The executive board of the Principality has not been able to restore confidence in the financial sector, after that the Andorran banking lived its greatest moment of difficulty…
With a low approval – almost at the limit – the rating agency Standard & Poor’s (S&P) maintains the rating of long-term debt of Andorra at BBB- with a stable outlook, which is not good news, after the banking crisis experienced during the last two years. This would be aggravated by the agreement of automatic exchange of tax information that traded into force on 1 January, contrary to what many financial analysts believe.
Not to mention that the Andorran banking closed 2016 with a net attributable profit of 156 million euros, 7% less than in 2015, and a total volume of managed resources of 45.514 million, 0,7% more than in the previous year.
The Andorran financial sector, that includes the entities Andbank, Grup Credit Andorra, Mora Banc, Banc Sabadell d’Andorra and Vall Banc, operated last year in a negative environment that affected the financial margin, as well as rising costs resulting from the adaptation to the new regulatory framework of the European banking sector.
The fact that the BPA case has adversely affected the banking system of the country of the Pyrenees, the homologation with international practices will represent a challenge for the competitiveness of the financial sector at medium term. The agency has nuanced again that the country would suffer in the event that the legal cases arising from the BPA matter, will result in compensation costs for the Government, which could amount to 360 million euros, almost the annual budget of the Government.
The increase of 1% of GDP in 2016, as a result of the pulverizing of the financial system, and the loss of key markets for Andorra, such as Spain, along with the failed negotiations with financial institutions, such as the International Monetary Fund, have only increased the fear of foreign investors. Investors who now have stopped to see the market as something attractive.
In the face of the regulatory changes made by Andorra in recent years in the field of the “transparency”, the clients have shown distrust and the Andorran government has not been able to mitigate a potential flight of savers.
The Andorran banking lived its greatest moment of difficulty two years ago, when the BPA was intervened by the government, after the United States announced that it was investigating the entity for allegedly channelling funds from organized crime. However, the number of measures promoted by the executive board of the Principality, has not been able to restore the confidence in this sector, which accounts for approximately 21% of the country’s GDP.
It is known that the entities have all this year to identify all clients with balances of over one million euros and one additional year to register to rest, leaving in the hands of the authorities what to do with the clients who refuse to provide the requested information. In the first half of 2018, Andorra will begin to send the information to the rest of the countries of the previous financial year.
The impact that the automatic exchange of information could have in volume of clients would be negative, since the latest figures from the Spanish tax authorities, as of 2015, show that since 2012, the assets of the Spaniards in Andorra has fallen by 700 million euros.
On the other hand, the Madrid native César Goyache, after having been signed by the Government of Andorra to lead the new body of resolution of financial institutions, AREB – created professed after the BPA scandal -, disqualifies a priori the Andorran financial market to the highest degree when he claims that BPA was a systemic problem, as it represented 20% of its banking.
The arrival of J.C. Flowers, when buying Vall Banc, did nothing to improve the weakened economy of Andorra, which is far from being a competitive open and transparent financial market. There are still many doubts about the effectiveness of the agreements of the automatic exchange of information signed with other countries, despite the fact that the Andorran banks are now at a surveillance level as high as or higher than that of any European market.