Fitch: Dominican Banks to Benefit from Improved Operating Environment
The three banks (one state-owned bank and two large banks) are: Banco de Reservas de la Republica Dominicana, Banco de Servicios Multiples (Banreservas); Banco Popular Dominicano (BPD); and Banco Multiple BHD Leon S. A. (BHDL). These banks operate primarily in the Dominican Republic.
The Dominican Republic's operating environment highly influences the performance of these banks. As Issuer Default Ratings (IDRs) are constrained by the sovereign, an upgrade of the sovereign's ratings could lead to an upgrade of BHDL's and Banreservas' ratings if these banks sustain their current strong financial performance. The Positive Rating Outlooks for their Long-Term IDRs are in line with the Dominican Republic's sovereign ratings.
Asset quality at the banks in this review remains sound. Fitch Ratings believes that favorable economic and operating conditions, regular fine-tuning of underwriting standards and strict collection efforts should contribute to preserving good asset quality ratios.
BHDL outperforms local peers in terms of profitability as it is by far the most efficient operation and has the lowest credit costs. BPD's profitability is stable and resilient, whereas Banreservas' profitability ratios have been historically volatile. For all Dominican banks, profitability is expected to stabilize at a level that still compares well with the region's 1.7% average operating ROAAs.
When capitalization at the three banks is viewed in conjunction with their reserve coverage levels, BHDL exhibited the strongest loss absorbing capacity among large Dominican banks as of December 2015, while Banreservas had the weakest. Fitch expects Dominican banks' capitalization ratios to be stable in 2016, boosted by sound profitability.
Fitch published the main findings of this peer review completed in July in a report 'Fitch: Dominican Banks to Benefit from Improved Operating Environment', available at www. fitchratings. com.
For further details on the particular key rating factors and rating sensitivities of each of these entities, please view individual rating action commentaries, available at www. fitchratings. com.
Following completion of the peer review on July 1, 2016, Fitch affirmed the following international and national ratings:
--Long-Term Foreign and Local Currency IDRs at 'B+'; Outlook Positive;
--Short-Term Foreign and Local Currency IDRs at 'B';
--Viability Rating at 'b';
--Support Rating at '4';
--Support Floor at 'B+';
--Long-term subordinated notes at 'B'
--National Long-Term rating at 'AA+(dom)'; Outlook Stable;
--National Short-Term rating at 'F1+(dom)';
--National subordinated debt rating at 'AA(dom)'.
--Long-term National rating at 'AA+(dom)'; Outlook Stable;
--Short-term National rating at 'F1+(dom)';
--Long-term National subordinated debt at 'AA(dom)'.
--Foreign and Local Currency Long-Term IDR at 'B+', Outlook Positive;
--Foreign and Local Currency Short-Term IDR at 'B';
--Viability Rating at 'b+';
--Support Rating at '5';
--Support Floor Rating at 'NF'.
--Long-Term National Rating at 'AA+(dom)'; Outlook Stable;
--Short-Term National Rating at 'F1+(dom)'