Page 105 - Economic report 2020

continual adaptation to international banking standards and investments in technology have
continued to put sector profits under pressure.

The business model of the banking institutions shows their resilience and sustainability. On the one
hand, the three banks together present return on equity (ROE) of 7.57%, in line with the average
return of European banks in the same period, with an increase of 153 base points since 2021. Also
the return on assets, or ROA, improved since 2021 and reached 0.66%, higher than the European
average (0.52%).

On the other hand, Andorran banks remain sound with strong capitalisation, with a CET1 (phase-
in) solvency ratio of 15.76% on 31 December 2022, slightly below the previous year, when it was
17.0%, but above the European banks average, which is 15.3% according to data from the EBA
(European Banking Authority). This ratio was affected by the corporate transactions that occurred
this year in the Andorran market.

The liquidity coverage ratio (LCR) is 201%, also higher than the European banks average, which was
164.7% at the end of the fourth quarter of 2021, and similar to the 206% recorded in Andorra in
2021. Finally, in 2022, the trend in the default rate continued to fall, despite the Euribor increase,
to 3.28% at the end of 2022 (3.74% in 2021 and 4.49% in 2020).

The financial sector is also socially responsible, as demonstrated by the sectoral agreement that
was reached on 16 December 2022, approving the possibility of deferring mortgage payments
for two years, whenever household income does not exceed €32,000, mortgage payments are
more than 30% of household income, and loan fees have risen by at least 30% due to the rise in
interest rates. Andorran banks also collaborate with the Government in implementing the special 103
public guarantee programme for purchasing a first home, through which it guarantees 20% of the
value of the mortgage requested by a citizen.

Overall, the figures confirm the resilience of the banking sector to the tensions suffered in recent
years and the culmination of corporate transactions, which have enabled the sector to be more
internationally competitive and open, to cope with future challenges.

The Moneyval reports, which highlight the great advances that this country has made in preventing
money laundering, acknowledge Andorra’s commitment to combatting money laundering and
terrorism financing. Specifically, in the last monitoring report, published in November 2021, the
Principality of Andorra improved its Recommendation 8 rating, relating to non-profit organisations,
to “LC” (largely compliant), and was also reassessed for Recommendation 15, relating to new
technologies, in which it was rated “PC” (partially compliant).

Also remember that on 12 February 2016, the Principality of Andorra and the European Union
(EU) signed an agreement for the automatic
exchange of information in tax matters (AEOI), Croatia, the Czech Republic, Monaco
which came into force on 1 January 2017. and Iceland have signed agreements
Today, Andorra exchanges information with
95 jurisdictions. with Andorra to avoid double taxation Andorran economy: developments in the main sectors | XII. Services
and prevent tax evasion.
In recent years, the Principality of Andorra has
signed a series of double taxation agreements (DTA) with several countries, to avoid double
taxation on income and corporate tax and prevent tax evasion. In 2022, it signed agreements
with the Republic of Croatia, the Czech Republic and the Principality of Monaco. In the first few
months of 2023, it signed one with Iceland and is due to sign others with the Republic of Korea,
the Netherlands and Belgium. These countries join the other ten with which Andorra has already