
-
-
-
Interim dividend
-
-
-
-
Transfer of reserves
-
-
(719)
78,061
15,612
Distribution of profit for 2012
-
Consolidation adjustments Other (note 3f )
-
Revaluation buildings (note 8) Share capital increase Revaluation of guarantee reserves Profit for 2013
TRANSLATION DIFFERENCES
INTERIM DIVIDEND
COMPLEMENTARY DIVIDEND
8,405
--
-
-
-
-
18
3,958
-
-
-
-
-
-
-
-
-
-
-
-
-
-
719
20,900
69,999
61,912
149,322
-
-
-
-
15,934
-
-
-
-
7,148
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,125
-
-
-
-
-
-
-
Interim dividend
-
-
-
-
Transfer of reserves
-
-
-
-
781
-
-
78,842
15,612
24,025
Balance at 31 December 2012
Share capital increase Balance at 31 December 2013
CONSOLIDATION ADJ. WITHOUT EFFECT ON EQUITY
PROFIT
-
54,246
36,999
-
(52,875)
-
(2,605)
(1,371)
-
-
-
-
-
-
-
-
-
-
-
-
56,581
-
(18,499)
-
-
-
-
-
-
-
-
-
18
12,363
(18,499)
-
-
56,581
-
-
18,499
18,691
-
(53,124)
1 -
417 -
-
-
3,039 -
(3,457) -
-
-
-
-
-
-
-
-
-
-
-
-
(3,125)
-
-
-
-
-
-
-
-
-
-
-
-
64,080
-
-
-
-
(18,044)
-
-
-
-
-
-
-
-
-
-
-
3,442
-
-
-
-
-
-
-
-
73,441
61,912
169,279
19
12,780
(18,044)
-
-
64,080
75
-
CONSOLIDATION RESERVES
a. Share capital
d. Revaluation reserves
On 7 November 2013 the Bank increased capital by Euros 781 thousand, with share capital rising to Euros 78,842 thousand at 31 December 2013, through the annulment of the current series of 1,751,825 shares and their simultaneous substitution by 1,751,825 new shares and the issue of another 17,518 new shares. These shares have a nominal amount of Euros 44.56 and a joint share premium of Euros 3,442 thousand.
Revaluation reserves reflect the revaluation of the carrying amount of some of the Bank’s buildings to reflect their market value (see notes 3.h and 8). The revaluation reserves are not available for distribution unless the assets are disposed of and/or the INAF authorises their distribution. e. Consolidation reserves
This share capital increase has been fully subscribed and paid up by some of the Bank’s directors.
Consolidation reserves correspond to the following companies: Expressed in thousands of Euros 2013 2012
b. Legal and voluntary reserves In accordance with Andorran mercantile law, banks must allocate 10% of the year’s profit to the legal reserve until it reaches 20% of the share capital. At 31 December 2012 the legal reserve was fully appropriated. As a result of the share capital increase carried out in 2013 an appropriation of 20% has been made (see note 10). Voluntary reserves include an amount of Euros 5,647 thousand for differences on first-time consolidation from prior years that are restricted.
Andorra Gestió Agrícol Reig, SAU. Andorra Assegurances Agrícol Reig, SA Grup Nobilitas N.V. Andbank Bahamas (Limited) Savand, SAU. Grup Andbank Luxembourg Other
3,817 1,649 1,920 7,906 226 (1,948) (790)
4,623 955 1,919 5,457 261 1 (853)
Total
12,780
12,363
Movement in consolidation reserves in 2013 and 2012 is as follows:
97% of the Bank’s voluntary reserves and share premium at 31 December 2013 are available for distribution (see note 3.f).
Expressed in thousands of Euros Balance at 31 December 2011
c. Guarantee reserves This caption includes the deposit guarantee reserves and other operating obligations which have to be deposited with the INAF by entities belonging to the financial system. In compliance with Law 01/2011 of 2 February 2011 on the creation of a deposit guarantee system for banks, (Llei 01/2011, de 2 de febrer, de creació d’un sistema de garantia de dipòsits per a les entitats bancàries) the guarantee reserves caption totalled Euros 24,025 thousand and Euros 20,900 thousand at 31 December 2013 and 2012, respectively.
76
8,405
Distribution of 2011 profit to reserves Complementary dividend for 2010 Other consolidation adjustments
(1,798) (3,405) 9,161
Balance at 31 December 2012
12,363
Distribution of profit for 2012 Complementary dividend for 2011 Other consolidation adjustments
(558) (3,181) 4,156
Balance at 31 December 2013
12,780
f. Profit/loss attributed to the Group Details of profit/loss attributed to the Group at 31 December 2013 and 2012 are as follows: Expressed in thousands of Euros 2013 2012 Andorra Banc Agrícol Reig, SA
61,912
53,124
Fully consolidated companies
7,142
4,689
Andorra Gestió Agrícol Reig, SA Andbank Bahamas (Limited) Grup Nobilitas N.V. Columbus de México, SA, CV And Private Wealth, SA Quest Capital Advisers Andbanc Wealth Management LLC Consolidation adjustments Grup Nobilitas Savand, SAU. Grup Andbank Lux Andbank (Luxembourg) SA Andbank Asset Management Luxembourg, SA Andbank Luxembourg Limited Hong Kong Andbank Wealth Management,SGIIC, SAU Consolidation adjustments Grup Andbank Lux Andbank España, SAU Andbank (Panamà), SA APW Consultores Ltda. Andbanc Monaco, SAM Medipatrimonia Invest, S.L. (*) Other
2,282 6,666 101 78 (47) 1,780 (1,750) 40 40 2,584 1,929 876 25 32 (3,112) 932 (1,385) 557 (1,523)
2,610 4,831 (2,564) 51 (305) 1,896 (2,814) (1,392) (36) (506) 3,201 (212) (137) (3,358) 1,322 (766) 266 (468)
Companies accounted for using the equity method Andorra Assegurances Agrícol Reig, SA Medipatrimonia Invest, S.L. (*) Consolidation adjustments
2,640 2,640 (7,615)
406 600 (194) (1,638)
64,080
56,581
(*) During 2012 this company was consolidated using the equity method, whilst in 2013 it was fully consolidated.
77
g. General risks reserve Movement in the general risks reserve during 2013 and 2012 is as follows: Expressed in thousands of Euros 2,300
Balance at 31 December 2011 Net recoveries from the reserve (note 13)
2,000
Other
(107)
Balance at 31 December 2012
4,193
Charges to the reserve
1,200
Net recoveries from the reserve (note 13)
-
Balance at 31 December 2013
5,393
At the date of its acquisition, the Monaco subsidiary included a general risks reserve of Euros 1,393 thousand.
12. Balances in Euros and Other Currencies The breakdown of assets and liabilities in the balance sheets at 31 December 2013 and 2012 in Euros and other currencies, is as follows: Expressed in thousands of Euros 2012 Liabilities
2013 Assets Euros Other currencies
Liabilities
Assets
3,377,536 665,441
3,072,935 970,042
3,212,371 488,650
3,005,812 695,209
4,042,977
4,042,977
3,701,021
3,701,021
13. Other Balance Sheet and Income Statement Items In addition, at 31 December 2013 and 2012 other significant items are as follows: a. Other assets
Expressed in thousands of Euros 2013
2012
Operations in progress Inventories Options purchased Public entities Taxes Other receivables (note 2.d)
5,897 13 65,640 1,666 239,589
24,966 13 28,373 16,537 1,322 25,238
312,805
96,449
78
Operations in progress include the amounts receivable from market counterparties. Taxes comprise income tax payments made during 2013. b. Other liabilities
Expressed in thousands of Euros 2013
2012
Operations in progress Options written Public entities Securities borrowed Other payables
24,029 3,387 15,850 19,318 39,620
27,660 3,392 23,770 32,639 30,634
102,204
118,095
The amount of securities borrowed by the Bank from its portfolio of assets held in custody is recognised under Other liabilities Securities borrowed on the liabilities side of the balance sheet, and under Loans and receivables - Loans and advances to customers on the asset side of the balance sheet. The valuation adjustment to options written is recognised, where applicable, under Provisions for risks and contingencies (see note 9.b).
14. Financial Derivatives Transactions in futures and financial derivatives are detailed below at their notional amount by type of derivative product held by the Group at 31 December 2013 and 2012. A distinction is made between trading and hedging operations by market to which they belong: 2013 Outstanding forward currency purchase and sales Options Swaps Other agreements
2012 Outstanding forward currency purchase and sales Options Swaps Other agreements
MARKET
HEDGING
Unregulated Unregulated Unregulated Unregulated
MARKET
79
Expressed in thousands of Euros TOTAL
1,716,465 290,141 235,093 1,572,300
14,118 4,306,902 74,768
1,716,465 304,259 4,541,995 1,647,068
3,813,999
4,395,788
8,209,787
HEDGING
Unregulated Unregulated Unregulated Unregulated
TRADING
TRADING
Expressed in thousands of Euros TOTAL
1,412,456 199,083 418,705 580,761
14,191 3,066,405 91,107
1,412,456 213,274 3,485,110 671,868
2,611,005
3,171,703
5,782,708
Outstanding forward currency operations are firmly contracted with the main aim of hedging customer operations in the market and, with lesser amounts, to hedge currency risks. The Bank’s global position by currency and terms is monitored and closed on a daily basis. Swaps and options are firmly contracted in order to hedge the interest rate risk of operations with customers. The Bank regularly monitors the difference between the nominal amount contracted and the amount of the operations to be hedged and considers these differences as trading swaps. Other agreements correspond to firm hedging operations executed with customers and other trading operations on securities positions. The maturities of futures operations and financial derivatives are as follows: Expressed in thousands of Euros 2013 Outstanding forward currency purchases and sales Options Swaps Other agreements
2012 Outstanding forward currency purchases and sales Options Swaps Other agreements
LESS THAN 1 YEAR
1 TO 5 YEARS
MORE THAN 5 YEARS
TOTAL
1.716.465 56,497 1,858,936 398,943
75,243 2,384,177 1,087,825
172,519 298,882 160,300
1.716.465 304,259 4,541,995 1,647,068
4,030,841
3,547,245
631,701
8,209,787
LESS THAN 1 YEAR
1 TO 5 YEARS
Expressed in thousands of Euros MORE THAN 5 YEARS TOTAL
1,412,456 31,875 1,113,047 249,297
4,983 2,301,370 422,571
176,416 70,693 -
1,412,456 213,274 3,485,110 671,868
2,806,675
2,728,924
247,109
5,782,708
80
15. Taxation: Income Tax
The income tax expense for the year is calculated as follows: Expressed in thousands of Euros
The Group files income tax returns. In accordance with prevailing legislation, profits are taxed at a rate of 10%. Tax payable is eligible for certain deductions in accordance with legislation prevailing at any given time.
2013 Income and expenses before income tax plus permanent differences
The directors of the Bank do not expect that any significant additional liabilities would arise in the event of inspection by the taxation authorities.
84,864
59,469
Taxable income at 10%
8,486
5,950
Deductions, credits and reductions
(706)
-
-
2,620
7,780
2,620
50% credit on net tax payable
Due to the treatment permitted by Andorran tax legislation for certain transactions, the accounting profit differs from the profit for fiscal purposes. A reconciliation between accounting profit for the year and net tax payable once these annual accounts have been authorised for issue, together with the Bank’s tax expense forecast, is as follows:
2012
A reconciliation between accounting profit before tax and income tax expense for 2013 is as follows: Expressed in thousands of Euros
TOTAL Income and expenses for the year
Expressed in thousands of Euros
2013
2012
Accounting profit before tax (*)
73,496
58,759
Permanent differences originating in the year originating in prior years
(2,337) (2,337) -
710 710 -
Accounting income
71,159
59,469
Temporary differences originating in the year originating in prior years
13,705 13,705 -
-
Tax rate of 10%
8,486
5,950
Tax payable
8,486
5,950
Deductions and credits
(706)
(710)
Net tax payable
7,780
5,240
-
2,620
(2,237)
(1,398)
5,543
1,222
50% credit on net tax payable Withholdings and payments on account Tax difference
73,496
10% of the income and expenses balance for the year
7,349
Tax effect of permanent differences
1,137
Deductions and credits for the current year
(706)
Income tax expense
7,780
According to estimates for 2013, the Bank has the following tax loss carryforwards to be offset against future taxable income: YEAR OF ORIGIN
2012
OFFSET UNTIL
2022
THOUSANDS OF EUROS
(36)
16. Assets Pledged as Collateral At 31 December 2013 and 2012 the Bank has no assets pledged as collateral or commitments with third parties.
(*)This amount corresponds to the sum of the individual accounting profit/loss of each Andbank Group company subject to Andorran income tax legislation.
81
17. Transactions with Related Entities and Individuals Details of transactions with related entities and individuals that exceed 10% of equity at 31 December 2013 and 2012 are as follows: Expressed in thousands of Euros 2013
Banks and credit institutions Assets Liabilities Loans and receivables Memorandum accounts Customer deposits
SHAREHOLDERS
MEMBERS OF THE BOARD OF DIRECTORS (NONSHAREHOLDERS)
SUBSIDIARIES
61,354 28,699 844
-
MEMBERS OF SENIOR MANAGEMENT (NONSHAREHOLDERS)
-
-
OTHER RELATED PARTIES
52,675 67,607 442
Expressed in thousands of Euros 2012
Banks and credit institutions Assets Liabilities Loans and receivables Memorandum accounts Customer deposits
SHAREHOLDERS
MEMBERS OF THE BOARD OF DIRECTORS (NONSHAREHOLDERS)
SUBSIDIARIES
50,006 17,116 278
-
MEMBERS OF SENIOR MANAGEMENT (NONSHAREHOLDERS)
-
-
OTHER RELATED PARTIES
60,833 61,851 615
The Bank’s positions held with shareholders correspond to one individual, who is not a member of the Board of Directors or Senior Management. In relation to subsidiaries, at 31 December 2013 and 2012 no balances representing above 10% of equity are held with nonshareholder members of the Board of Directors, non-shareholder members of Senior Management or other related parties. The positions held with other related parties relate to one individual, who is not a member of the Board of Directors or Senior Management. In relation to shareholders, during 2013 and 2012 no transactions have been conducted with non-shareholder members of the Board of Directors, subsidiaries, non-shareholder members of Senior Management or other related parties that represent more than 5% of profits for 2013 and 2012, respectively. All related-party transactions have been conducted at arm’s length. 82
18. Market Risks
with information on the risks managed. The ALRCO is also responsible for balance sheet management and capital management, with the aim of maintaining a high level of capital adequacy.
Risk management The identification, measurement, management and control of risk is a key element in the management of the Andbank Group. The risk control framework includes a qualitative component, concerning the definition of policies and responsibilities, and a quantitative component, associated with the setting of limits.
Responsibility for guaranteeing the asset management business is exercised in accordance with the established legal and regulatory framework and the task of assessing the results is assigned to the Asset Management ALRCO, which meets monthly. The committee delegates the monitoring of asset management activity to the Middle Office. Besides monitoring compliance with the regulatory framework, the Middle Office assesses compliance with the investment policy of the funds and portfolios and regularly monitors the measures of return and risk.
The positioning of the Group in terms of risk management is based on maintaining a prudent policy, where risk assumption is closely linked to the exercise of business activities in commercial banking, private banking and asset management.
Interest rate risk
The establishment of policies, the setting of limits and the overall supervision of risks is the responsibility of the Assets, Liabilities and Risks Committee (ALRCO), under delegation from the Board of Directors. The general policies and specific limits defined by the ALRCO are therefore submitted to the Board of Directors for analysis and approval. The risk limits are reviewed at regular intervals in order to adapt them to the economic and market situation and are submitted annually to the Board of Directors.
Interest rate risk is defined as the impact on the market value of the Group’s assets and liabilities resulting from movements in interest rates. The measures the Group uses to assess this impact are the sensitivity of the net interest margin over a one year period to 100 basis point parallel shifts in the yield curve for the main balance sheet currencies and the sensitivity of the market value of own funds to 100 basis point parallel shifts in the yield curve.
To determine the risk limits granted to countries or financial institutions, the Group uses relatively stable variables such as credit ratings or Tier I capital, and market variables such as the price at which the Credit Default Swap is traded. Given the continuing sovereign debt crisis and the downgrading of countries and financial institutions, these limits have been reviewed frequently.
In the historically low interest rate environment that has prevailed in recent years, the Group has maintained a positive exposure to movements in the yield curve; i.e. the Group’s financial margin would increase if the interest rate were to rise and decrease if the interest rate were to fall. This has translated into a positive repricing gap of the Group’s interest-rate-sensitive balance sheet assets and liabilities, i.e., overall, the repricing of assets precedes in time the repricing of liabilities. This positioning has been supported by very short-term interbank lending and investments in fixedrate bonds and bonds with a return pegged to the 3/6-month Euribor, maturing in the short or medium term, although part of the portfolio is made up of longer-term fixed-rate bonds that have been purchased without hedging in order to increase the duration of the balance sheet assets.
As the body responsible for the management of interest rate risk, currency risk, country risk, counterparty risk, liquidity risk and market risk, the ALRCO meets at least monthly. The ALRCO has delegated the task of supervising these risks to the Middle Office department, which reports to the ALRCO on a daily and weekly basis, where applicable,
83
The limit established as the maximum loss resulting from a 100 basis point parallel shift in the yield curve is 5% of own funds. During 2013 this limit was not exceeded.
annually by the Board of Directors, although upgrading of limits can be more frequent, in order to reflect changes in the credit rating and tensions in the credit spreads of entities, thus mainting a moderate level of risk.
Market risk
Strict rules are applied for granting limits to counterparties that have not posted collateral. In such cases, the counterparty is required to have a high credit rating, based on the ratings assigned by the main agencies (Moody’s, Fitch and S&P), and must have been assigned a relatively moderate credit risk by the market, as reflected in the price at which the 5-year CDS is traded. Observation of the market variable allows any change in the counterparty’s credit rating to be swiftly included in the model.
Market risk is understood as the potential loss to which the securities portfolio is exposed due to changes in market conditions, such as asset prices, interest rates, market volatility and market liquidity. The measures the Group uses to manage the market risk of its own portfolio are value at risk (VaR) and stress testing, in line with general market standards. VaR is measured using the parametric method. The calculation obtained corresponds to the maximum expected loss over a given time horizon and with a given confidence level. The Group calculates VaR for a time horizon of one week and with a confidence level of 99%, and the historical period used for calculating the correlation matrix and volatilities is three years. During 2013 this VaR limit has not been exceeded. The average VaR calculated for the ordinary investment portfolio and for the trading portfolio was Euros 0.60 million, with a maximum of Euros 0.89 million and a minimum of Euros 0.36 million. The average position of the ordinary investment portfolio and the trading portfolio was Euros 447 million. The average net position of the Group’s securities portfolio (which includes Euros 155 million in hedging derivatives) was Euros 1,051 million, the average VaR having been 0.34% of the average invested position.
Liquidity risk Liquidity risk is defined as the risk that an entity will be unable to meet its payment obligations at a given time, whether arising from, among others, the maturity of deposits, the drawdown of credit facilities granted, or guarantee requirements in transactions with collateral. The Middle Office department monitors the liquidity position daily to ensure that it remains above the minimum liquidity level established by the ALRCO. The Group has set a minimum amount of overnight cash and an additional minimum amount of cash and highly liquid positions with one-week liquidity. Repo-financed positions are also monitored on a daily basis.
Credit risk
Compliance with the liquidity ratio established by the INAF, which supervises the Andorran financial system, is monitored monthly. This ratio compares liquid and relatively liquid assets with liabilities becoming due and payable and is set at a minimum of 40%. During 2013 the Group maintained an average liquidity ratio of 66.41% and at yearend the ratio was 67.33%.
Credit risk is the potential loss that would arise should a counterparty fail to meet its obligations with the Group. The Group follows a prudent policy in assigning credit limits, authorising exposure only to countries with high credit ratings and in these countries only to the financial institutions with a investment grade credit rating and which have moderate credit spreads. Risk limits are approved
Since the start of the international financial crisis, a liquidity contingency plan for the Group has been drawn up at 84
monthly intervals, assessing contingent liquidity based on different levels of mobilisation of liquid assets and considering the cost at which this liquidity would be obtained. Another short and medium term liquidity management measure used by the Group is the residual maturity of the Group’s balance sheet assets and liabilities.
At 31 December 2013 Deposits of securities and other securities under custody include an amount of Euros 452,040 thousand (Euros 417,511 thousand in 2012) held as collateral for various security-backed loans (see note 6) and off-balance sheet exposures. At 31 December 2013, the wealth of individual customers managed by the Bank is classified under Deposit of securities under custody of third parties in memorandum accounts and under liabilities in the accompanying consolidated balance sheet. The income recognised for management commissions is recognised under Fees and commissions for services in the accompanying consolidated income statement.
The maximum exposure limits during 2013 and 2012 under different measures, based on the risk-generating factor, were as follows (in thousands of Euros): 2013 FIXED-INCOME – Position for trading CHANGES – Overall Forward/Cash Position INTEREST- Equity loss resulting from a 1% rise in the yield curve (*) VARIABLE-INCOME- Position for trading
2012
15,000 6,000 5%
15,000 6,000 5%
6,000
6,000
The measurement criteria for securities and other securities under custody are described in note 3.q.
(*) Limit on own funds
19. Memorandum Accounts At 31 December 2013 and 2012, details of the consolidated memorandum accounts, by security type, are as follows: 2013 Shares and other variable-income securities Bonds and other fixed-income securities Units in investment funds not managed by the Group Units in investment funds not managed by the Group Other
2012
1,369,472 5,470,796 1,081,825
1,253,314 4,495,878 861,345
771,637
687,001
7,879
8,670
8,701,609
7,306,208
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20. Assets Managed for Third Parties Details of assets managed for third parties, whether held in custody or not by the Group at 31 December 2013 and 2012 are as follows: Expressed in thousands of Euros 2013 Held in custody / Held in deposited by the custody / Entity deposited by third parties Collective investment undertakings Individual customer portfolios managed discretionallymitjanรงant mandat Other individual customers Total
2012 Total
Held in custody / deposited by the Entity
Held in custody / deposited by third parties
Total
863,055 2,739,372
1,055,617
863,055 3,794,989
649,016 1,873,067
806,414
649,016 2,679,481
6,338,981 9,914,407
2,503,241 3,558,859
8,842,222 13,473,266
5,597,785 8,119,868
2,121,507 2,927,921
7,719,292 11,047,789
21. Other Memorandum Accounts Details at 31 December 2013 and 2012 are as follows: Expressed in thousands of Euros 2013 2012 Very doubtful loans Other Trusts Other Public debt issued by the Andorran Government Unlisted own securities Other
57,002 165,167 91,308 73,859 55,506 9,201 9,152
57,003 154,536 87,265 67,271 55,506 8,287 3,478
222,169
211,539
Trusts include unlisted variable-income securities that the Bank holds for third parties. These securities are shown at their nominal amount.
86
22. Compliance with Legislation
secure their operational obligations up to a limit of 4% of their total investments, after deducting investments made using equity and banking funds. In accordance with Law 1/2011 of 2 February 2011 for the creation of a deposit guarantee scheme for banks, amounts deposited in the INAF pursuant to the provisions of the Law on deposit guarantee reserves and other operational obligations were released. Accordingly, as a consequence of the agreement reached by the guarantee fund Management Commission on 29 August 2011, pursuant to Law 1/2011 of 2 February 2011, the Bank has created a reserve of Euros 24,025 thousand at 31 December 2013 (see note 11.c).
Law regulating mandatory investment ratios (Llei de regulació del coeficient d’inversions obligatòries) In a session held on 30 June 2994 the Principality of Andorra’s General Council passed a Law regulating mandatory investment ratios. The Regulations pursuant to this law exclusively concern banking institutions and oblige them to maintain a certain investment ratio of assets in Andorran public funds. On 31 December 2005 the Government enacted a Decree for public debt issue to which the Bank subscribed in an amount of Euros 55,766 thousand, with maturity on 31 December 2009 and accruing interest at the official one-year rate of the European Central Bank. At 31 December 2009 this public debt was renewed by an amount of Euros 55,506 thousand maturing on 31 December 2013 (see note 7). Upon maturity at 31 December 2013, this issue was renewed and the new maturity date established at 31 December 2015.
On 3 March 2010 the Government issued a decree classified as of national and social interest under the program to provide privileged financing for start-up companies and businesses, innovation, conversion and entrepreneurial ventures. Basically, the decree is aimed at promoting and supporting the new ideas of those who, in difficult times and changing environments, see opportunities and challenges which, though not without risk, have the potential to assist the country’s economic development. This is to be done by granting loans, subject to a prior assessment and overall approval of proposals by a joint committee made up of representatives of the Chamber of Commerce, Industry and Services of Andorra, the development company Andorra Desenvolupament i Inversió, SAU, the Association of Andorran Banks (ABA) and the Government of Andorra.
Loans granted by the banks within a program classified as being of national and social interest, which is aimed specifically at privileged financing of housing, are now also considered to be public funds, as approved by the Andorran Government on 26 April 1995. At 31 December 2013 the loans extended by the Bank in this regard amounted to Euros 125 thousand (Euros 190 thousand at 31 December 2012). They are recognised under Loans and receivables / Loans and advances to customers on the accompanying consolidated balance sheet. These loans accrue interest at a annual fixed market rate of 6%.
The amount outstanding at 31 December 2013 is Euros 498 thousand (Euros 301 thousand in 2012), recognised under loans and advances to customers in the balance sheet. Law regulating capital adequacy and liquidity criteria of financial institutions (Llei de regulació dels criteris de solvència i de liquiditat de les entitats financeres)
In a session held on 11 May 1995 the Principality of Andorra’s General Council, passed a Law regulating deposit guarantee reserves and other operational obligations, which are to be held and deposited by entities operating in the financial system This law obliges the banks forming part of the Andorran financial system to maintain in their permanent funds various minimum reserves of equity to
In a session held on 29 February 1996, the Principality of Andorra’s General Council approved the Law regulating capital adequacy and liquidity criteria of financial institutions.
87
This law obliges banks to maintain a minimum capital adequacy ratio of 10%, based on the recommendation of the Basel Committee on Banking Regulations and Supervisory Practices, calculated on the basis of a ratio that relates the qualifying equity to the weighted risk assets as per the degree of risk of such assets. Banks are also obliged to maintain a liquidity ratio of at least 40%.
In accordance with this law, the Group has set up proper and sufficient control and internal communications procedures to protect banking secrecy and prevent and impede operations related to money laundering generated by criminal activities. Specific personnel training programs have been carried out to this effect. Law on the legal regime governing entities operating in the Andorran financial system and other provisions regulating financial activities in the Principality of Andorra (Llei sobre el règim jurídic de les entitats operatives del sistema financer andorrà i altres disposicions que regulen l’exercici de les activitats financeres al Principat d’Andorra)
The capital adequacy and liquidity ratios of the consolidated financial statements, determined in accordance with this law, were 19.94% and 67.33%, respectively, at 31 December 2013 (21.39% and 65.99% at 31 December 2012). The Law regulating capital adequacy and liquidity criteria of financial institutions also restricts the concentration of risks in a single beneficiary up to a maximum of 20% of the equity of the bank. The law also stipulates that the accumulation of risks that by themselves exceed 5% of the equity cannot exceed the limit of 400% of the above-mentioned equity. The risk maintained with the members of the board of directors cannot exceed 15% of the equity. These risks are weighted in accordance with the aforementioned law.
In its session held on 9 May 2013 the Principality of Andorra’s General Council approved Law 7/2013 on the legal regime governing banks operating in the Andorran financial system and other provisions regulating financial activities in the the Principality of Andorra. The purpose of this law is to unify the legislation governing banks operating in the financial system contained in Laws 24/2008, 13/2010, 14/2010 and the 1996 Law regulating the operational functions of the different components of the financial system into one single text. For this reason, although this Law does not introduce any significant amendments to the existing regulations, it does act to reinforce and restructure the prevailing laws to provide increased legal security to the legislative framework governing the Andorran financial system.
During the year the Group has complied with the requirements of this law. The maximum risk concentration of risk in favour of a single beneficiary was 16.23% of equity (15.93% in 2012). Loans or other operations involving risk in a single beneficiary that exceed 5% of equity have not exceeded an accumulation of risks of 99.96% in the aggregate (116.40% in 2012). Law for international cooperation on criminal matters and the combat against the laundering of money or securities arising from international crime (Llei de cooperació penal internacional i de lluita contra el blanqueig de diners o valors producte de la delinqüència internacional)
Approval of Law 7/2013 implies repealing the following laws: 1996 Law regulating the operational functions of the different components of the financial system; Law 24/2008 regulating the regime of specialised non-banking credit institutions; Law 13/2010 regulating the legal regime of investment entities and collective investment undertaking management companies; and articles 8 to 17 of Law 14/2010 regulating the legal regime of banking entities and the basic administrative regime of entities operating in the financial system.
In its session held on 29 December 2000, the Principality of Andorra’s General Council approved the Law for international cooperation on criminal matters and the combat against the laundering of money or securities arising from international crime. 88
Law on organisational requirements and operating conditions of the operating entities of the financial system, investor protection, market abuse and financial collateral arrangements (Llei sobre els requisits organitzatius i les condicions de funcionament de les entitats operatives del sistema financer, la protecció de l’inversor, l’abús de mercat i els acords de garantia financera)
Law regulating the Andorran National Institute of Finance (Llei de l’Institut Nacional Andorrà de Finances) In its session held on 23 May 2013, the General Council approved Law 10/2013 regulating the Andorran National Institute of Finance (INAF). The purpose of this law is to provide the INAF with the necessary resources to meet its objectives whilst, taking into consideration the INAF’s global scope of operations in a context of international expansion of the Andorran financial system, increasing these resources in line with the global growth of financial markets and pursuant to the commitments Andorra has acquired from signing the Monetary Agreement with the European Union.
In its session held on 9 May 2013, the General Council approved Law 8/2013 on organisational requirements and operating conditions of the operating entities of the financial system, investor protection, market abuse and financial collateral arrangements. The purpose of this law is to maintain a structurally and functionally sound financial system, aiming at clarifying the legal framework regulating the financial system prevailing in Andorra. As a result, the provisions of Law 14/2010 and the prevailing provisions of the Law regulating the Andorran financial system dated 27 November 1993 are unified into a single text which incorporates commitments acquired regarding privileged information and market manipulation and abuse into Andorran legislation with the signing of the Monetary Agreement with the European Union.
The approval of Law 10/2013 implies repealing the following laws: Law 14/2003 regulating the Andorran INAF; article 45 of Law 14/2010 regulating the legal regime of banking entities and the basic administrative regime of entities operating in the financial system; and article 22 of the Law regulating the capital adequacy and liquidity criteria of financial institutions of 29 February 1996, amongst other regulations. Law governing indirect general taxation (Llei de l’Impost General Indirecte)
This law includes the principles set out in Directive 2004/39/ EC of the European Parliament and of the Council of 21 April 2004, known as MiFID (Markets in Financial Instruments Directive), relating to the rules regarding ethics and conduct to be complied with by investment entities.
In its session held on 21 June 2012 the General Council of the Principality of Andorra approved the Law governing indirect general taxation (IGI) which entered into force on 1 January 2013. This law was subsequently amended by Law 29/2012 of 18 October 2012 and by Law 11/2013 of 23 May 2013, amending Law 11/2012.
The approval of Law 8/2013 implies the repeal of articles 1 to 7, 18 to 44 and 46 to 55 of Law 14/2010 regulating the legal regime of banking entities and the basic administrative regime of entities operating in the financial system; and the repeal of the Law regulating the Andorran financial system of 27 November 1993.
This indirect general tax is levied on goods delivered, service rendered and imports made by onerous contract in Andorra by business people or professionals usually or occasionally as part of their economic activity, irrespective of the purpose or the results achieved in the economic activity or in each particular transaction, including the condition of importer. The general tax rate is 4.5%, with a reduced rate of 1% and 89
an increased rate of 9.5%, which is only applied to banking and financial services rendered.
Law governing non-resident income tax (Llei de l’Impost sobre la Renda de No Residents Fiscals)
The settlement period depends on the annual net turnover for all of the activities carried out by the tax payer in the immediately previous year. Payments can be made halfyearly, quarterly or monthly. Tax payers have to determine the tax debt in each settlement period, reducing the general indirect tax payable during the period by the general indirect tax installments receivable, which are deductible in nature. The payable to or receivable from the Andorran Government deriving from the declaration of the aforementioned tax is recognised under Loans and receivables and Current receivables.
In its session held on 29 December 2010 the General Council of the Principality of Andorra approved the Law governing non-resident income tax. This direct tax is levied on income obtained in the Principality of Andorra by individuals or entities which are non-resident for tax purposes. The net tax payable is calculated by deducting the deduction for double taxation from the taxable income, determined in accordance with the Law governing non-resident income tax. Pursuant to Law 18/2011 of 1 December 2011 amending Law 14/2010 of 29 December 2010 governing non-resident income tax, the tax rate applicable in 2013 stands at 10% for general purposes, 1.5% when income derives from reinsurance operations and 5% when income is received in the form of royalties.
The entry into force of Law 11/2012 of 21 June 2012 governing indirect general tax repeals the Law governing indirect taxation on the rendering of banking and financial services of 14 May 2002. Law applying the agreement between the Principality of Andorra and the European Community on taxation of savings income in the form of interest payments (Llei d’aplicació de l’Acord entre el Principat d’Andorra i la Comunitat Europea en matèria de fiscalitat dels rendiments de l’estalvi en forma de pagament d’interessos)
Payments on account of non-resident income tax made by the Bank during 2013 and 2012 are recognised under Other assets - Taxes on the accompanying balance sheet (see note 13).
23. Corporate Citizenship or Similar Activities
On 21 February 2005 the General Council of the Principality of Andorra ratified the Agreement between the Principality of Andorra and the European Community in relation to the establishment of measures equivalent to those provided for in Council Directive 2003/48/EC on taxation of savings income in the form of interest payments. The General Council passed the law implementing this Agreement on 13 June 2005.
The Group does not have any legal or statutory obligations relating to corporate citizenship. However, the Group has always been characterised by a strong social commitment and a strong desire to work towards the general interest to improve the country’s economic and social progress.
During the year the Bank, in its capacity as paying agent, has complied with the obligations stipulated in the Agreement and the applicable Law and has settled the withholding amount in accordance with the aforementioned legislation.
90
24. Events After the Reporting Period No significant events have taken place after the 2013 close which could have an impact on the financial statements for 2013.
25. Additional Explanation for the English Translation These consolidated financial statements are presented in conformity with the financial reporting framework applicable to the Group (see note 2). Certain accounting practices applied by the Group that conform with the aforementioned regulatory framework may not conform with generally accepted accounting principles or other criteria.
Andbank’s Note: On the 30th of April 2014, the General Shareholders Meeting approved the following Net Profit distribution: In thousands of Euros INDIVIDUAL Legal Reserve Voluntary Reserves Interim Dividend Complementary Dividend TOTAL
156 33,896 18,044 9,816 61,912
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6. Risk management The management and control of risk is a key element of the management of the Andbank Group. The main risks to which the Group is exposed in the pursuit of its activity are: •
Interest rate risk
•
Exchange rate risk
•
Market risk
•
Credit risk
•
Liquidity risk
•
Operational risk
•
Reputational risk
The risk control framework comprises a qualitative component, associated with the definition of policies and responsibilities, and a quantitative component, based on the setting of limits. The Group’s risk management positioning is based on maintaining a prudent policy, in which risk taking is linked to responsibility for business activities in commercial banking, private banking and asset management. The principles on which the Group’s risk management and control are based are as follows:
Overall responsibility for the monitoring and control of risk is assigned to the Chief Risk Officer (CRO). The CRO oversees the Credit Risk Department, which manages and monitors the credit risk associated with customers; the Middle Office, which monitors interest rate, exchange rate, market, counterparty, country and liquidity risk; Controller Europe and Controller LatAm, which control the activity of international subsidiaries, so as to ensure that they stay within the established regulatory framework and that the requirements of the supervisor of each jurisdiction are complied with; and the Operational Risk Department, which oversees the Bank’s operational risks. In addition, as risk control is a global function, the persons responsible for risk control in each Group entity report functionally to the CRO, who supervises their activity and ensures that, beyond any local requirements, consistent standards of control are applied across the Group.
•
Clear definition of the responsibilities of the units involved in risk control
•
Availability of sufficient human and technical resources to perform functions effectively
•
Adequate internal control systems
•
Transparency of the reporting on the risks taken
Policy making, limit setting and risk oversight are the responsibility of the Asset/Liability Risk Committee (ALRCO), under delegation from the Board of Directors. The policies and limits defined by the ALRCO are therefore submitted to the Board of Directors for ratification. Risk limits are also reviewed periodically, so as to adapt them to the situation of the economy and the markets, and at least once a year are submitted to the Board of Directors for approval. During 2013 the framework of country and counterparty risk limits was submitted to the Board of Directors for approval on two occasions. As regards the methods for assigning country risk limits, the factors considered include relatively static ones, such as membership of international bodies (EU, OECD) and credit rating, and dynamic factors (market variables), such as a country’s credit default swap levels. The risk limits assigned to financial institutions are determined on the basis of factors such as credit rating and Tier 1 capital, as well as
The Internal Audit Department also plays a role by carrying out spot checks on the abovementioned risks, bringing to light any non-compliance or unauthorised risk taking that has not been detected and reported by the persons responsible for ongoing risk control, and proposing corrective measures.
92
market indicators, specifically the credit default swap rate. This methodology makes it possible to maintain stable risk exposures to countries and counterparties with good credit quality, and to quickly readjust the exposure to countries and counterparties whose credit capacity has deteriorated.
Italy) thus declined over the year, the most conspicuous narrowing being that of the Greek risk premium, which is the one that had reached the highest levels. In the case of Portugal, the narrowing was not exempt from tensions, especially in July, when disagreements over the application of fiscal measures sparked a government crisis. Spain, meanwhile, following a 2012 marked by severe pressure on sovereign debt and a request for aid to clean up the financial system, saw its economy emerge from recession during the third quarter, albeit with minimal levels of growth. The financial sector assistance programme was pronounced completed before the end of the year, after the Spanish government had used 41,300 million of the 100,000 million euros approved by the Eurogroup. In this case, the Spanish risk premium ended the year at its lowest level since mid2011. The Italian risk premium also fell compared to the previous year, despite the political crisis in September over the resignation of five ministers from Berlusconi’s party and the no-confidence vote on the prime minister, Enrico Letta.
As the body responsible for the management of interest rate, exchange rate, country, counterparty, liquidity and market risk, the ALRCO meets once a month. The ALRCO is also responsible for balance sheet management and capital management, aimed at maintaining a high level of solvency in the Group. The ALRCO has delegated oversight of these risks to the Middle Office. Responsibility for ensuring that the asset management business is conducted in accordance with the established legal and regulatory framework and for assessing its results and risks is assigned to the Asset Management Control Committee, which meets once a month. This committee has delegated the monitoring of asset management to the Middle Office. Apart from ensuring that investment funds and portfolios comply with the regulatory framework, the Middle Office also assesses compliance with the established investment policy and periodically monitors the measures of risk and return.
In October, the finance ministers of the European Union approved the legal framework to convert the European Central Bank (ECB) into the single banking supervisor from November 2014. The ECB will thus have direct supervision of the eurozone’s main banks, as a first step towards the creation of a European banking union.
2013: the end of the financial and European sovereign debt crisis? During this last year the uncertainties that had arisen with respect to a possible collapse of the euro as a result of the peripheral sovereign debt crisis dissipated, as the risk premiums of these countries narrowed significantly, accompanied by a recovery of economic growth in the eurozone, hand in hand with a slight expansion of the global economy. Despite these improvements, the austerity measures adopted in recent years have not fed through into job creation, and the unemployment rate remains high.
During recent years the Andbank Group has adapted its risk management to events linked to the European financial crisis, in particular the pressures that have arisen around peripheral sovereign debt, with periodic reviews of risk limits aimed at reducing exposure to countries and counterparties that have suffered rating downgrades and an increase in the credit spread on their debt. This dynamic management of counterparty risk, coupled with a prudent approach to risk taking, has allowed the Group to maintain a moderate level of risk throughout the financial crisis, in line with the Group’s risk policy.
The risk premiums of the countries that came under the most severe pressure (mainly Greece, Portugal, Spain and
The Group’s risk management objectives for 2014 centre on consolidating the new systems that have been implemented 93
One - year net interest income sensitivity
for monitoring risks, especially the market risks associated with transactions on the financial markets, while maintaining sufficient flexibility to meet the challenges arising from any new activities that may be undertaken and to take steps, as and when required, to maintain the desired risk profile.
20%
Sensitivity to interest rate rise Sensitivity to interest rate fall
15% 10%
Interest rate risk
5%
Interest rate risk is the risk that movements in interest rates will have an adverse impact on the market value of the Group’s assets and liabilities. The measures the Group uses to assess this impact are the sensitivity of net interest income to 100 basis point parallel shifts in the yield curve over a oneyear horizon for the main balance sheet currencies and the sensitivity of the market value of equity to 100 basis point parallel shifts in the yield curve.
0% Dec 12
Feb 13
Apr 13
Jun 13
Aug 13
Oct 13
Dec 13
-5%
The limit on the sensitivity of equity to a 100 basis point parallel shift in the yield curve has been set by the Board of Directors at 5%. The sensitivity of equity was positive throughout 2013, due to the chosen interest rate strategy and the balance sheet positioning, but was maintained below this limit at all times.
In the historically low interest rate environment that has prevailed in recent years, the Group has maintained a positive exposure to shifts in the yield curve, which is to say that if there were a rise in interest rates, the Group’s net interest income would increase, and vice versa, although at the current levels of interest rates this sensitivity is asymmetrical and the positive sensitivity is much greater than the negative sensitivity. The repricing gap of interest-rate-sensitive balance sheet assets and liabilities is therefore positive, i.e., assets tend to reprice faster than liabilities. This positioning is reflected in very short-term interbank lending and the holding of a fixed-income portfolio invested mainly in bonds with a return linked to 3- or 6-month Euribor or fixed-rate bonds with short and medium-term maturities, although part of the portfolio is made up of fixed-rate bonds with long maturities, which serve to generate additional margin and increase the duration of the balance sheet assets. A large proportion of these bonds are financed in the market with fixed-rate repos, which are used to cover the duration risk. During 2013 the Group also entered into futures contracts for the purpose of temporarily hedging the interest rate risk of fixed-rate bonds in the trading book, as well as interest rate swaps to hedge the duration risk of the medium and long-term bonds in the available-for-sale or held-to-maturity portfolios.
Equity sensitivity 6%
Equity sensitivity limit Actual equity sensitivity
5% 4% 3% 2% 1% 0%
Dec 12
Feb 13
Apr 13
Jun 13
Aug 13
Oct 13
Dec 13
Exchange rate risk Exchange rate risk is the risk that movements in exchange rates will have an adverse impact on the market value of the Group’s assets and liabilities denominated in currencies other than the euro. Spot and forward currency transactions are monitored on a daily basis to ensure that the open position in foreign currency is kept within the authorised limits. The overall open position at year-end was -1.67 million euros, 94
VaR of the available-for-sale and trading portfolio
while the overall limit for the net open position in foreign currencies is 6 million euros. The largest net short position during the year was -1.67 million euros and the largest net long position was 2.39 million euros.
600
2,5
Investments Weekly VaR limit VaR
500
2,0
400
Market risk
1,5 300 1,0
Market risk is the risk that changes in market conditions, such as asset prices, interest rates, market volatility or market liquidity, will cause losses in the investment portfolio. The measure the Group uses to manage market risk in its investment portfolio is value at risk (VaR), as a general market standard, together with stress testing of the held-tomaturity portfolio.
200 0,5
100 0
Dec 12
Feb 13
Apr 13
Jun 13
Aug 13
Oct 13
Dec 13
0,0
The Group stress tests its held-to-maturity portfolio to assess the expected loss of the portfolio in extreme situations involving abrupt increases in the yield curve or widening of credit spreads. These tests use simulations to predict how the market value of the portfolio assets is likely to change in different scenarios. Seven scenarios are analysed: four are historical (2010 Greek crisis, Lehman Brothers bankruptcy in 2008, 2001 terrorist attacks on the Twin Towers and 1998 Russian debt crisis) and three are hypothetical (steepening of the yield curve, general widening of credit spreads, and steepening of the yield curve correlated with a widening of credit spreads). The most adverse scenario is selected and the impact it would have on the bank’s capital is measured.
VaR is calculated using the historical method. The result of this calculation is the maximum expected loss over a given time horizon at a given level of confidence. The Group calculates VaR for a time horizon of one week with a confidence level of 99%, and the historical period used for calculating the correlation matrix and volatilities is three years. The Board of Directors has approved an annual VaR limit of 10 million euros for the available-for-sale and trading portfolios, which is equivalent to a weekly VaR limit of 1.4 million euros. This VaR limit was not exceeded at any time during 2013. The average VaR calculated for the available-for-sale and trading portfolios was 0.60 million euros, with a maximum of 0.89 million euros and a minimum of 0.36 million euros, while the average position of the available-for-sale and trading portfolios was 447 million euros.
Credit risk Credit risk is the risk that a counterparty will fail to meet its obligations, resulting in a loss to the Group. The Group’s exposure to credit risk comprises:
Overall, the average net position of the Group’s investment portfolio (which includes 155 million euros in hedging derivatives) was 1,052 million euros, while the average VaR was 0.34% of the average invested position.
95
•
The risk of default arising from ordinary treasury operations, which basically include interbank lending, securities lending and borrowing, repos and OTC derivative transactions.
•
The risk of default by the issuers of bonds held in the Group’s own portfolio.
Group has a direct exposure to the issuer or guarantor, the great majority of which have an investment grade rating; and bonds used to hedge the risk of customers’ structured deposits, which the Group holds on its balance sheet although the risk has been transferred to the customers. Below is a breakdown of the fixed-income portfolio by issuer credit rating (in thousands of euros):
In assigning limits the Group takes a prudent approach and authorises exposure only to countries with a good credit rating and, within these countries, only to financial institutions that represent a moderate credit risk. Risk limits must be approved by the Board of Directors at yearly intervals, although in 2013 they were presented to the Board for approval on two occasions. The limits granted are stricter for exposures to counterparties where there is no collateral as a guarantee. In such cases, the counterparty must have high credit quality, based on the ratings assigned by the main agencies (Moody’s, Fitch and S&P), and be a moderate credit risk, relatively speaking, as reflected in the level of 5-year CDS prices compared to a benchmark. Observation of the market variable allows any change in the counterparty’s credit quality to be more swiftly included in the model.
Fixed - income portfolio Rating
AAA AA+ to AAA+ to ABBB+ tot BBBInvestment Grade BB+ B+ Speculative Grade Total
To reduce its risk exposure the Group uses securities as collateral in various types of transactions, mainly OTC derivative transactions, repos, and securities lending and borrowing. Derivative exposures to counterparties where an ISDA Master Agreement is in place are netted. During 2013 Andbank entered into ISDA, CSA and GMRA agreements with new counterparties, allowing it to diversify the counterparties with which it enters into derivatives transactions and, at the same time, limit its exposure to counterparty risk. It is also takes a very active approach to collateral management, monitoring exposures under the aforementioned agreements on a daily basis and making margin calls to counterparties to which there is a risk exposure that needs to be mitigated.
With risk exposure to issuer or guarantor
56,911 252,607 253,056 514,710 1.077,284 , 50,443 50,443 1.127,726 ,
With risk transfered to customer
7,790 7,790 960 2,600 3,560 11,350
Total
56,911 252,607 253,056 522,500 1,085,073 51,403 2,600 54,003 1,139,076
As regards the credit risk exposure arising from loans to customers, the Group has loans and receivables totalling 1,768 million euros, mainly in credit lines and loans, especially mortgage loans (923 million euros) and loans with pledged collateral (476 million euros). Credit risk management is based on credit approval policies and authorities, exposure monitoring and committee supervision (Non-Performing Loans Committee and Board Risk Committee). Credit risk concentrations are reviewed on a weekly basis to check that they stay within the parameters set by the supervisor, establishing maximum borrowing levels for certain groups. Responsibility for monitoring and managing customer credit risk belongs to the Credit Risk Department.
In the last part of the year the Group’s fixed-income portfolio benefited from the narrowing of the credit spreads of European financial and sovereign issuers. The longerduration positions in the held-to-maturity portfolio showed significant increases in value, while some of the securities in the available-for-sale and trading portfolios were sold on the market at a capital gain. As regards credit risk, the fixed-income portfolio is made up of securities in which the
Non-performing loans are monitored on a product by product basis, with a view to adjusting approval policies and loan authorities as appropriate. Credit approval decisions are transaction-specific. Risk monitoring is based on an analysis of qualitative and quantitative variables, which 96
Liquidity ratio
are adapted to the supervisor’s requirements. The Group’s non-performing loans ratio is 3.87%, below the average for financial institutions in neighbouring countries. During 2013 the Group maintained a conservative provisioning policy and the NPL coverage ratio increased from 49.02% to 58.38%. Moreover, fully provisioned non-performing loans totalling 4.2 million euros were returned to performing status during the year.
100%
Liquidity ratio INAF minimum liquidity
80% 60% 40% 20%
Liquidity risk
0%
Liquidity risk is the risk that the Group will at some time or other be unable to meet its payment obligations, whether arising from the maturing of deposits, drawing of committed credit lines or margin calls on collateralised borrowings, among other things. Most of the Group’s funds come from customer deposits, although the interbank market is also an important source of funding, mainly through repo transactions. Equity growth through new share issuance and retention of earnings has been an additional source of funds in recent years.
Dec 12
Feb 13
Apr 13
Jun 13
Aug 13
Oct 13
Dec 13
Since the start of the international financial crisis the Group has prepared a liquidity contingency plan, which is updated monthly. This plan includes an assessment of contingent liquidity, assuming different levels of conversion of liquid assets into cash and available funding sources, taking the cost at which the liquidity could be generated into account. The assets that can be converted into cash and the manageable sources of liquidity are ranked, so as to give priority to the use of liquidity sources that have a low impact on the income statement and postpone the use of liquidity sources that have a high negative impact on the income statement. In addition, potential outflows of liquidity, whether resulting from customer activity or activity in the financial markets, are identified and classified as either probable or improbable, based on likelihood of occurrence. Finally, the liquidity that could be generated is compared with the potential outflows to check that the surplus is above the approved minimum level of liquidity.
One of the measures of short and medium-term liquidity used by management is the residual maturity of the Group’s balance sheet assets and liabilities. The Middle Office supervises the liquidity position on a daily basis to ensure that it remains above the minimum liquidity level set by the ALRCO. This minimum level currently stands at 100 million euros of cash available within one day and an additional 100 million euros of cash and highly liquid investments available within one week. The Middle Office supervision includes daily monitoring of positions to be financed through repo. The liquidity ratio established by the INAF, the Andorran banking supervisor, is calculated monthly. This ratio compares liquid and semi-liquid assets with liabilities falling due in the near term. The INAF has set a minimum liquidity ratio of 40%, which means that the Bank is required to have liquid or semi-liquid assets, available immediately or in the near term, equivalent to 40% of the total amount of the funding received. The Group’s average liquidity ratio during 2013 was 66.41% and the liquidity ratio at year-end was 67.33 %. 97
Operational risk
Reputational risk
Operational risk is the risk of losses arising from inadequate or failed internal processes, people and systems or from external events.
The Andbank Group defines reputational risk as the risk associated with the perceptions that the Bank’s various stakeholder groups have of the Bank, which can have an adverse impact on results or the businesses’ development prospects. It includes, among other things, legal, economic, financial, ethical, social and environmental issues.
The Group considers operational risk as a risk category that requires the same comprehensive management as other categories of banking risks, such as credit risk or market risk. The Group has therefore established a continuous operational risk management process, which is carried out in four stages: •
•
Various departments of the Group are involved in managing reputational risk, including Regulatory Compliance, Legal, Internal Audit, Quality and Middle Office. Prevention of money laundering and terrorist financing
Identification of the operational risks to which each Group entity is exposed and recording of operational events that have caused unexpected losses or gains.
For the Bank, having an anti-money laundering and antiterrorist financing system and a sound, risk-based customer acceptance policy is a strategic objective.
Assessment and measurement of the potential and actual impact of operational risks and the probability of future occurrence.
•
Monitoring of the risks that have been identified.
•
Control and mitigation of risks through the establishment of action plans aimed at improving operational risk management processes and controls.
The Bank has a model that is constantly adapted to the latest local and international regulations and that is articulated through three agents: the Compliance Department, the representatives to the Financial Intelligence Unit (UIF ) and the Compliance Committee. During 2013 the Compliance Department took the necessary measures to fully adapt the units to Law 20/2013 of October 10th on the prevention of money laundering and terrorist financing.
Operational risk management is the responsibility of the Risk Control and Monitoring Area. This area maintains a database of operational incidents, which it analyses in order to propose corrective measures to Senior Management.
Furthermore, the Bank has computerised systems for detecting suspicious transactions and cross-checks the database of customers, principals and beneficiaries against international lists of people who may be involved in money laundering or terrorism.
Having an efficient internal control system adds value to the Group, insofar as it makes it possible to improve Group management and thus ensure the effectiveness of business processes and facilitate compliance with applicable laws and regulations in each country in which the Group is present.
Investor protection The Bank’s commitment to its customers has two fundamental dimensions: long-term value creation and maximum information transparency. For this purpose 98
the Bank has appropriate procedures in place to ensure compliance with the requirements established by Law 8/2013 of May 9th on the organisational requirements and operating conditions of financial system operating entities, investor protection, market abuse and financial collateral arrangements.
among the group of financial institutions with high levels of solvency. The Group’s high solvency conveys a high level of confidence and security to customers, the financial institutions with which Andbank has relations and all stakeholders in general. At the end of the year the Group’s solvency ratio was 20.69 %, doubling the minimum level (10%) required by the supervisor and above the peer ratio, which is the average solvency ratio of European financial institutions. Adjusted capital was 424.69 million euros and the Group had a capital surplus of 219.44 million euros. The core capital ratio was 17.61 % and core capital net of intangible assets amounted to 361.52 million euros.
These procedures allow the Compliance Department to manage possible conflict of interest situations and the incentive policy effectively, ensure best execution and safeguarding of assets, and allow the establishment of controls against market abuse, etc. Knowledge management and training
Adjusted capital and solvency ratio
One of the Bank’s priorities in this area is the adoption of the necessary measures, such as training actions, to ensure that all employees are aware of the requirements arising from applicable laws and regulations and the procedures implemented by the Bank.
Equity Solvency ratio Minimum required level
450 400
30% 25%
350
20%
300 250
Incidents and complaints
15%
200
10%
150
The Bank has an advanced incident management model, through which the Quality Department channels all the complaints that customers submit to the Bank through the various communication channels. The objective of this department is to achieve speedy resolution of all incidents.
100
5%
50 0
Dec 12
Feb 13
Apr 13
Jun 13
Aug 13
Oct 13
Dec 13
0%
Within the framework of the capital requirements agreed by the Basel Committee for Banking Supervision in 2010, the new capital rules started to apply from 1 January 2013. From 1 January 2014 banks are required to hold capital (core equity) of at least 4.0%, increasing to a minimum of 4.5% from 1 January 2015. The minimum Tier 1 ratio is set at 5.5% from 1 January 2014, rising to 6.0% from 1 January 2015. Banks will also be required to maintain an additional capital conservation buffer of 2.5% and, depending on the circumstances, an additional anticyclical buffer of up to 2.5% of capital. As a consequence of the above, from 1 January 2019 the total minimum capital ratio may not be below 10.5 %. In this more stringent regulatory environment as regards minimum capital requirements, the Andbank Group is in a strong solvency position.
Ethical principles and standards of conduct The Bank has incorporated ethics as part of its culture and corporate values. For this purpose it has a corporate code of ethics, which is communicated to all professionals and is available on the Bank’s intranet.
Capital management Capital management is based not only on preserving a minimum capital ratio that is sufficient to support current and future business activities and that meets the supervisor’s requirements, but also on maintaining a level of capital that positions Andbank 99
7. Governance Structure
Chairmanship Òscar Ribas Honorary Chairman Manel Cerqueda Chairman Oriol Ribas Vice Chairman
Board of Directors Germán Castejón Representing Reig Finances, S.A.
Manel Ros Director
Jordi Comas Chief Executive Officer
Xavier Santamaria Director
Pere Grau Director representing CEDO, S.A.
Josep Sansa Secretary (non director)
Jaume Serra Director
Josep Vicens Director representing IGESA 100
General Management Jordi Comas Chief Executive Officer Ricard Tubau Deputy Chief Executive Officer José Luis Muñoz Deputy Chief Executive Officer Corporate Services
Organisational Structure Carlos Aso Chief Private Banking and Marketing Officer
Àlex Fusté Chief Economist
Josep Ma. Cabanes Chief Andorran Business Officer
Josep García Chief Global Wealth Planning Officer
Josep X. Casanovas Chief Risk Officer
Ángel Martínez Chief Information Technology Officer
Jordi Checa Chief Resources Officer
Santiago Mora Chief Investment Officer
Víctor Dorado Chief Legal Counsel Officer
Galo Juan Sastre Chief Compliance Officer 101
8. Locations and Addresses
SWITZERLAND Arctic Ocean
LUXEMBOURG USA
ANDORRA
North Pacific Ocean
North Atlantic Ocean
THE BAHAMAS
North Pacific Ocean
SPAIN
MEXICO
PANAMA South Atlantic Ocean
Indian Ocean
BRAZIL
South Pacific Ocean
MONACO
URUGUAY Antarctic Ocean
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South Pacific Ocean
ANDORRA Andorra Banc Agrícol Reig, S. A.
Banking License C/Manuel Cerqueda i Escaler, 6 AD700 Escaldes-Engordany. Andorra Tel. +376. 873. 333 comunicacio@andbank.com
Andorra Gestió Agrícol Reig, S. A.
Andorran Fund Management Company C/Manuel Cerqueda i Escaler, 3-5 AD700 Escaldes-Engordany. Andorra Tel. +376. 873. 333 comunicacio@andbank.com
BRAZIL LLA Participações, Ltda.
Funds Management Holding Company Av. Brigadeiro Faria Lima, 2179 - 8 andar Jd. Paulistano CEP 01452-000 São Paulo - SP. Brasil T. +55. 113. 095. 70. 70 contato@lla.com.br
LUXEMBOURG Andbank Luxembourg, S.A.
Banking License 7A Rue Robert Stümper L-2557 Luxembourg T. +352. 274. 97. 61 info.luxembourg@andbank.com
Andbank Asset Management Luxembourg, S. A.
Luxembourg Fund Management Company 7A Rue Robert Stümper L-2557 Luxembourg T. +352. 274. 97. 61 info.luxembourg@andbank.com
MEXICO Columbus de Mexico, S.A. de C.V. Independent Investment Advisor Blvd. Adolfo López Mateos 2370, 1º Colonia Altavista 01060 México D.F. , México T. +52. 555. 377. 28. 10 columbus@columbus.com.mx
MONACO Andbanc Monaco, SAM
Banking License 1, Avenue des Citronniers - BP 97 MC 98002 Monte - Carlo Principauté de Monaco T. +377. 93. 253. 013 info@andbank-monaco.mc
PANAMA Andbank (Panamá), S. A.
International Banking License and Brokerage Firm Torre Generali (piso 26) Samuel Lewis Avenue, Street 54 East, Obarrio Area. Panamá T. +507. 297. 58. 00 info.panama@andbank.com
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SPAIN Andbank España, S.A.U. Banking License
Alicante Office Paseo de la Explanada, 2 Entresuelo izda. 03002 Alicante. España T. +34. 96. 506. 48. 92 info.spain@andbank.com
Barcelona Office Passeig de Gràcia, 85, 2n 08008 Barcelona. España T. + 34. 93. 154. 09. 99 info.spain@andbank.com
Barcelona 2 Office C/ Ganduxer 29, baixos 08021 Barcelona, España T. +34. 93. 154. 09. 85 info.spain@andbank.com
La Coruña Office C/ Betanzos 1, 1º izda. 15004 La Coruña. España T. +34. 98. 122. 29. 71 info.spain@andbank.com
Madrid Office Paseo de la Castellana, 55, 3º 28046 Madrid. España T. + 34. 91. 206. 28. 50 info.spain@andbank.com
Valencia Office C/ Doctor Romagosa 1, 4ª W 46002 Valencia. España T. +34. 96. 303. 09. 70 info.spain@andbank.com
Vigo Office C/ Urzaiz, 5, 1ª 36001 Vigo. España T. +34. 98. 622. 93. 90 info.spain@andbank.com
Andbank Wealth Management España SGIIC, S.A.U.
Management Company of Collective Investment Undertakings Paseo de la Castellana, 55, 3º 28046 Madrid. España T. + 34. 91. 206. 28. 50 andbankwmes@andbank.com
Medipatrimonia Invest, S. L.
Independent Investment Advisor Passeig de la Bonanova, 47, 2n 08017 Barcelona. España T. + 34. 93. 567. 88. 51 medpatrimonia@med.es
SWITZERLAND And Private Wealth, S. A.
Asset Management Company Place du Molard, 3 1204 Genève. Suisse T. +41. 228. 183. 940 info.apw@andpw.com
THE BAHAMAS
USA
Andbank (Bahamas) Limited
Andbanc Wealth Management, LLC
Banking License 2nd floor, One Montague Place East Bay Street P.O. Box AP 59223, Slot 417 Nassau. The Bahamas T. +1. 242. 394. 70. 90 info.bahamas@andbank.com
Holding 1221 Brickell Avenue, Suite 1550 Miami, FL 33131. USA T. +1. 305. 702. 06. 00 info.miami@andbank.com
Andbanc Brokerage, LLC
Representative Office
Brokerage Firm 1221 Brickell Avenue, Suite 1550 Miami, FL 33131. USA T. +1. 305. 702. 06. 00 info.miami@andbank.com
Montevideo Office
Andbanc Advisory, LLC
URUGUAY AND PB Financial Services, S.A.
Dr. Luis Bonavita 1266 Torre IV - oficina 1901 11300 Montevideo, Uruguay T. +598. 262. 868. 85 info.uruguay@andbank.com
Punta del Este Office Edificio Calypso Apto. 002 Rambla Artigas entre Calle 15 y Calle 17 Punta del Este, Maldonado, Uruguay T. + 598. 262. 446. 56 info.uruguay@andbank.com
Quest Capital Advisers Agentes de Valores, S.A. Portfolio Management and securities agency WTC Free Zone Dr. Luis Bonavita 1294 of 20 11300 Montevideo, Uruguay T. +598. 262. 623. 33 info@questadvisers.com
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Asset Management Company and Investment Advisor 1221 Brickell Avenue, Suite 1550 Miami, FL 33131. USA T. +1. 305. 702. 06. 00 info.miami@andbank.com
Headquarters in Andorra
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