Desgaste profesional

Financial derivatives used to hedge specific market risks are individually assigned to those assets, liabilities or off-balance sheet positions being hedged and are initially recorded at cost. Forward foreign currency contracts are later adjusted at market value, applying these fluctuations to the profit and loss account. Market fluctuations of these hedge positions are monitored and controlled using RiskMetrics and ALM II models (assets and liabilities management).

Pledged assets

At December 31, 2011, Crèdit Andorrà had on its books a total of 3,993 thousand euros (12,263 thousand euros in 2010) in guarantees required for futures transactions undertaken in regulated markets on account of third parties. It also had a total of 47,129 thousand euros on deposit with financial intermediaries as pledged assets as a guarantee for its own obligations (44,919 thousand euros in 2010).

Additionally, at December 31, 2011 the group had temporary pledged asset contracts with independent third parties affecting 154,567 thousand euros of the held-to-maturity portfolio (at December 31, 2010 there were no temporary pledged asset contracts). These temporarily pledged assets earn an interest rate of between 0.45% and 2.6756%. Transactions with entities or persons related to the group or group entities

Details follow of the operations with entities or persons related to the group or with group entities, which have not been consolidated by the fully-integrated method, and account for more than 10% of equity as shown in the balance sheet or 5% of the result for the year in the profit and loss account:

2011

Shareholders Board of Directors Management CompaniesGeneral Other related parties Shareholders shareholdersNon-

Individuals 2 — — — — —

Corporations — — — — — —

Balances

Assets 167,472 — — — — —

Loan investments, banks and lending institutions 167,472 — — — — —

Accrual accounts — — — — — —

Liabilities 1,013 — — — — —

Banks and financial intermediaries — — — — — —

Deposits 1,013 — — — — —

Accrual accounts — — — — — —

Transactions with main shareholder — — — — — —

Interest and income - assimilated — — — — — —

Interest and income - liable to assimilation — — — — — —

Other — — — — — —

Off-balance-sheet records 24,738 — — — — —

At December 31, 2011, there was no transaction with any shareholder or member of the Board of Directors and/ or Executive Committee (non-shareholders) that, on an individual level, accounted for more than 10% of equity as shown in the balance sheet or 5% of the result for the year as shown in the profit and loss account.

At year-end, there was one transaction with a shareholder that exceeded 10% of equity as shown on the balance sheet (see note 11).

All transactions with related entities and people are carried out under market conditions. Note 16

Risk control and management

The management and control of risk has always been a priority objective of Crèdit Andorrà and we have developed the necessary infrastructure, internal methods and controls with this in mind. The bank maintains a conservative profile in all its investments and activities.

Policy and limits for risks 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). Among other functions, this committee approves risk policies affecting the management of the bank’s assets and liabilities and management mandates. The committee also 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 Crèdit Andorrà balance sheets. This committee also approves the methodologies employed, either in valuing assets or in the risk models implemented by the different activities and relevant factors, so that they can be measured, monitored and controlled.

The Assets, Liabilities and Risks Committee has also provided a global, integrating view of the risk resulting from the international expansion carried out by the Crèdit Andorrà Group.

All steps taken by this committee bear in mind the rules of ANIF, the Andorran national body that regulates, controls and supervises the country’s financial activity and new regulatory trends, in compliance with the directives of the New Basle Capital Accord, which emphasises increasing awareness of risk and risk management.

For some years, and without putting aside conventional methods of risk control, Crèdit Andorrà has applied Value- at-Risk (VaR) methodology to 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.

Managing market risk

Market risk arises as a consequence of operations carried out in financial markets via financial instruments whose value can be affected by variations in market conditions, reflected in changes in the different assets and factors of financial risk. In all cases, market risk relates to a potential loss in the profitability or value of the portfolio resulting from unfavourable movements in market rates or prices.

Regarding the measurement, control and management of the different risks, Crèdit Andorrà tracks market risk using the VaR methodology, this being the market’s basic and standard variable.

Regarding the methodology employed to obtain these measurements, this has been the historic VaR, which calculates the impact on the current portfolio value of historic variations in risk factors, taking into account the variations from the last 250 days and with a confidence interval of 95%.

The market VaR is calculated daily for a timescale 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 timescales and confidence intervals, is periodically sent to members of the Executive Committee and the Assets, Liabilities and Risks Committee. These VaR measurements, along with others, provide a test of integrity and consistency.

For the securities portfolios as a whole, the average daily VaR, calculated at a 95% level of confidence, was 5,664.1 thousand euros, with a maximum and minimum of 6,511.1 thousand euros and 4,233.40 thousand euros respectively, compared with the authorised risk limit of 17 million euros.

An analysis of this report is supported by Backtesting tests. In 2011, Backtesting showed that gains and losses performed in accordance with what would be statistically expected. For investment portfolios as a whole, the daily VaR, with a 95% level of confidence, was exceeded by 1.56% of all cases throughout the year.

In order to monitor and control the market risks assumed by the bank, the Assets, Liabilities and Risks Committee approves an overall structure of limits implemented through the following:

•

Limits to investment; limited by volume.

•

Limits to investment by issuer rating, maturity and portfolio or sub-portfolio.

•

Limits to investment by issuer concentration.

•

Limits via market risk; VaR per portfolio and overall VaR.

•

Limits via maximum cumulative loss per year, quarter and month.

The department of Financial and Operational Risk is responsible for monitoring and controlling these limits and the risks assumed.

(in millions of euros)

Daily VaR (2011)

0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

1 2 3 5 6 7 4

Managing foreign currency risk

Another source of risk is the risk of structural change, which results essentially from exposure to variations in exchange rates arising from positions in a currency other than the investment currency.

The Assets, Liabilities and Risks Committee is responsible for defining and supervising hedges to limit the impact of possible exchange rate variations on assets and solvency, in line with their expected trends, and ensures the counter value in euros of the profit in the currency that is expected from the aforementioned investments.

Regarding foreign currency risk, the trading position is monitored on a daily basis (aggregating the position at-sight and at term) and a maximum position in terms of volume is applied for all currencies. For the purposes of calculating currency risk exposure, the net position is used for each currency.

At December 31, 2011, the overall open position in foreign currency risk amounted to 593 thousand euros, as against the established limit of 5 million euros.

Managing country risk

Country risk is the risk incurred by counterparties resident in a specific country due to circumstances other than those related to the customary commercial risk. According to the economic development of countries, their political situation, regulatory and institutional framework and the rating given by credit ratings agencies for each country, Crèdit Andorrà classifies its operations carried out with third parties and assigns to each group the percentage provisions for insolvency resulting from this analysis.

With regard to exposure by geographical area, the Assets, Liabilities and Risks Committee establishes percentage limits of maximum exposure at the level of country or group of countries, as applicable.

Additionally, and in terms of concentration by country, the investment guidelines approved by the Assets, Liabilities and Risks Committee establish that the maximum exposure in a specific country must not account for more than 35% of the total country risk exposure.

In the consolidated figure in euros, calculated for each country, the on or off-balance sheet investments are included that involve exposure to a certain country.

Managing credit risk

At the end of 2011, interbank deposits accounted for 8.0% of the total exposure to credit risk and the securities portfolio 28.9%, while customer loans accounted for the remaining 63.1%.

With regard to interbank deposits and the securities portfolio, Crèdit Andorrà also introduced the loan VaR as a management and control tool. This is calculated by applying the so-called “CreditManager”, programme developed by J. P. Morgan. Crèdit Andorrà tracks the loan VaR with a timescale of one year and a confidence level of 99%. At year-end, the loan VaR for the securities portfolio and interbank deposits was 17,094.4 thousand euros out of a total risk exposure of 1,332,445.9 thousand euros. This loan VaR is below the risk limit of 22,000 thousand euros set by the Assets, Liabilities and Risks Committee. This loan VaR level would be equivalent to having a portfolio with an average rating of AA–.

Under credit risk, special attention is given to balancing-entry risk and country risk, as well as diversification in terms of sector. These risks are regularly monitored, always keeping within established limits.

Managing counterparty risk

In order to control counterparty risk, and to a large extent the risk of concentration in financial institutions, the Assets, Liabilities and Risk Committee approves interbank limits for different timescales on and off-balance. By means of an internal model to assign interbank lines, whose aim is to establish internal, objective criteria to measure the credit quality of different interbank counterparties, Crèdit Andorrà attempts to classify the maximum exposure limit in line with the range of limits being applied at any particular time.

With regard to the off-balance sheet exposure of financial counterparties, a scale of ratios has been established based on asset maturity order to weight the consumption of securities concentrated off the balance sheet. A ceiling has also been established per financial counterparty, adding the total consumption off and on-balance sheet.

The department of financial and operational risk also monitors and controls settlement risk by assigning settlement risk limits for each financial credit institution. Settlement risk is the risk that one of the financial counterparties does not deliver a security or its value in cash on the settlement date agreed when the security was traded with the other counterparty.

The settlement risk limit for a financial credit institution is the maximum exposure assigned by the interbank line model.

Managing interest rate risk

The Crèdit Andorrà Group has traditionally paid particular attention to maintaining a very strict relation between investment and how it is financed in order to facilitate the management of interest rate risk.

Exposure to interest rate risk should be seen as the possible adverse variation in economic value and/or profit due to an unexpected variation in the market interest rate.

The Assets, Liabilities and Risks Committee is responsible for defining the targets for managing interest rate risk, as well as determining portfolio investment strategies, hedging strategies and taking decisions concerning proposals to manage structural risk.

Sensitivity and scenario analysis techniques are used in order to analyse, measure and control the interest rate risk assumed, and limits are established to avoid risk exposure levels that might significantly affect the bank. The department of financial and operational risk is responsible for measuring and reporting on a monthly basis regarding the interest rate risk of the Crèdit Andorrà Group.

The main techniques used by the Crèdit Andorrà Group to measures interest rate risk are static and dynamic gaps, as well as sensitivity to financial margin and economic value.

Static gap shows the distribution of maturities and interest rate reviews at a specific date. For balance sheet items without a contract maturity date, their sensitivity to interest rates is analysed, together with their expected maturity date, considering the possibility that the customer may settle early.

Dynamic gap consists of the same aforementioned rules but also including expected budget operations and/or financial planning of institutions, with a future projection of the upcoming reviews and maturities of operations involving the bank’s assets and liabilities. This analysis can predict potential asset liability mismatches, helping to anticipate possible future tensions.

Financial margin sensitivity shows the impact on the balance sheet’s composition caused by changes in the interest rate curve. This sensitivity is measured by comparing the simulation of the most probable financial margin with other scenarios assuming a rise or fall in interest rates and movements in the curve. At year-end, financial margin sensitivity at one year of the sensitive balance sheet assets and liabilities, assuming a rising interest rate scenario and another falling interest rate scenario of 100 base points each, was +3.3% and –3.5%, respectively.

Interest rate sensitivity of economic value measures the impact of interest rate variations on the current balance sheet value. This sensitivity is measured by comparing the calculated economic value of the bank and the economic value taking into account variations in the market interest rate and dividing the result by the bank’s shareholders’ equity. At year-end, economic value sensitivity (over shareholders’ equity), assuming a rising interest rate scenario and another falling interest rate scenario of 100 base points each, was –4.6% and +5.5%, respectively.

Financial margin sensitivity focuses on the short and medium term while economic value sensitivity focuses on the medium and long term. These measures complement each other and provide an overall view of the bank’s structural risk.

Managing liquidity risk

Liquidity risk is the risk resulting from potential difficulties in meeting obligations associated with financial liabilities that are settled by paying cash or through another financial asset. Liquidity risk is therefore the risk of not having enough liquidity to be able to fulfil, on the date due, payment obligations to third parties or having to do so at a higher cost.

The Assets, Liabilities and Risks Committee is responsible for defining the liquidity management targets, determining investment strategies for portfolios and taking decisions on proposals for managing liquidity risk.

The fundamental objective related to liquidity risk is to have the necessary instruments and processes at all times to ensure the bank can meet its payment obligations on time as well as carry out its business to achieve the strategic goals of the Crèdit Andorrà Group. The capacity to maintain sufficient levels of liquidity to meet payments is also analysed in stress scenarios.

The measurement of liquidity risk is tackled from the point of view of liquidity requirements; i.e. decisions must be taken regarding how to cover these needs. These measures must cover the short, medium and long term and always with a global view of the balance sheet, covering both minority and majority positions.

The Crèdit Andorrà Group has drawn up a Liquidity Risk Contingency Plan that establishes an action plan for the different crisis scenarios (systemic and specific), detailing measures at a commercial and institutional level to tackle this kind of situation.

The department of financial and operational risk is responsible for measuring the bank’s liquidity ratio on a daily basis.

Managing operational risk

The Basel Committee defines operational risk as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events.

Crèdit Andorrà has continued to develop its organisational structure and establish the capacities required to guarantee compliance with the Basel Capital Accord with regard to the measurement and management of operational risk.

Other off-balance-sheet records

Details of the composition by type of security and other securities deposited and held in trust with third parties at year-end are set out below (in thousand euros):

2011 2010

Equity instruments 1,442,211 1,411,224

Fixed income instruments 1,677,751 1,460,130

Parts of investment funds 1,214,845 1,681,056

Other 362,131 263,469

4,696,938 4,815,879

In compliance with Memorandum 216/11, below are details of the composition of customer funds managed (on and off balance) differentiating between those held in custody by the bank and those by third parties (in thousand euros): 2011 2010 Custody / deposited by bank (by group) Custody / deposited by

third parties Total

Custody / deposited by bank (by group) Custody / deposited by

third parties Total

Mutual funds 248,674 — 248,674 570,186 — 570,186

Individual client portfolios

managed via mandate 1,761,892 — 1,761,892 1,861,150 — 1,861,150

Other individual clients 7,001,978 1,074,452 8,076,430 6,566,247 163,112 6,729,359

9,012,544 1,074,452 10,086,996 8,997,583 163,112 9,160,695

The details of “Other off-balance-sheet records exclusively for management control” at year-end (in thousand euros) were as follows:

2011 2010

Guarantees and obligations received 412,294 387,755

Unlisted own shares and those held in trust 805,232 557,962

Very doubtful loans 62,806 52,183

Pending products due, for doubtful securities 513 391

Other — 163,112

1,280,845 1,161,403

In compliance with explanatory memorandum 169/06 provided by the ANIF Accounting Plan of the Andorran Financial System, published on October 12, 2006, in “Clause V. Other off-balance-sheet records with functions exclusively related to administrative control”, bonds issued by the government of Andorra are recorded under “Unlisted own shares” and shares of Crèdit Andorrà SA, shown at face value, are recorded as “Those held in trust”. Note 18

Compliance with regulations

In document Salud vial: Diagnóstico de los conductores españoles. (página 99-104)