Comparative summary of financial data for the last two years Crèdit Andorrà Group
2012 2011
Key balance sheet figures (Amounts shown in thousand euros)
Cash and at banks 409,799 430,353
Loan investments 3,101,781 3,112,228
Customer deposits 4,454,875 4,315,606
Securities and other instruments on
deposit with third parties (*) 5,568,125 4,696,938
Securities managed by group companies
and held in custody by third parties 1,285,714 1,074,452
Total 6,853,839 5,771,390
Ratios (%)
Equity / Deposits 11.81 11.38
Equity / Loans 16.96 15.78
Loans / Deposits 69.63 72.12
Profits / Average capital + Reserves 14.52 14.79
Profits / Average total assets: ROA (**) 1.27 1.36
Solvency 17.80 17.39
Liquidity 59.35 51.81
Efficiency (Operating Costs /
Ordinary margin) 50.77 48.56 Other figures Number of employees 662 609 Number of branches 12 16 Fitch Ratings Long-term A– Short-term F2 Individual B/C Support 5
(*) See note 19 of Annual Report. (**) As per ANIF Memorandum 141/02.
Contents
Comparative summary of financial data for the last two years
Introduction
Letter from the Board of Directors 74
Governance structure 76
Financial statements Crèdit Andorrà Group
Consolidated balance sheets 78
Consolidated off-balance-sheet records 81
Consolidated profit and loss account 82
Consolidated statement of source
and application of funds 84
Notes on the consolidated financial statements 86
Auditors’ report 140
Introduction
According to the IMF, in 2012 the world as a whole had an economic growth index of 3.2%. Nevertheless, since 2007 it can be seen that not all countries have followed the same course or enjoyed the same rate of growth. The United States and China continue to lead the recovery process in international demand and it the engine for growth is clearly moving towards the Pacific and the emerging economies, compared with moderate growth in the developed economies. The two most decisive factors in the eurozone have been: the crisis in the single currency area and intervention on the part of central banks, applying expansionary monetary measures and maintaining low interest rates in order to adjust the sovereign debt markets. The ultimate aim has been to make monetary and fiscal union more stable. The debt crisis in periphery countries such as Greece, Portugal, Ireland and Spain has continued to dominate the political agenda, resulting in a technical recession in the last quarter of 2012.
The United States, with a much more vigorous economy, has ended the year with moderate growth of 2.2%, thanks partly to increased activity due to an upswing in private consumption, improvements in the stock cycle and investment in the construction industry. It still has a positive growth forecast for 2013 in spite of the uncertainties caused by its fiscal policy.
This moderation in economic growth has also affected the emerging countries, which started 2013 with great optimism but have had to curb their expectations like the rest of the economies.
In Andorra, it has been necessary to establish measures to diversify our economic and boost growth. To this end, policies have been promoted to attract foreign investment and some structural reforms have been started to bring us in line with European standards.
With regard to the measures approved in Andorra’s new tax framework, corporate tax has now come into force, complementing the taxes on economic activity and on the income of individuals not resident for fiscal purposes. In the institutional sphere, OECD Model Tax Convention on Income and on Capital are being negotiated with France and Spain, politically crucial to boost our economy as they will offer greater legal security for foreign investors and will be of great help towards internationalising our country’s firms.
Work is on schedule to implement the Monetary Agreement and to adapt to the Basel III requirements, a horizon that brings us in line with the best practices and standards of international finance. The finance industry’s growth beyond our own borders is also continuing to be relevant.
With regard to the Crèdit Andorrà Group, we have maintained our leadership and market share in Andorra’s financial sector. In 2012, we increased our presence and business in new geographies, consolidating our international project.
Our solvency ratio is 17.80% and our liquidity ratio is 59.35%, both above the legally established minimums of 10% and 40%, respectively. The consolidated balance sheet for the Crèdit Andorrà Group as at December 31, 2012 shows a total business volume of 14,410 million euros, representing a 9% increase on the previous year. Total assets under management stand at 11,308 million euros, 12% more than in 2011, and loan investments total 3,102 million euros. Within a complex economic situation, we have significantly increased all our business margins. Total operating income reached 195.64 million euros, a considerable increase of 12.14% on 2011; the financial margin was 76.46 million euros, 13.30% more; and the net profit from operations came to 74.61 million euros, up by 8.41% compared with the previous year. In spite of our Group’s international expansion, the efforts made to contain spending have given us a healthy efficiency ratio of 50.77%. Finally, after having applied a prudent and conservative policy of provisions for insolvency, the Crèdit Andorrà Group recorded a consolidated net profit of 70.86 million euros, 0.33% higher than in 2011. Throughout 2012 we continued to make progress in implementing the Group’s international expansion plan with a greater presence abroad. The geographical diversification of our business in Private Banking, asset management
and insurance in Europe and America has provided us with sustainable growth and guaranteed strength as a leading group in the Andorran financial market.
We have reinforced our project of private banking and asset management in Europe (Spain and Luxembourg) with two strategic shareholders joining Banco Alcalá: the financial group Riva y Garcia, with 10% of the bank’s share capital, and the Ros González family with 5%. This operation has increased Banco Alcalá’s volume of business and improved its solvency ratio, now standing at 96%. It has also provided us with growth and experience in Spain’s private banking sector.
We must also mention the Group’s implementation in Peru and Paraguay. With the acquisition of 51% of the share capital of KRESE Sociedad Intermediaria de Valores S.A.C., based in Lima (Peru), and the purchase of 70% of the share capital of the Paraguayan firm Valores Casa de Bolsa S.A., two operations have been carried out that have helped us to expand and continue consolidating our presence in Latin America.
One of the objectives of the strategic plan was to grow our insurance business via a specific expansion plan in Spain for our holding ERM. In 2012 we opened a new branch in Lleida and now have an extensive branch network in Spain with branches in Barcelona, Madrid, Lleida, Girona, Tarragona, Seville and Palma de Mallorca.
The different distinctions and classifications received in 2012 are a reflection of Crèdit Andorrà’s prudent, conservative management, of our leading position in the Andorran market, our growing business in international private banking and positive developments in the Bank’s business margins. Fitch Ratings highlighted our solid solvency and liquidity by renewing our ratings, namely a long-term rating “A–”, a short-term rating “F2” and a support 5 rating. Further recognition came from The Banker, with our Bank ranked 757th in the world and number 1 in Andorra in the annual Top 1000 ranking, which classifies banks worldwide according to their strength and capitalisation.
All these results and distinctions, achieved in a year within a difficult environment such as the present, would not have been possible without the involvement and commitment of all those who form part of our team and who constitute our most important asset.
Regarding the social responsibility plan of the Crèdit Andorrà Group, we have supported projects that contribute to the country’s development. The Crèdit Andorrà Group has allocated 2.16 million euros overall (representing 3% of our total net profit) to programmes and actions aimed at achieving a better future for Andorra.
We have prioritised the main engines of the Andorran economy and provided direct support for the business world via the Crèdit Andorrà Chair in Markets, Organisations and Humanities at IESE, as well as other institutions in the country.
The will to serve the country and its people, which has always been present in the Crèdit Andorrà Group, is most clearly reflected in the Fundació Crèdit Andorrà, celebrating its 25th anniversary in 2012. Throughout its history, the Foundation has become the driving force behind our work for society. We have evolved side-by-side with people, the very essence of our community’s present and future.
To end this account, we would like to reaffirm our founding commitment to serve Andorra. The values that form the basis of the sustainability of a great national and international undertaking such as the Crèdit Andorrà Group are professionalism, security and trust. Our responsibility within the sector is to preserve these values and always take them into account for the benefit of our customers and shareholders.
Governance structure At December 31, 2012 BOARD OF DIRECTORS
Chairman of the Board of Directors
Antoni Pintat Santolària
Vice-Chairman
Jaume Casal Mor
Chief Executive Officer / Secretary
Josep Peralba Duró
Member of the Board
Rosa Pintat Santolària
Member of the Board
Maria Reig Moles
Member of the Board
Josep Vidal Martí
EXECUTIVE COMMITTEE MEMBERS Chief Executive Officer / General Manager
Josep Peralba Duró
Business General Manager
Xavier Cornella Castel
Private Banking International division Director
David Betbesé Aleix
Insurance group Director
Josep Brunet Niu
Commercial Banking division Director
Sílvia Cunill Calvet
Investment division Director
José Luis Dorado Ocaña
General Secretary to the CEO
Agustí Garcia Puig
Loans division Director
Frederic Giné Diumenge
Management Risk and Financial Planning division Director
Francesc Jordà Blanes
Resources division Director
Ramon Lladós Bernaus
Private Banking Europe division Director
Frank Martínez Sánchez
Private Banking America division Director
José Antonio Monreal Hurtado
Risk and Regulatory Compliance division Director
Andrés Roldán Cubas
Financial statements
Crèdit Andorrà Group
Consolidated balance sheets as at December 31, 2012 and 2011 Crèdit Andorrà Group
ASSETS
Euros (thousands)
2012 2011 (*)
Cash and deposits with OECD central banks 40,061 33,602
Andorran National Institute of Finance (ANIF) (notes 4 and 21) 210 210
Financial intermediaries (notes 4 and 5) 369,156 395,847
Financial intermediaries at sight 258,864 215,890
Due from banks on time deposit 110,874 180,861
Provision for insolvencies –582 –904
Loan investments (notes 4 and 5) 3,071,818 3,090,775
Customer loans and credits 3,079,454 3,084,980
Overdrafts on customer accounts 14,339 12,787
Customer bills discounted 7,988 14,461
Provision for insolvencies –29,963 –21,453
Securities portfolio (notes 4 and 6) 1,851,627 1,426,527
Bonds and other fixed-income instruments 1,762,319 1,358,488
Provision for insolvencies –3,897 –2,466
Provision for market fluctuations — –5
Investments in Group companies 22,201 8,262
Other investments 17,259 17,167
Provision for market fluctuations — —
Shares and other equity securities 10,158 11,635
Provision for market fluctuations — –11
Investment funds 44,494 33,751
Provision for market fluctuations –907 –294
Consolidation gains (note 7.1) 41,081 40,576
Consolidation gains 41,081 42,039
Accumulated amortisation — –1,463
Intangible assets and expenses to be written off (notes 2.5 and 7.1) 56,234 46,053
Goodwill 8,762 —
Intangible assets and expenses to be written off 78,570 87,264
Accumulated amortisation –31,098 –41,211
Fixed assets (note 7.2) 321,346 281,523
Fixed assets 439,875 417,663
Accumulated depreciation –110,407 –128,727
Provision for depreciation –8,122 –7,413
Accrued income and prepaid expenses (note 12.1) 55,063 55,840
Accrued income but not collected 54,710 55,096
Prepaid expenses 353 744
Other assets (note 12.3) 91,933 47,142
Operations in course 84,128 44,157 Stock 223 318 Options purchased 2,429 2,667 Other — — Taxes 5,153 — Total assets 5,898,529 5,418,095
LIABILITIES
Euros (thousands)
2012 2011 (*)
Andorran National Institute of Finance (ANIF) (note 4) 6,799 6,651
Creditors (note 4) 4,751,270 4,451,678
Banks and lending institutions 286,202 128,900
Other financial intermediaries 10,193 7,172
Customer deposits 4,454,875 4,315,606
Bonds issued (note 4) 370,821 206,610
Provision for risks and contingencies (note 8) 2,359 2,541
Provision for pensions and similar obligations — —
Provision for contingent liabilities 1,238 1,238
Other provisions 1,121 1,303
Provision for general banking risks (note 11) — 8,154
Subordinated liabilities (note 11) 150,000 150,000
Accrual accounts (note 12.2) 35,705 42,082
Accrued expenses 19,812 20,723
Deferred income 15,893 21,359
Other liabilities (note 12.4) 30,117 29,753
Operations in course 14,257 12,867
Options issued 1,667 1,781
Suppliers and other creditors 7,994 15,105
Taxes 6,199 —
Minority interest 5,380 4,463
Share capital (note 11) 70,000 70,000
Reserves (note 11) 425,216 410,535 Legal reserve 14,000 14,000 Guarantee reserve 42,505 39,311 Voluntary reserve 259,575 207,280 Revaluation reserve 109,351 109,351 Consolidation reserve 3 40,722
Exchange rate differences –218 –129
Income (notes 10 and 11) 50,862 35,628
Income for year 70,862 70,628
Income from previous years awaiting allocation — —
Dividends paid out in advance –20,000 –35,000
Consolidated off-balance-sheet records as at December 31, 2012 and 2011 Crèdit Andorrà Group
Euros (thousands)
2012 2011 (*)
Contingent liabilities 147,697 198,958
Guarantees given 145,703 196,981
Documentary letters of credit issued or received
with notification to customers 1,994 1,977
Commitments and contingent risks 420,099 418,688
Operating commitments and risks 390,470 391,831
Actuarial commitments and risks 11,696 11,747
Other contingent commitments and risks 17,933 15,110
Forward operations (note 15) 2,145,966 1,397,793
Forward foreign exchange transactions 1,435,259 767,515
Forward transactions on other financial instruments 710,707 630,278
Customer securities held in custody (note 19) 7,080,540 5,976,252
Securities held in custody by third parties 5,895,838 5,196,892
Securities held in own custody 1,184,702 779,360
Other off-balance-sheet records
exclusively for management control (note 19) 1,452,876 1,280,845
Guarantees and commitments obtained 512,247 412,294
Other off-balance-sheet records 940,629 868,551
(*) Shown solely for purposes of comparison.
Consolidated profit and loss account for years ended December 31, 2012 and 2011
Crèdit Andorrà Group
Euros (thousands)
2012 2011 (*)
Interest and related income 127,427 114,777
ANIF and financial intermediaries at sight 184 1,420
On loan investments 87,098 87,633
On bonds and other fixed-income securities 40,145 25,724
Interest and related expenses –51,452 –47,748
ANIF and financial intermediaries –5,917 –908
On customer deposits –33,743 –38,308
On bonds –7,629 –3,091
On subordinated liabilities –4,163 –5,441
On internal pension fund — —
Income from equity securities 484 442
From other investments — —
From shares and other equity securities 329 261
From investment funds 155 181
Financial margin 76,459 67,471
Commissions, net (note 12.5) 100,488 93,468
Commissions on services supplied 112,918 105,229
Commissions on services received –12,430 –11,761
Results of financial transactions 17,903 12,759
Net provision for market fluctuations (note 6) –622 –121
Foreign exchange earnings 5,375 5,299
Income from securities transactions 8,195 3,442
Income from forward transactions 14 –594
Share in losses / profits of companies accounted
for by equity method (note 2.3) 4,941 4,177
Other — 556
Other ordinary profit 792 764
Ordinary margin 195,642 174,462
(*) Shown solely for purposes of comparison.
Euros (thousands) 2012 2011 (*)
Ordinary margin 195,642 174,462
Personnel costs –48,856 –39,938
Personnel, Board of Directors and indemnities –38,597 –31,548
Social Security –4,300 –3,394
Ordinary allocations to other insurance institutions (notes 3.9 and 9) –2,976 –2,911
Other personnel costs –2,983 –2,085
General expenses (note 12.6) –50,464 –44,780
Supplies –934 –975
External services –32,084 –24,171
Taxes –17,446 –19,634
Depreciation expenses, net (note 7) –21,003 –20,209
Depreciation allowed on intangible and tangible fixed assets –21,003 –20,209
Provision for depreciation of fixed assets, net (note 7) –709 –707
Allocation of provision for depreciation of fixed assets –709 –707
Recovery of provisions — —
Operating margin 74,610 68,828
Losses due to asset impairment — —
Provision for insolvencies, net (notes 5 and 6) –9,692 –8,429
Allocations to provision for insolvencies –10,726 –9,208
Recovery of provisions for insolvencies 1,034 779
Provision for risks and contingencies, net (note 8) –254 330
Allocations to provision for risks and contingencies –254 —
Recovery of provisions for risks and contingencies — 330
Provision for general banking risks (note 11) — —
Ordinary profit 64,664 60,729
Extraordinary profit (note 12.7) 8,196 9,644
Recovery of provisions for general banking risks (note 11) 8,154 15,078
Other extraordinary profit 42 –5,434
Profit for the year before tax 72,860 70,373
Corporate tax (notes 12.8 and 13) –1,685 —
Profit for the year after tax 71,175 70,373
Profit attributed to minority interest 313 –255
Profit attributed to the Group 70,862 70,628
(*) Shown solely for purposes of comparison.
Consolidated statement of source and application of funds for years ended December 31, 2012 and 2011
Crèdit Andorrà Group SOURCES OF FUNDS
Euros (thousands)
2012 2011 (*)
Funds generated by operations 110,620 80,645
Profit for the year 70,862 70,628
Net provision for insolvencies 9,692 8,429
Net provision for asset depreciation 710 707
Net provision for market fluctuations 623 —
Allocations to other funds 254 –330
Other 12,305 –15,078
Depreciation of tangible and intangible fixed assets 21,003 20,209
(Profit)/Loss on sale of fixed assets 112 257
Profits from other companies accounted for by equity method –4,941 –4,177
Positive change in liabilities over assets 187,482 55,337
Cash 148 —
ANIF and financial intermediaries 184,314 55,337
Other headings 3,020 —
Net increase in liabilities 303,479 203,185
Creditors - Customers 139,269 133,902
Subordinated liabilities — —
Bonds issued 164,210 69,283
Net decrease in assets — 3,964
Cash — 3,964
Loan investments — —
Securities portfolio less investments — —
Sale of permanent investments 1,632 4,439
Sale of investments — —
Sale of fixed assets 1,632 4,439
Funds generated by financing operations — 4,771
External contributions to capital — 3,909
Other equity amounts — 862
Total source of funds 603,213 352,341
(*) Shown solely for purposes of comparison.
APPLICATION OF FUNDS
Euros (thousands)
2012 2011 (*)
Funds applied to operations 8,154 14,180
Applied from other funds 8,154 511
Other — 13,669
Positive change in assets over liabilities 87,044 4,417
ANIF and financial intermediaries — 4,417
Other headings 87,044 —
Net decrease in liabilities — —
Creditors - Customers — —
Subordinated liabilities — —
Bonds issued — —
Net increase in assets 454,903 189,827
Cash 6,459 —
Loan investments - Customers 33,960 2,144
Securities portfolio less investments 414,484 187,683
Purchase of permanent investments 13,112 73,917
Purchase of investments 505 —
Purchase of tangible and intangible fixed assets 12,607 73,917
Funds applied to financing operations 40,000 70,000
Supplementary dividend for previous year 20,000 35,000
Preliminary dividend for current year 20,000 35,000
Other equity amounts — —
Total application of funds 603,213 352,341
(*) Shown solely for purposes of comparison.
Notes on the consolidated financial statements at December 31, 2012 and 2011
Crèdit Andorrà Group
Identity of the Bank and its activities
Crèdit Andorrà SA (hereinafter the Bank), authorised in 1949, is a limited company engaged in banking activities which it carries out as a commercial bank and as a private bank and is subject to the rules and regulations governing financial institutions operating in Andorra. However, on April 11, 2011, the Andorran National Institute of Finance (ANIF) approved the application to widen the Bank’s corporate object to include the investment and auxiliary services established in articles 5 and 6 of Act 13/2010, of May 13.
The Bank’s registered offices are at Avinguda Meritxell, 80, Andorra la Vella, Principality of Andorra.
Crèdit Andorrà SA is the parent company in the Group and, together with its subsidiaries, set out in Notes 2.4 and 6.1, form part of the Crèdit Andorrà Group (hereinafter the Group).
Bases of presentation and consolidation principles
2.1 Approval by the General Shareholders’ Meeting
The Group’s annual consolidated financial statements for the year ending December 31, 2011 were approved by the Bank’s General Shareholders’ Meeting on May 18, 2012.
The annual consolidated financial statements of the Group, of the Bank and of almost all the companies that form part of the Group for the year ending December 31, 2012 are pending approval by their respective General Shareholders’ Meetings. Nevertheless, the Bank’s Board of Directors believes they will be approved without any changes.
2.2 Presentation and Application of the Accounting Plan of the Andorran Financial System These consolidated financial statements have been drawn up by the Bank’s directors based on the accounting records of the banks and companies that go to make up the Group and have been prepared according to the Accounting Plan of the Andorran Financial System approved by the government of Andorra on January 19, 2000, so that they show a true and fair view of the consolidated equity, consolidated financial position, consolidated results and resources obtained and applied by the Group.
The consolidated financial statements are presented in thousands of euros, which is the currency used for the Group’s operations and presentations, rounded up or down to the nearest thousand.
The Andorran National Institute of Finance (ANIF) is the body charged with the supervision and control of those entities that go to make up the Andorran Financial System, as well as the implementation and application of the Accounting Plan of the Andorran Financial System and those regulations applicable to these entities. Note 3 summarises the accounting principles and policies and the most significant valuation criteria applied in preparing these consolidated financial statements.
No mandatory accounting principle or valuation criterion having a significant effect on these consolidated financial statements has been excluded.
Note 1
2.3 Critical aspects of valuation, estimating uncertainty and relevant opinions made when applying accounting policy
The preparation of the consolidated financial statements requires the use of relevant accounting estimates, the application of opinion and processes of estimation and hypothesis. In this respect, below is a summary providing details on those aspects that have involved a greater degree of opinion and complexity or for which the hypotheses and estimates are significant in preparing these consolidated financial statements:
•
Useful life and intangible assets and expenses that can be depreciated.•
Fair value of certain assets and liabilities not listed.•
Calculation of provisions made.•
Estimates to calculate corporation tax and deferred fiscal assets and liabilities.•
Valuation of the recovery of goodwill and differences from the initial consolidation.Although the estimates made by the Bank’s directors at December 31, 2012 have been carried out according to the best available information to date, events that may take place in the future may require these to be modified in the next few years. This modification would be carried out prospectively, recognising the effects of the change in estimate in the corresponding consolidated profit and loss accounts.
2.4 Consolidation principles
According to the Accounting Plan of the Andorran Financial System, there is a relationship of control by a dominant entity over a dependent entity when the former, either directly by itself or indirectly through other persons or entities acting on its behalf or in agreement with the former:
•
holds a majority of the voting rights or is able to make use of, pursuant to an agreement with other shareholders, a majority of the voting rights of the latter;•
has the right or has actually exercised the right to appoint or remove the majority of the members of the governing body;•
has appointed, exclusively with its votes, at least half plus one of the members of the governing body of the latter; or•
controls the governing body because at least half plus one of the members of the governing body of the latter are board members or senior management, directly or indirectly, of the former.The same economic group is made up of those entities that, irrespective of their legal form, activity or company domicile, constitute:
•
a decision-making unit so that one of these entities exercises, directly or indirectly, the sole management of the other entities or the aforementioned management is exercised by one or more individuals acting systematically and co-ordinately; and•
an economic unit of risk because its solvency, capacity to generate funds or future viability depends closely on any of its components.In any case, dominant entities and their dependent entities are understood as an economic group.
Multigroup entities are those not included in the economic group but which are managed by one or more entities of the group and which form part of its share capital, together with one or more other entities which are not related to it. Entities are understood to be managed jointly when, in addition to forming part, directly or indirectly, of the capital, any of the following circumstances apply:
•
joint management has been established in the company articles of association; or•
there are pacts or agreements that allow shareholders to exercise their right to veto in taking company decisions.Associated entities are those not included in the economic group but which meet both the following requirements:
•
one or more group entities form a part, directly or indirectly, of the entity’s share capital; and•
a long-lasting relationship has been created that contributes to its activity.These requirements are deemed to have been met when one or more group entities hold a direct or indirect share in the company’s capital of at least 20%, or 3% if it is quoted on a regulated market.
Consolidation methods
Full integration is applied when the entity to be consolidated carries out a non-differentiated activity (entities from the financial system or instrumental and/or auxiliary entities, fundamentally) and when it belongs to the economic group.
According to the full integration method, the book value of investments and flows resulting from this situation is replaced with the assets and liabilities and with the income and expenditure of the investee company; i.e. the items of the subsidiaries to be consolidated within the group are included within or added to the balance sheet and the profit and loss account of the parent company, replacing the book value of the investment with the assets and liabilities of the companies to be consolidated.
All significant balances from the balance and off-balance-sheet accounts, i.e. loans, debts and claims existing between the Group’s companies, have been eliminated.
Income and expenditure related to significant transactions between consolidated companies have been eliminated and do not affect the Group’s results. Results produced by internal transactions have been eliminated and deferred until realised via third parties.
The difference between the book value of companies consolidated by the fully-integrated method and their equity at year-end is included in the consolidation reserves.
The accounts of the consolidated companies are governed by the same rules of classification, valuation, depreciation and supply.
The consolidation of the profit or loss generated by subsidiaries acquired in a financial year is carried out by taking only into consideration the results for the period between the date of acquisition and the date the reporting period ends.
In the case of the fully-integrated consolidation method, in the consolidated profit or loss, the part corresponding to the group, in proportion to the group’s percentage investment, is differentiated from the part corresponding to the minority, i.e. that which does not belong to the group. In the liabilities of the balance sheet, the heading “Minority interest” reflects the part that does not form part of the equity and that corresponds to minority shareholders.
The equity method is applied when the entity to be consolidated is an associated company, when it belongs to the economic group but carries out a differentiated activity and when it is a multigroup company.
In the equity consolidation method, the book value of the investment is replaced by the corresponding percentage of equity in the investee company, adjusting the liabilities, if necessary, for any differences between the investment and the equity of the company consolidated via the equity method. As established by ANIF Memorandum 162/05, in subsequent consolidations any variations in equity (if negative, up to the difference between the equity of the previous consolidation and the book value of the investment) are reported within the section “Share in (losses) / profits of companies accounted for by equity method” of the profit and loss account of the financial statements for the part corresponding to the profit or loss of the investee company. In other cases, variations in equity have a direct balancing entry in liabilities under “Consolidation reserves”.
Annual accounts provided in foreign currencies of companies included within the consolidation are converted into the reference currency of the consolidated financial statements according to the following criteria:
•
Assets and liabilities on the balance sheet are converted at the exchange rate on the date of closing the annual accounts.•
With regard to drawing up the consolidated profit and loss account, profit and loss accounts of subsidiaries are converted at the average exchange rate for the period.•
The items of capital, reserves and remainder not eliminated in the consolidation process are converted at the historic exchange rate for the date on which they were generated.•
Any differences arising from the different conversion methods are charged to the item “Exchange rate differences of liabilities”.Consolidated companies
These consolidated financial statements include the following investee companies, consolidated by the fully and proportionally integrated method (in thousand euros):
2012
Domicile Activity Auditor
Holding (direct and
indirect)
Capital and
reserves Profits/Losses Dividends paid out equityTotal
Crediinvest SA Andorra Fund Manager KPMG 100% 3,481 1,626 –800 4,307
Crèdit Iniciatives SA Andorra Venture capital — 100% 8,459 268 — 8,727
Patrigest SA (*) Andorra Property — 100% 982 1 — 983
Crèdit Capital
Immobiliari SA Andorra Instrumental — 100% 99,354 412 — 99,766
Crèdit Andorrà Preference Ltd.
Cayman
Islands Financial — 100% 1 — — 1
Valira Asset
Management SL (*) Spain Investment advice KPMG 60% 1,142 –152 — 990
Crèdit Andorrà
Panamá Holding SA (*) Panama
Banking, securities
and stock market KPMG 100% 7,998 314 — 8,312
Informàtica Crèdit
Andorrà SLU Andorra Instrumental — 100% 33,412 215 — 33,627
Banque de Patrimoines
Privés, SA Luxembourg Banking KPMG 100% 20,542 1,624 — 22,166
Banco Alcalá SA (*) Spain Banking KPMG 85% 24,144 308 — 24,452
CA Holding
Luxembourg, SARL(*) Luxembourg Property KPMG 100% 1,400 2 — 1,402
Beta Capital
Management LP United States Securities firm KR&Co 80% 736 911 — 1,647
Credit Andorra
US GP LLC United States Property KR&Co 100% 77 433 — 510
CA Perú, SA Peru Securities firm UHY PyA 51% 406 292 — 698
(*) Parent company of the consolidated subgroup.
Information given without taking minority shareholders into account.
In 2012, the main companies incorporated within the Group’s consolidation were as follows: CA México Asesores Patrimoniales, SA de CV; Valores Casa de Bolsa, SA; CA Perú Sociedad Agente de Valores de Bolsa; CA Holding España SAU and CA Life Insurance Experts Compañía de Seguros y Reaseguros, SAU (see the rest of note 2.4 for more information).
2011
Domicile Activity Auditor
Holding (direct and
indirect) Capital and reserves Profits/Losses Dividends paid out equityTotal
Crediinvest SA Andorra Fund Manager KPMG 100% 2,980 501 — 3,481
Crèdit Iniciatives SA Andorra Venture capital — 100% 14,194 –4,271 — 9,923
Patrigest SA (*) Andorra Property — 100% 996 5 — 1,001
Crèdit Capital
Immobiliari SA Andorra Instrumental — 100% 109,247 32 –9,925 99,354
Crèdit Andorrà Preference Ltd.
Cayman
Islands Financial — 100% 1 — — 1
Valira Asset
Management SL (*) Spain Investment advice KPMG 60% 1,383 –241 — 1,142
Crèdit Andorrà Panamá
Holding SA (*) Panama
Banking, securities
and stock market KPMG 100% 8,395 –283 — 8,112
Informàtica Crèdit
Andorrà SLU Andorra Instrumental — 100% 33,368 44 — 33,412
Banque de Patrimoines
Privés, SA Luxembourg Banking KPMG 100% 20,230 312 — 20,542
Banco Alcalá SA (*) Spain Banking KPMG 85% 22,051 2,135 — 24,186
CA Holding
Luxembourg, SARL Luxembourg Property — 100% –12 13 — 13
Beta Capital
Management LP United States Securities firm KR&Co 80% 283 487 — 770
Credit Andorra
US GP LLC United States Property KR&Co 100% — 85 — 85
(*) Parent company of the consolidated subgroup.
Information given without taking minority shareholders into account.
At December 31, 2012 and 2011, the Group had not integrated any company via the proportional method. Below is a brief description of the object and composition (if applicable) of the companies and subgroups as at December 31, 2012:
Crediinvest SA is a fund management company, for which Crèdit Andorrà SA acts as a sales entity.
Crèdit Andorrà SA is the depository for the Andorran investment funds and Banque de Patrimoines Privés, SA, for Luxembourg investment funds.
This company, and the various investment bodies it manages, comes under the supervision and control of the ANIF. The products offered by Crediinvest SA are sold under the name of Crèdit Andorrà Asset Management. On February 8, 2011, the ANIF approved the request by Crediinvest SA to extend its activities in order to carry out the discretional, individualised management of portfolios and to provide investment advice.
Crèdit Iniciatives SA is a venture capital company. At December 31, 2012, this subgroup’s portfolio of
investee companies was made up of SPA SA (25%) and CLIGE SA (25%) (see note 6.2).
With effect as from January 1, 2012, in accordance with that established in ANIF Memorandum 227/12 on initial consolidation differences and specifically its rule of first-time adoption, Crèdit Andorrà, in its consolidated financial statements, has recognised, against consolidation reserves, the difference from the initial consolidation entailed by its holding in CLIGE, SA for a sum of 1,463 thousand euros. As a result of this, the Bank has impaired its holding for same amount against reserves in the individual financial statements (see note 3.7 and note 11).
Patrigest SA is a property asset management company. At December 31, 2012, this subgroup’s portfolio of
investee companies was made up of Cassamanya Ltd. (99.97% held directly by Crèdit Andorrà SA and 0.03% by Patrigest SA) and Private Investment Management SA (Switzerland) (100%).
Crèdit Capital Immobiliari SA is a property company whose only activity is holding and managing the
Group’s property.
Crèdit Andorrà Preference Ltd. is a 100% owned subsidiary of Crèdit Andorrà, established in December 2005
for the issue of preferred shares (see note 11).
Valira Asset Management SL, established in January 2007 with its head offices in Madrid (Spain), is a company
with a complete structure for investment management and advisory services in the area of Hedge Funds. At December 31, 2012, the company has a 100% share in Valira Capital Asset Management SGIIC, SAU.
Crèdit Andorrà Panamá Holding SA is a 100% owned subsidiary of Crèdit Andorrà SA whose sole corporate
purpose is to carry out the functions of a parent company for the subgroup Crèdit Andorrà Panamá, the vehicle used by the Bank to channel the expansion of its Latin American business.
In September 2008, the Republic of Panama Superintendency of Banks (the supervising authority in that country) authorised an international banking licence for Crèdit Andorrà. Subsequently, on November 17, 2008, Banco Crèdit Andorrà (Panamá) SA was set up, 100% owned by Crèdit Andorrà Panamá Holding SA, and started operations with the main purpose of carrying out asset management, offering customers a wide variety of financial services and global advice.
In 2009, the Crèdit Andorrà Group was granted a licence by the National Securities Commission of the Republic of Panama to operate through the securities firm Crèdit Andorrà Panamá Securities SA. This subsidiary, 100% owned by Crèdit Andorrà Panamá Holding SA, focuses its services on brokerage and financial investment.
In order to maximise the efficiency and synergies of the subgroup, once the relevant authorisations had been obtained, on June 30, 2012, Banco Crèdit Andorrà (Panamá) SA took over Crèdit Andorrà Panamá Securities SA, the former remaining as the only company with a licence for international banking and as a securities firm. Similarly, CA Colombia Asesores, SAS (100%) was set up on January 13, 2012, whose sole corporate purpose is to provide advice on asset management in Colombia.
In addition to the above-mentioned companies, as at December 31, 2012, the subgroup Crèdit Andorrà Panamá, which can be consolidated, is also made up of the following companies: Crèdit Andorrà Panamá Patrimonial SA (100%), Crèdit Andorrà Panamá Call Center SA (100%) and the representative office Crèdit Andorrà Uruguay SA (100%).
Informàtica Crèdit Andorrà SLU. Holding company whose only activity is to handle the ownership and
management of IT-related fixed assets (both tangible and intangible) of the Group.
Banque de Patrimoines Privés, SA. On April 20, 2011, Crèdit Andorrà concluded the process to acquire 100%
of the capital of the Luxembourg bank, Banque de Patrimoines Privés, SA.
The acquisition of Banque de Patrimoines Privés, SA was a strategic move whose aim is to reinforce the Group’s presence in the European market and particularly in international private banking.
In August 2012, by virtue of that established in the purchase agreement, the acquisition price was adjusted for the subsidiary by 882 thousand euros, resulting in the equivalent adjustment in the initially reported goodwill (see note 7.1).
Banco Alcalá, SA. On October 11, 2011, Crèdit Andorrà concluded the acquisition of 85% of the capital of
the Spanish bank, Banco Alcalá, SA, and its subsidiaries Gesalcalá, SA, SGIIC and Alcalá Pensiones EGFP, SA (both 100% owned by Banco Alcalá, SA).
Banco Alcalá, SA focuses on global asset management for private and institutional customers and has branches in Barcelona and Madrid.
CA Holding Luxembourg SARL. A holding company domiciled in Luxembourg that was set up on September
29, 2011 as part of the corporate organisation designed by the Group in order to maximise the efficiency of its new business in the euro area.
On April 18, 2012, its capital was increased by 1,400 thousand euros, subscribed entirely by Crèdit Andorrà SA. The aim of this capital increase was to provide the company with the necessary resources to implement the investment plan for which it was created. Consequently, in 2012 CA Holding Luxembourg SARL brought the following companies within its consolidation:
•
CA Holding España, SAU (100%): company set up on June 7, 2012, whose sole corporate purpose is to carry out the functions of its parent company.On the same day, CA Life Insurance Experts Compañía de Seguros y Reaseguros, SAU was also set up (100% owned by CA Holding España SAU) (see note 6.1).
•
Valores Casa de Bolsa, SA (70%): On November 2, 2012, 70% of this company was acquired, whose corporate purpose is to operate as a stockbroking firm in Paraguay, being duly registered with the National Securities Commission of Paraguay.•
CA Mexico Asesores Patrimoniales, SA de CV (79%): On December 27, 2012, Crèdit Andorrà Holding Luxembourg SARL (1) acquired 51% of this company from its founding partner Private Investment Management, SA, (2) as was initially established in the strategic collaboration agreement taken out with its local shareholders. Crèdit Andorrà acquired the remaining 28% through the Luxemburg holding from the minority shareholders and (3) CA Holding Luxembourg SARL increased its capital via loan capitalisation for a sum of 6,000 thousand US dollars. The company’s corporate purpose is to provide advice on asset management in Mexico.Beta Capital Management LP. On September 30, 2011, Crèdit Andorrà concluded the acquisition of 80% of
the share capital of Beta Capital Management LP, a securities firm based in Miami (United States of America). Additionally, in the same operation, Crèdit Andorrà also acquired 80% of Beta Capital Management LLC (United States). Crèdit Andorrà US GP LLC was set up to be the subgroup’s holding company, owning 1% of the capital of Beta Capital Management LP (Crèdit Andorrà SA owns the remaining 79% of the capital) and 80% of the capital of Beta Capital Management LLC.
CA Perú Sociedad Agente de Valores de Bolsa. On September 28, 2012, 51% was acquired of Krese Sociedad
Intermediaria de Valores S. A. C., from the Republic of Peru. The original purpose of the company was to provide financial services related to Peru’s stock market, although its corporate purpose has been modified to include the provision of stockbroking services, being registered with the Peruvian Securities and Exchange Commission (Superintendencia del Mercado de Valores or SMV), and its name has been changed to the current one.
2.5 Comparing the information
The information contained in these financial statements for 2012 referring to 2011 is only presented for comparative purposes and therefore does not constitute the Group’s consolidated financial statements for 2011. The balances presented in these financial statements for 2012 and 2011 are comparable apart from the following:
•
Amortisation of differences from initial consolidation and goodwill: as established in ANIF Memoranda 227/12 of December 28, 2012 and 228/12 of December 31, 2012, as from January 1, 2012, in line with that established by International Accounting Standards, differences from consolidation and goodwill are not amortised but are accounted at their initial acquisition price less, if applicable, any impairment in the value observed after their acquisition. However, every year the Bank must allocate part of its profit to a restricted reserve totalling at least 10% of the difference in the initial consolidation or goodwill, until reaching 100% of its book value. The date these Memoranda were to be first adopted was January 1, 2012, the time when those entities which come under the Accounting Plan of the Andorran Financial System had to reverse their surplus accumulated amortisation to offset any impairments at that date, against reserves (in the case of goodwill) or consolidation reserves (in the case of consolidation gains), at the same time as a restricted reserve was generated on the books of the parent Andorran company under the aforementioned terms. The following would have occurred had this regulatory change had been taken into account when presenting the balances for 2011:•
The heading “Consolidation gains – Accumulated amortisation” and “Depreciation allowed on intangible and tangible fixed assets” would have seen their balance decrease by 1,463 thousand euros (see note 7.1).•
The heading “Securities portfolio – Holdings in Group companies” and “Reserves – Consolidation reserves” would have seen their balance increase by 413 thousand euros (see note 6.1).•
Corporate tax: On December 1, 2011, the General Council of the Principality of Andorra passed an Act amending Act 95/2010, of December 29, on Corporate Tax, according to which companies are subject to a general rate of 10%. The Andorran National Institute of Finances, by means of its Memorandum 226/12 of December 28, 2012, established the framework for accounting and reporting this tax. In this respect, among other concepts, the headings “Other assets – Taxes”, “Other liabilities – Taxes” and “Income statement – Corporate tax” show the impact of accounting for this corporate tax in 2012. Given that this is the first year this tax has been applied, the balances for the aforementioned headings cannot be compared with the previous year (see notes 3.12, 12.8 and 13).However, to make it easier to compare information, the balances for 2011 presented under the off-balance sheet headings “Customer securities held in custody – Securities held in custody by third parties” have been re-expressed to take into account that established in ANIF Memorandum 233/13. This change has led to an increase in the aforementioned heading of 499,953 thousand euros, accounting in off-balance sheet positions both the value of the shares/holdings in collective investment undertakings (CIUs) deposited by customers with the Group as well as the value of portfolios deposited by the CIUs themselves (see note 20 for more information on the volume of assets managed by the Group).
Accounting principles and valuation guidelines applied
The accounting principles and policies and the valuation criteria established by the ANIF in the Accounting Plan of the Andorran Financial System have been applied in preparing these financial statements for 2012. These principles are as follows:
3.1 Going concern premise
In preparing the consolidated accounts, it has been assumed that the management of the companies within the Group will continue in the future. The application of the accounting rules has therefore not been aimed at determining the value of the net consolidated equity for the purposes of total or partial transfer, nor the resulting amount in the case of a company being dissolved.
3.2 Accrual accounting
Income and expenditure are recorded according to the accrual period, applying the financial method for those transactions with a liquidation date of more than twelve months. The only exception relates to interest on doubtful and very doubtful loans, which is recorded as income only when collected.
In applying this principle, accrual accounts show income/expenditure accrued but not collected/paid, and income/expenditure collected/prepaid.
3.3 Recording principle
Following banking practice, transactions are recorded on the date they take place, which may be different from the corresponding value date, which is taken as the basis for calculating income and expenditure for interest. 3.4 Conversion of foreign currencies
Assets and liabilities expressed in foreign currencies other than the euro are converted to euros at the exchange rate current on the balance sheet date, obtained from reliable market sources. Income and expenditure are converted at exchange rates current on the transaction date.
Below are details of the key exchange rates at December 31, 2012:
2012 2011 US dollars 1.3204 1.2986 Swiss francs 1.2071 1.2142 Pounds sterling 0.8120 0.8349 Japanese yen 114.3268 99.9744 Canadian dollars 1.3123 1.3196
3.5 Provision for insolvencies
A. Specific provisions
The determination of specific provisions is based on quantitative and qualitative regulatory guidelines and on a detailed analysis of exposure to credit risk, carried out by the entity itself, bearing in mind experience of actual loan losses and other relevant factors.
B. General provisions
The Group carries a general provision fund for insolvencies regarding loan investments as follows:
•
1% of loan investments to customers. This includes loan investments to the public sector. Note 3Loan investments for the part covered by financial guarantee contracts, those secured by the pledge of listed securities, with the limit of the market value of these securities, and loans and mortgage loans, with sufficient mortgage cover, pursuant to that established in ANIF Memorandum 198/10 on the Evaluation of land and property under mortgage guarantee, are not recorded under general provisions. This cannot be considered as effective mortgage cover if no appraisal has been carried out by an independent professional.
•
0.5% of bank loan investment to banks.The Group also carries a general provision for insolvency for the institutional securities portfolio:
•
1% of the bonds issued by non-bank entities.•
0.5% of the bonds issued by banks.•
Bonds issued by the central administrations of OECD countries and Andorra or those expressly guaranteed by these organisms are not recorded under general provisions.C. Provisions for country risk
The Group operates only with correspondent banks and lending institutions established in Andorra and in OECD countries. Risks regarding an institution’s branches abroad are considered as being in the parent company’s country of residence. The securities portfolio is made up of issues carried out in Andorra and the OECD, except in the case of the odd issue traded in recognised financial markets. With regard to these bonds, no country risk provision is made, given that they are regularly traded with daily market quotations reflecting their real value.
3.6 Securities portfolio
The securities that go to make up the Bank’s securities portfolio are presented, according to their classification, in line with the following criteria:
Fixed income
The fixed-income securities that form part of the Group’s portfolio are presented, according to their classification, in line with the following criteria:
a) Securities classified as part of the trading portfolio, which are bonds the Group expects to see before maturity in order to benefit in the short term from price variations, are brought into account at their market value. The profit or loss arising from the valuation of these bonds, without taking into account the accrued interest, is recorded net in the profit and loss account under the item “Results of financial transactions – Income from securities transactions” in the Interest accrued after acquisition is recorded under “Interest and related income – Bonds and other fixed-income securities”.
b) Securities within the held-to-maturity portfolio are bonds that the Group has decided to keep until they mature, being capable of doing so. These securities are recorded at their adjusted cost price. The cost price is adjusted daily by the amount resulting from accruing the negative or positive difference between the reimbursement value and cost price during the remaining life of the security. Any profit from this accrual is recorded under the heading “Interest and related income – Bonds and other fixed-income instruments”. On the disposal of securities, any losses arising are carried to the profit and loss account as extraordinary profit or loss; in the case of profit, this accrues lineally throughout the remaining life of the security sold as a result of financial transactions.
c) The rest of the securities are classified in the ordinary investment portfolio and are valued at their cost price. However, the difference between the market or fair value and the cost price is calculated and provision is made, charged to the profit and loss account, to the provision for market fluctuation, which is equal to the sum of the different losses less the sum of the gains up to the amount of the losses.
The market value of unlisted fixed-income securities has been determined using a model (an evaluation study carried out by an independent professional of renowned prestige or by the valuation section of the department of Financial and Operational Risk). Valuation using a market model is largely based on the determination and recording of movements in market values related to credit risk. These movements are shown under the provision for market fluctuations mentioned above.
Securities from the trading portfolio are transferred to any other portfolio at market price, deducting the accrued interest, if necessary. Securities are transferred from the ordinary investment portfolio to the held-to-maturity portfolio at cost price or market value, whichever is lower, and any losses arising are written off, if necessary.
Permanent investments
As established by ANIF Memorandum 123/01, as a general rule, securities classified in the permanent investment portfolio are valued on the balance sheet at cost price or market value, whichever is lower. If the latter is lower, the necessary provision is made to reflect the amortization of the provision for market fluctuation.
The market value of shares is determined by the share price on the last day of the year and, for unlisted shares, by the underlying book value of the investment based on the latest available balance sheet.
With regard to the unlisted shares of Group companies, they are recorded by the value of the fraction represented by the net equity of the investment adjusted by the amount of potential capital gains existing at the time of acquisition up to the limit of the cost price.
In the presentation of the balance sheet, the provision for fluctuation for these shares will reduce the entry corresponding to the assets in question.
Equity and investment funds
Shares and parts of investment funds that make up the trading portfolio are recorded at market value. Shares and parts of investment funds that are assigned to the ordinary investment portfolio are stated at cost price or market value, whichever is lower, and any negative differences in value are recorded in a provision for market fluctuation.
Market value is determined in accordance with the following criteria:
•
Listed shares: share price on the last day of the year.•
Unlisted shares: underlying book value, based on the latest available balance sheet.•
Parts of investment funds: latest values provided by the managing companies and/or depositories of the investment funds.3.7 Consolidation differences, intangible assets and amortisable expenses
When a new company is incorporated within the consolidation perimeter, any difference between the price paid for the subsidiary’s shares and the value of its corresponding share of equity is recorded in the assets under “Consolidation gains”. Nevertheless, before accounting positive differences from this initial consolidation, and therefore before determining the equity of the consolidation, it is evaluated whether any amount from these differences should be attributed directly to the headings on the consolidated balance sheet at a higher or lower value than their book value and up to the limit attributable to the parent company depending on the percentage holding in the dependent company.
As established by ANIF Memorandum 227/12 on initial consolidation differences and ANIF Memorandum 228/12 on goodwill, differences from initial consolidation and goodwill are not amortised. However, an
impairment test is carried out in line with the applicable current international valuation standards for the sector and, if there are indications of asset impairment, the corresponding loss is recorded in the profit and loss account, which is irreversible. If the impairment test carried out on the investment in the investee company indicates impairment in portfolio investment, the value of the investee company is also adjusted in the corresponding individual financial statements, an adjustment which is also irreversible, as in the case of goodwill.
Amortisable expenses are amortised systematically against the profit and loss account, at a maximum limit of 5 years. Entities can send a reasoned application to the ANIF to extend this period up to 10 years (see note 7.1).
The rest of the headings under intangible fixed assets are amortised on a straight line basis over the established period of time, which cannot exceed 10 years in any case, always in accordance with current regulations and technical memoranda.
In this respect, amortisable expenses and intangible fixed assets are amortised over their useful life which, in general, is up to a maximum of 5 years. However, in the case of the Core Banking application, whose useful life is longer than 10 years, this is amortised by Crèdit Andorrà over a period of 10 years due to the significance and specific characteristics of this kind of application, which cannot be compared with other more standard applications.
With regard to amortisable expenses, only those expenses are activated that may be affected in more than one year, such as expenditure related directly to the purchase of new subsidiaries or businesses that have not been considered at more than cost price according to that established by ANIF Memorandum 225/12. In this respect, Memorandum 225/12 “Considerations regarding the treatment of expenditure related to acquisitions of holdings in Group companies” establishes that, in general, inherent expenses, i.e. those that are directly related to the acquisition and that are essential in order to carry out the purchase, form part of the cost price. 3.8 Fixed assets
Fixed assets are recorded at cost, updated if necessary, less accumulated depreciation, which is spread over the useful life of each individual asset. Land where buildings and other constructions are located has an indefinite life and is therefore not depreciated.
Provision for depreciation is made when a reversible loss of economic value of the fixed asset is apparent. At June 12, 2008, and with the prior presentation of valuations carried out by an independent expert, the ANIF authorised Crèdit Andorrà SA to revalue certain working fixed assets (basically property) by 30% and non-working fixed assets by 90% of the difference between the market value established in this valuation and the book value of the assets at December 31, 2006. The revaluation totalled 101,628 thousand euros, recorded with a balancing entry in a revaluation reserve, as established by the Accounting Plan of the Andorran Financial System (see note 11).
Moreover, premises acquired or built before December 31, 1989 appeared on the balance sheet at their estimated market value, as established by an independent expert in November 1989 (see note 11).
Revaluation reserves are limited until the asset effectively leaves the Group and/or the ANIF authorises their access.
Upkeep and maintenance costs of fixed assets that do not improve their use or lengthen their useful life are charged to the profit and loss account when they occur, under general expenses.
Individual fixed assets are depreciated using the straight-line method in accordance with the following terms: Years Buildings 30 to 50 Installations 8 to 10 Furniture 4 to 6 IT equipment 3 to 5 Vehicles 5
Other properties acquired through partial or full foreclosure on loans are recorded under “Non-working fixed assets” at the book value of the loan foreclosed at the time of acquisition or the estimated market value, whichever is lower. Should the market value (based on updated valuations) be lower than the net book value at a later date, provision is made for this difference charged to the income statement (see note 7.2.)
Subsequently, assets acquired through foreclosure on unrepaid loans that are not applied to buildings/ equipment for own use or that remain unsold within a period of 3 years are depreciated, as of the date of foreclosure, according to the following cumulative depreciation percentages:
Between 3 and 4 years 25%
Between 4 and 5 years 50%
More than 5 years 75%
The book value of repossessed land and property must be certified by an updated valuation (at least every two years), carried out by an independent appraisal organisation. Any reductions in value are recorded in the profit and loss.
3.9 Provision for risks and contingencies
A. Specific provisions on contingent liabilities
Provisions for contingent liabilities contain the amounts to cover contingent payments or contingencies of a specific nature.
B. Provision for pensions and similar obligations
Up to January 30, 2012, obligations with all Crèdit Andorrà employees and their beneficiaries related to such contingencies as retirement, death and incapacity (defined contribution system with regard to the Bank) were outsourced to an independent Andorran foundation (Previfun), established in 1998, governed under the Regulation of Mutual Funds for Benefit and Aid to Crèdit Andorrà Employees, approved by the Ordinary General Assembly of Mutual Fund Members of October 23, 2006.
With the aim of ensuring the future viability of the pensions of Crèdit Andorrà employees, on December 19, 2011, the Assembly of Mutual Fund Members agreed to start the process of transforming the Mutual Fund from a collective scheme with defined benefits to an individual scheme with defined contributions (except with regard to passive mutual fund members and a number of members who are still working but close to retirement, for whom the former conditions will be maintained).
In this respect, on January 30, 2012, by means of an Extraordinary Assembly, the mutual fund members approved the dissolution and subsequent liquidation of the Mutual Fund. However, since the Mutual Fund has been dissolved, the management of the present and future assets of the mutual fund members, as well as the
management of the undertakings mentioned in the previous paragraph, have been outsourced to the insurance company of the Crèdit Andorrà Group (Crèdit Assegurances, SAU).
3.10 Provision for general banking risks
The Group makes provision for general banking risks corresponding to funds allocated by the Bank for reasons of prudence, given the risks inherent in its banking activity.
3.11 Financial derivatives
The Group uses these instruments, principally futures or forward currency contracts, to hedge its balance positions in currencies other than the euro, recorded in off-balance sheet accounts at the nominal exchange amount at maturity of the respective contracts (see note 15).
Transactions undertaken in order to eliminate or significantly reduce exchange rate, interest rate or market risks in equity positions or other operations are considered hedging transactions. Any profit or loss generated by these hedging transactions is accrued symmetrically in the profit and loss account as income or expenditure for the item hedged.
Non-hedging operations, i.e. trading transactions undertaken in regulated markets, are stated at their listed value and fluctuations are recorded in the profit and loss account.
Any profit or loss from trading transactions undertaken outside these markets is not recorded in the profit and loss accounts until effectively settled. Notwithstanding this, the positions are assessed every month and, if necessary, any potential net losses are charged to the profit and loss for each type of risk that may have resulted from these assessments. The types of risk considered for this purpose are interest, market price and exchange risk.
3.12 Taxes
A. Indirect tax on banking and financial services
At its meeting on May 14, 2002, the General Council of the Principality of Andorra approved the Indirect Taxation on Banking and Financial Services Act. This Act came into force in 2002 and its object was to levy taxes on services provided by banking and financial entities. Subsequently, on July 10, 2002, the Government of Andorra approved the regulations related to the Indirect Tax Rate on Banking and Financial Services Act. The rate is calculated according to a system that estimates the value of the services provided based on economic and financial data.
Finally, on June 21, 2012, Act 11/2012 was published on general indirect taxation, entering into force on January 1, 2013. In its repealing provision, this Act, which contains an incremental tax rate of 9.5% on bank and financial services, repeals, among others, the Act on indirect taxation on bank and financial services of May 14, 2002. Consequently, in 2012 (the last year in which this tax was applied), the rate applied to the provision of bank and financial services was 9.5% (12% in 2011).
