IMF Praises Andorra's Banking Strength but Warns of Systemic Risks

The International Monetary Fund (IMF) has praised the strength of Andorra's banking sector while cautioning that its outsized role in the economy demands ongoing close oversight to mitigate potential risks.

In its preliminary statement following a recent mission to the Principat, the IMF noted that Andorra's economy remains robust, with the financial system delivering strong results amid broader growth and income diversification. Banks have expanded asset management activities abroad, particularly within the European Union, boosting revenues and lessening reliance on the domestic market.

However, the IMF emphasised that the banking system's scale—large relative to the country's economic size—poses systemic risks, especially in highly internationalised small economies. It stressed the need for constant vigilance, adequate reserves, and risk-appropriate safeguards to handle any financial stresses.

The organisation commended the Andorran Financial Authority (AFA) for aligning its regulatory and supervisory framework with European standards, a step seen as vital for bolstering sector resilience given its international exposure and size. The IMF also suggested that Andorra's association agreement with the EU could further enhance regulatory convergence, information sharing, and supervisory best practices.

Looking ahead, Andorra is gearing up for its first Financial Sector Assessment Program (FSAP) review by the IMF in 2026. This in-depth evaluation will scrutinise the banking system's stability and pinpoint vulnerabilities to strengthen overall financial resilience.