## Andorra's Banking Sector: Opportunities and Risks

_Selected Issues Papers, December 29, 2025_

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**Canonical URL:** [Andorra's Banking Sector: Opportunities and Risks](https://www.imf.org/en/publications/selected-issues-papers/issues/2025/12/29/andorra-s-banking-sector-opportunities-and-risks-572897)

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## Bibliographic details
- Authors: Aidyn Bibolov
- Published: December 29, 2025
- Series: Selected Issues Papers
- DOI: https://doi.org/10.5089/9798229034586.018

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### Overview
- Large and distinct banking sector with a strong focus on private banking.
- Comparative analysis with peer microstates and financial centers in Europe.
- Emphasis on Andorran banks’ reliance on deposits, strong capital and liquidity buffers, and expansion into international markets.
- Panel dataset of 275 private banks across 39 countries used for empirical analysis.
- Publication date: December 29, 2025.

### Key Findings
- Andorran banks rely on deposits as a primary funding source.
- Banks exhibit strong capital and liquidity buffers.
- Expansion into international markets is an observed strategy among Andorran banks.
- Determinants of profitability identified in the panel analysis include:
  - bank size
  - capitalization
  - GDP growth
  - interest rates
- Importance of proactive supervision and macroprudential tools to manage systemic risks, particularly given the absence of a central bank.

### Risks and Systemic Issues
- Systemic risks are elevated by the absence of a central bank.
- Dependence on deposit funding may create vulnerabilities under stress scenarios.
- Cross-border expansion increases exposure to international market risks.

### Policy Recommendations
- Strengthen proactive supervision to monitor and mitigate emerging risks.
- Deploy macroprudential tools to manage systemic vulnerabilities, including those related to capitalization and liquidity.
- Consider policy measures that address risks from international expansion while preserving the strengths of private banking.

### Implications of the EU Association Agreement
- The paper explores implications of Andorra’s EU Association Agreement on the banking sector, including potential effects on financial integration and regulatory alignment.

### Subjects and Keywords (as indexed)
- Subjects: Bank soundness, Commercial banks, Countercyclical capital buffers, Economic sectors, Financial institutions, Financial regulation and supervision, Financial sector, Financial sector policy and analysis
- Keywords: Andorra; Andorra's banking sector; Assets under management; Bank soundness; Banking sector; Capital buffers; Caribbean; Central America; Commercial banks; Countercyclical capital buffers; EU Association Agreement; Europe; Financial integration; Financial sector; Global; IMF country; IMF staff; International expansion; issues paper; Liquidity; Macroprudential policy; Microstate; Private banking; Profitability; regulation; South America; supervision; Systemic risk

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_Source: https://www.imf.org/en/publications/selected-issues-papers/issues/2025/12/29/andorra-s-banking-sector-opportunities-and-risks-572897_