RNS Number : 8417V
Credit Andorra Preference Ltd
03 June 2008
Financial statements
CRDIT ANDORR� S.A.
The growth of the world economy in 2007 exceeded all expectations to reach 4.7% in spite of the high volatility in the last half-year
when the subprime mortgage crisis set off a period of financial instability at the international level. The main engine behind this growth
was vigorous economic activity in the emerging countries, notably in China, India, Russia and Brazil.
The United States showed signs of slowing down all through 2007, which leads us to predict a scenario of slow growth over the short
term. The Japanese economy grew in 2007 but all forecasts for 2008 are for a slowdown.With regard to Europe, while prospects are not
particularly optimistic, it is expected that the effect of the financial crisis will be less than in the United States. In fact, it is
estimated that 2008 will see a 3.3% increase in the GDP of the world economy and around 1.8% in the Euro Area, a less expansionist scenario
than was expected some months ago. In this general environment, following uninterrupted growth since the beginning of the Nineties, the
overall economic situation in Andorra now offers somewhat less favourable prospects.
Our commitment to serve our customers and our country is what led to the growth of our Group this past year. The consolidated balance
sheet of the Crit AndorrGroup as at December 31, 2007, shows a good year-end both in volume of business and in results, which made it
possible for us to maintain our leadership in the Andorran market with a 37% market share.
Customer resources managed amounted to 10,283 million euros. Loan investment rose by 12.6% to reach the figure of 2,750 million euros
and, as a result, our total volume of business was up by 2.6% going to 13,033 million euros.
Ordinary margin was 240.7 million euros, 7.6% more than in the year. This growth was possible thanks to an
increase of 18.9% in the financial margin and maintenance of the figure for commissions generated, which
amounted to 149.5 million euros.
The operating margin was 145.8 million euros, an increase of 11.8% over the year before, giving us an excellent efficiency ratio of 22%.
As a result, consolidated net profit of Crit AndorrGroup, after applying a prudent policy of provisions, came to 128 million euros, 5.5%
more than the year before. Our solvency and liquidity ratios, at 18.84% and 60.46% respectively, continue to be well above legally
established minimums.
The good results achieved, our Group's corporate social responsibility policy, the excellent management applied in successfully carrying
out the process of integrating CaixaBank with no reduction in staff, along with our growth strategy and the beginning of a process of
internationalization all helped us to win (for the fifth time in six years) the prize awarded by The Banker, the financial magazine
published by the Financial Times group, making us "2007 Andorran Bank of the Year".
Crit Andorrmust anticipate the future and, in keeping with this, we have set in motion a new Strategic Plan 2007-2010 which has as its
basic aims the strengthening of our competitive position in traditional business, growing through the development of new business and adding
to our international expansion.
In this respect, we should especially mention the establishment of Valira Capital Asset Management SGIIC, SA, a company located in
Madrid, Spain, in which Crit Andorrholds a 60% share of capital. This is the first time that the the Spain's National Securities Commission
(CNMV) has authorized operation of this type for an Andorran financial entity.
With this new project, Crit AndorrGroup strengthens its progressive international expansion, along with other initiatives already
consolidated, such as Private Investment Management, a property management company in Switzerland and Crediinvest SICAV, located in
Luxembourg.
One of the basic tools for carrying out the strategic plan is to be found in information systems and this led us to develop the Systems
Plan 2007-2010 aimed at creating a new model for managing technology at Crit Andorr through "core banking" system and improving the
organizational model and internal communications. This is an essential investment to enable us to meet the challenges facing us in the
future and to deal with them equipped with the best abilities and resources.
We should also mention that Crediinvest, the investment fund management company of Crit AndorrGroup, obtained the ISO 9001:2000
certificate for the quality management system introduced in all processes related to the creation, management and administration of
investment funds. Along with the GIPS (Global Investment Performance Standards) certificate, this establishes solid bases in line with the
best practices in asset management.
Our commitment to social responsibility led us to continue working to make efforts to improve relations with our customers, with our
staff and with Andorran society in general, both by Crit Andorrand through our Foundation. Our total investment in social programmes in 2007
represented 1.13% of profits.
With regard to our commitment to the environment, for the third year in a row we have renewed our UNE-ISO 14001:2004 certification with
a very positive evaluation of the degree of awareness achieved by all our staff. We applied part of our budget to environmental investment
and other initiatives aimed at preserving and conserving our environment, as well as raising the sensitivity and awareness of all citizens.
This commitment is also carried out through the sustainable products and services we provide so that our customers can feel they form part
of the values and commitments our Entity maintains with both the general society and the environment.
With twenty years of experience and devotion to social welfare, Crit AndorrFoundation continued this work all the while opening up new
areas of activity with projects of great significance for the community.
Inauguration of L'espai, a new centre for social activities and education for the elderly opened by Crit Andorr Foundation, was the most
notable project in the field of social welfare. We continued to give our support to programmes dealing with illnesses having great social
impact, with the addition of celiac disease. We also opened up new areas of support for the National Programme on Nutrition, Sport and
Health established by the Government, as well as signing a collaboration agreement with Andorra Special Olympics.
With regard to educational programmes, the Foundation celebrated its 20th call for scholarships bringing the
number of young students who have been able to study at some of the world's finest universities to 153 in all. Under the agreement with
the University of Andorra, we should point out the setting up of a new programme for the training of midwives.
In the cultural sphere, the Andorra National Theatre Foundation, of which we are patrons, was able tomount its first theatrical
productions. We continued to give our support to music aimed at a wide public through the ONCA Foundation (Andorra National Classical
Orchestra).
As Andorra's leading financial group, the challenge ahead of us is to consolidate our image as a sustainable
corporation with a fine reputation for respecting the spirit of service, along with the constant improvement that has always been our
distinguishing mark. We are committed to become closer to our customers and serve them better each day, as well as serving our country. It
is our commitment to continue as a bank of reference and a bank worthy of trust.
The Board of Directors
Establishment and Domicile
The Bank is domiciliated in Av. Meritxell,80, Andorra la Vella, Principality of Andorra, telephone number +376 875 700.
Legal Form
The Bank was registered as a bank in the Principality of Andorra on 29th December, 1949. It is a limited liability company under
Andorran law registered for an indefinite term by the Departament of Comerof the Andorran Ministry of Economy, under number 1673 - Book B-I
- page 70.
Shareholders
Pintat Mas Family
22,23%
Employees of Crit Andorr
21,00%
Maria Reig i Moles
20,00%
Pintat Santolaria Family
12,05%
Casal Vall Family
8,56%
Casal Mor Family
7,79%
Other Andorran families (less than 3%)
8,37%
Statutory Auditors
The auditors of the bank are Ernst & Young Ltd. (Geneva) who were appointed to audit the accounts of the bank for a period of 5 years,
up to and including the financial period ending on 31st December 2007. Auditors have not resigned, been removed or re-appointed during the
period covered by the historical financial information contained herein.
Risk control and management
The management and control of risk has always been a priority objective of Crit Andorrand, with this in view, we have developed the
necessary infrastructure, internal methods and controls.
Policy and limits on risk are established and supervised by a committee called the Assets, Liabilities and Risks Committee (with
functions equivalent to those of ALMCO, Assets and Liabilities Management Committee) which meets at least monthly. Among other functions,
this committee approves risk policies affecting the management of assets and liabilities of the entity and management mandates. At the same
time, the committee sets and revises the limits of balancing entries with banks and supranational entities and/or private entities. With the
aim of avoiding a concentration of risk, it also establishes limits for issuers of financial instruments whether within or outside the Crit
Andorrbalance sheets.
All steps taken by this committee bear in mind the rules of ANIF, the Andorran national body that carries out the tasks of regulation,
control and supervision of the country's financial activity and new regulatory trends, in compliance with the directives of the New Basle
Capital Accord which puts emphasis on the increasing sensitivity to risk and risk management.
The Department of Corporate Risk Control, under the supervision of the Assets, Liabilities and Risks Committee, is charged with
measuring, controlling and monitoring of market risk, credit risk, interest rate risk and currency risk, and operational risk, as well as
the evaluation of exposure and keeping to assigned limits. It also ensures the introduction and maintenance of the necessary data-processing
support for correct risk management.
For some years, without putting aside conventional methods of risk control, Crit Andorrhas applied Value-at- Risk (VaR) methodology in
all areas of risk management. By means of statistical and stochastic techniques, VaR provides a measurement of risk. Formally, VaR is a
synthetic figure that indicates the maximum loss to be expected for a specific interval of confidence in the value of a portfolio over a
fixed time span.
Management of market risk
The market VaR is calculated daily for a time-scale of one day and with a confidence interval of 95% for portfolios of the entity as a
whole. A detailed report indicating the VaR, with various time-scales and confidence intervals, is periodically sent to members o the
Executive Committee and the Assets, Liabilities and Risks Committee. These VaR measurements, along with others, provide a test of integrity
and consistency. During this period, the average daily VaR for share portfolios, calculated with a 95% interval of confidence and a
time-scale of one day, was 34.6 thousand euros with a maximum and minimum of 68.6 thousand euros and 5.6 thousand euros respectively, which
was below the authorized risk limit of 200 thousand euros.
For the securities portfolios as a whole, the average daily VaR, calculated at a 95% level of confidence, was 449.9 thousand euros with
a maximum and minimum of 988.5 thousand euros and 150.4 thousand euros respectively, as compared with the authorized risk limit of one
million euros.
An analysis of this report is supported by Backtesting tests. In 2007, Backtesting showed that both gains and losses were in line with
confidence intervals. The daily VaR for the share portfolios as a whole, with a 95% level of confidence, was exceeded by 5.75% of all cases
throughout 2007, compared with the expected 5%. For investment portfolios as a whole, the daily VaR, with a 95% confidence level, was
exceeded in only 4.6% of cases during the year in line with what was statistically expected.
Management of credit risk
At the end of 2007, of the total exposure to credit risk, interbank deposits represented 26%, the securities portfolio represented 12%,
while customer loans accounted for the remaining 62%.
With regard to interbank deposits and the securities portfolio, Crit Andorralso introduced the loan VaR as a management and control
tool. This calculation is carried out by applying the so-called "CreditManager" programme developed J.P. Morgan. Crit Andorrfollows the loan
VaR with a time-scale of one year and a confidence interval of 99%.
At year-end, the loan VaR for the securities portfolio and interbank deposits was 5,602.7 thousand euros out of a total risk exposure
1,338,202.6 thousand euros. This loan VaR is below the risk limit of 7,000 thousand euros set by the Assets, Liabilities and Risks
Committee. In other words, this loan VaR level would be equivalent to having a portfolio with an AA rating.
Under credit risk, special attention is given to balancing-entry risk and country risk. These risks are regularly
monitored always keeping within established limits.
Management of interest rate and foreign currency risk
Crit Andorrhas traditionally paid special attention to maintaining a very strict relation between investment and how it is financed. For
this reason, the Assets, Liabilities and Risks Committee has not set any ordinary limit for the establishment of open positions and
therefore any gap not in keeping with the normal development of daily operations must have prior authorization.
The control of these risks is maintained through the "ALM II" programme. Exposure to interest rate risk as a consequence of gaps between
investment and financing is very limited. In fact, at the end of 2007, a displacement parallel to the interest rate curve of all currencies
of 1% would have had an impact of less than 0.80% of shareholder equity.
Liquidity risk, understood as that risk arising from any difficulty the entity may have in meeting its payments or in obtaining funds
for that purpose, is handled through the management tools mentioned above.
Foreign currency risk is also subject to daily monitoring, both with regard to at-sight transactions and those at term. At year-end, the
open position in foreign currency risk, consolidated in euros, amounted to 2,228.2 thousand euros, as against the established limit of 5
million euros.
Management of operational risk
The Basle Committee defined operational risk as the risk of direct or indirect loss caused by errors and omissions in processes, by
persons and internal systems or by outside events.
Crit Andorrkeeps on developing the organizational structure and the establishment of the capacities needed to ensure the full adaptation
of the Basle Capital Accord in so far as it refers to the measurement and management of operational risk, gathering under general banking
risk management the development of procedures for identification, monitoring and control with the aim of minimizing possible impacts. It is
planned to continue working on the development of an historic data base of events and on the development of a qualitative tool - Risk Map -
for measuring the frequency of the impact of this risk and to improve the necessary controls and hedge positions.
Compliance with regulations
Law on regulation of solvency and liquidity of financial entities
At its session held on February 29, 1996, the General Council of the Principality of Andorra approved the Law on Regulation of Solvency
and Liquidity of Financial Entities (hereinafter referred to as "the Law").
In accordance with the Law, Crit Andorrmust maintain specific ratios with regard to quantitative measurement of the amounts of assets,
liabilities and certain off-balance-sheet records of the Bank calculated under accounting criteria as well as qualitative opinions on the
various components, valuation of risk and other factors.
This Law makes it obligatory to maintain a solvency ratio, made up according to the recommendations of the "Basle Committee on Banking
Supervision", with a minimum of 10% of the weighted risk of assets. It also obliges financial entities to maintain a liquidity ratio at a
minimum of 40%.
The solvency and liquidity ratios as at December 31, 2007 are set out below with a comparison of the legal requirements mentioned
above:
Bank's current ratio Legal minimum ratio
2007
2006
Solvency ratio 18.84% 10%
20.94%
Liquidity ratio 60.46% 40%
57.22%
We should mention that the calculation of the solvency ratio is made according to ANIF Memorandum No. 159/04 on Equity Requirements.
This memorandum, which is technically binding, complements the Law on Regulation of Solvency and Liquidity of Financial Entities, dated
February 29, 1996 and is designed to foster greater security and stability of Andorran financial system through the incorporation of hedging
of market risks.
In addition, the Law limits the concentration of risks in favour of any one beneficiary to 20% of the Bank's equity. On the other hand,
it establishes that the concentration of risks that individually exceed 5% of equity cannot go above the limit of 400% of such equity. At
the same time, the balances or transactions maintained with members of the Board of Directors cannot go above 15% of equity.
During the current year, the Bank met the requirements set out in this Law. The highest concentration of risk reached in favour of any
single beneficiary was 19.91% of the Bank's equity. Total loans, discounts and other transactions creating individual credit risk in excess
of 5% of the Bank's equity did not go above 73.92%.
Law on international cooperation on crime and the fight against laundering of money or securities arising from international
delinquency
At its session on May 14, 2002, the General Council of the Principality of Andorra approved the Law on Protection of Bank Secrecy and
the Prevention of Laundering of Money or Securities arising from Crime, a law in operation until July 24, 2001 when the current Law on
International Cooperation on Crime and the Fight against Laundering of Money or Securities arising from International Delinquency came into
effect.
In compliance with these laws, the Bank has established a series of internal control and reporting procedures aimed at protecting bank
secrecy and to foresee and to prevent money-laundering operations. In this respect, specific training programmes have been carried out.
Law on indirect taxation on banking and financial services
At its session on May 14, 2002, the General Council of the Principality of Andorra approved the Law on Indirect Taxation on Banking and
Financial Services. This Law came into force in 2002 and its object was to levy tax on services provided by banking entities.
Subsequently, on July 10, 2002, the Government of Andorra approved the regulations related to the abovementioned law.
On February 21, 2005, the General Council of the Principality of Andorra approved the Law to Modify the Indirect Tax Rate on Banking and
Financial Services raising the rate from 7% to 12%, applicable as of April 1, 2005. Later, on March 30, 2005, it approved the amended
regulations related to the above law.
Accrued expenses for indirect tax on banking and financial services in 2007 amounted to 18,805 thousand euros (2006: 18,637 thousand
euros), recorded under the heading "General expenses - Taxes" in the profit and loss account.
Law to Apply the Agreement between the Principality of Andorra and the European Union on taxation of returns on savings in the form of
interest payments
At its session held on February 21, 2005, the General Council of the Principality of Andorra ratified the Agreement between the
Principality of Andorra and the European Union on the establishment of measures equivalent to those foreseen in Directive 2003/48/CE issued
by the European Council with regard on taxation of returns on savings in the form of interest payments. Also, at its session on June 13,
2005, it approved the Law to apply the abovementioned Agreement.
During the year, Crit Andorra SA, in its role as payment agent, fulfilled all the obligations set out in the Agreement and the Law
dealing with its application and duly paid the amount withheld as established in the abovementioned legislation.
Significant events following year-end
With the coming into force of Law 20/2007 on accounting in public limited companies and limited liability companies approved on October
18 and Law 30/2007, on business accounting approved on December 20, no change or significant effect is foreseen for the companies within the
consolidation perimeter of the Group.
Other matters of interest
Crit AndorrSA established the Fundacirit Andorrregistered in the Principality of Andorra on December 15, 1987, for an indefinite period
of time. The Foundation has its own legal identity, Andorran nationality and is of a private nature.
This Foundation, which is a non-profit body, has as it objective to contribute to improving the quality of economic, cultural and social
life in Andorra through taking on, programming, funding and carrying out of specific aims. Among these aims, we should especially mention
the granting of study scholarships to those who deserve them in order to help them obtain the best possible education in whatever areas that
may have an influence on the bettering of the economic, scientific, educational, cultural and services structure of the country.
In 2007, always with the aim of adapting its work to the needs of the country, three major areas were the target for activities carried
out by the Crit AndorrFoundation. These included its social work programmes, especially those aimed at the elderly and organizations dealing
with the disabled. Another key area was in educational activities, particularly in the granting of scholarships. It was also involved in
cultural activities, dealing with pedagogical aspects and all those areas directly related to the country, its history and its natural
environment.
Share capital
Share capital is represented by 790,000 shares "A" series and 210,000 shares "E" series, each of 70 euros, fully subscribed and paid up.
Both series have the same economic and policy-making rights, the latter series being syndicated.
Management
Board of Directors
Chairman: Mr. Antoni Pintat i Santolia
Deputy-Chairman: Mr. Jaume Casal i Mor
Secretary - CEO: Mr. Josep Peralba i Dur
Members: Ms. Rosa Pintat Santolaria
Ms. Maria Reig i Moles
Mr. Josep Vidal i Mart
Executive committee members
Mr. Josep PERALBA DUR Chairman and CEO
Mr. Xavier CORNELLA GRAU General Management Group Division Director
Mr. Josep BRUNET NIU Global Insurance Division Director
Mr. Xavier CORNELLA CASTEL Financial Division Director
Mr. AgustGARCIA PUIG General Secretariat Director
Mr. Frederic GIN DUIMENGE Loan Division Director
Mr. Ramon LLADOS BERNAUS Manufacturing and Human Resources Director
Division
Mr. Josep Lluis GRASA JORDANA Risk Management Division Director
Mr. Xavier RUIZ SENA Banking Business Division Director
Mr. MartTREMOSA FIT Information Technology Division Director
Legal reserve
In compliance with legal and statutory requirements, a legal reserve of 10% of share capital was established.
Guarantee reserve
In accordance with Andorran legislation passed in 1995, Crit AndorrSA has established a guarantee reserve for deposits and other
operational obligations of 33,063 thousand euros (2006: 33.063 thousand euros). This reserve cannot be distributed.
Revaluation reserve
This reserve, amounting to 13,934 thousand euros (2006: 13,934 thousand euros) corresponds to the revaluation of buildings for own use
(see Note 3.9).
Consolidation reserves
Consolidation reserves correspond accrued profits in previous years of Group companies forming part of the consolidation perimeter from
the date of their acquisition or constitution up to December 31, 2007 that have not been distributed as dividends.
Subordinated liabilities
On October 26, 2005, the ANIF Board of Governors agreed to authorize the issue of preference shares by Crit AndorrPreference Ltd. to be
accounted for as Tier 1 type regulatory capital of Crit AndorrGroup, given that, on the one hand, these preference shares met the conditions
so that, at the international level, this type of share could be considered as equity of first category (Tier 1). This did not imply
renouncing one of the strong features of the Andorran financial system when it comes to protecting itself abroad, which always involves
following the most conservative criteria of all those established at the international level. On the other hand, the other components of the
equity of Crit AndorrSA continued to represent around 80% of the Group's total shareholders' equity.
In accordance with this ANIF authorization, on December 22, 2005, Crit AndorrPreference Ltd. carried out an issue of 100 million euros
in preference shares, without voting rights and with a specified annual dividend of 5% in the first three years following issue and then
variable annually with reference to the CMS 10-year rate plus 30 basis points, for the number of days during the year when the CMS 10-year
rate is equal to or higher than the CMS 2-year rate.
On January 25, 2006, the ANIF Board of Governors agreed to authorize an increase in the preference share issue by Crit AndorrPreference
Ltd. amounting to an additional 50 million euros to be accounted as Tier 1 type regulatory capital of Crit AndorrGroup, given that the other
components of the equity of Crit AndorrSA continued to represent around 70% of total shareholder equity of the Group. These preference
shares are identical in nature to those of the first issue apart from price.
Crit AndorrPreference Ltd. is a wholly-owned subsidiary of Crit AndorrSA and the issue mentioned has the joint and several and
irrevocable guarantee of Crit AndorrSA, as indicated in the corresponding information folder for the issue.
In addition, this issue has received the necessary ANIF qualification so that it may be fully computed as basic equity of the Group.
This issue of a perpetual nature was fully taken up by third parties outside the Group and may be fully written off should the issuing
company so decide, and with authorization of ANIF, after a period of six years following its being paid up.
This year, Fitch Ratings gave these preference shares issues an A- rating.
Statement
Crit AndorrGroup
Euros (thousands)
ASSETS 2007 2006 (*)
Cash and deposits with OECD central 19,349 32,266
banks
Deposits with Andorran National 46,245 46,245
Institute of Finance (ANIF)
Financial intermediaries 1,210,077 1,075,878
Financial intermediaries at sight 73,481 91,216
Due from banks on time deposit 1,142,305 989,610
Provision for insolvencies -5,709 -4,948
Loan investments 2,732,012 2,429,826
Customer loans and credits 2,602,980 2,285,741
Overdrafts on customer accounts 112,353 117,809
Bills discounted 35,103 40,056
Provision for insolvencies -18,424 -13,780
Securities portfolio 528,632 438,185
Bonds and other fixed-income 418,895 340,490
securities
Provision for insolvencies -2,344 -1,686
Provision for market fluctuations -5,563 -
Investments in Group companies 18,747 13,730
Other investments 25,182 20,019
Provision for market fluctuations - -
Shares and other equity securities 14,948 14,672
Provision for market fluctuations -2,109 -2,109
Investment funds 60,876 53,069
Consolidated goodwill 136,968 156,534
Consolidated goodwill 195,668 195,668
Accumulated amortization -58,700 -39,134
Intangible assets and expenses to 12,710 12,335
be amortized
Intangible assets and expenses to 43,889 38,840
be written off
Accumulated depreciation -31,179 -26,505
Fixed assets 111,545 111,955
Fixed assets 218,686 212,574
Accumulated depreciation -105,191 -98,669
Provision for depreciation -1,950 -1,950
Accrued income and prepaid expenses 80,277 41,429
Accrued income 79,563 41,364
Prepaid expenses 714 65
Other assets 32,313 21,487
Operations in course 27,759 16,230
Stock 552 555
Options purchased 4,002 4,702
Total assets 4,910,128 4,366,140
(*) Shown solely for purposes of
comparison.
Euros (thousands)
LIABILITIES 2007 2006 (*)
Andorran National Institute of 63,217 62,085
Finance (ANIF)
Creditors 3,943,713 3,413,776
Due to banks and lending 122,173 155,069
institutions
Customer deposits 3,821,540 3,258,707
Bonds issued 16,312 12,318
Provision for risks and 2,918 27,825
contingencies
Provision for pensions and similar - 25,324
obligations
Provision for contingent 912 893
liabilities
Other provisions 2,006 1,608
Provision for general banking risks 64,620 68,619
Subordinated liabilities 150,000 150,000
Accrual accounts 37,656 37,930
Accrued expenses 36,431 36,845 36,431 36,845
Deferred income 1,225 1,085 1,225 1,085
Other liabilities 37,458 30,257
Operations in course 19,526 14,707
Options issued 2,885 3,622
Suppliers and other creditors 15,047 11,928
Share capital 70,000 70,000
Reserves 448,233 421,959
Legal reserve 7,000 7,000
Guarantee reserve 33,063 33,063
Voluntary reserve 361,196 346,131
Revaluation reserve 13,934 13,934
Consolidation reserve 33,040 21,831
Income 76,001 71,371
Income for year 128,001 121,371
Income from previous years awaiting - -
allocation
Dividends paid out in advance -52,000 -50,000
Total liabilities 4,910,128 4,910,128 4,366,140
4,366,140
(*) Shown solely for purposes of
comparison.
This information is provided by RNS
The company news service from the London Stock Exchange
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