Fitch Affirms Banco de Reservas de la Republica Dominicana's Long-Term IDR at 'B'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed Banco de Reservas de la Republica Dominicana, Banco de Servicios Multiples' (BANRESERVAS) ratings as follows:

--Foreign Currency Issuer Default Rating (IDR) at 'B';

--Local Currency IDR at 'B';

--Short-Term Foreign Currency IDR at 'B';

--Short-Term Local Currency IDR at 'B';

--Individual Rating at 'D';

--Support Rating at '4';

--Support Floor at 'B';

--National Long-Term Rating at 'A+(dom)';

--National Short-Term Rating at 'F-1(dom)'.

The Rating Outlook is Stable.

Banreservas' Issuer Default Ratings (IDRs) reflect the support provided by its shareholder, the Dominican government. In addition, the bank's Individual Rating is supported by its ample market share, the stability of its deposit base, and adequate liquidity. However, decreasing profitability levels, a tight capital base and deteriorating asset quality metrics limit the bank's individual rating. Also, Bareservas' above average exposure of its balance sheet to the government (proper of most state-owned banks) is also considered.

Changes in the IDRs will be contingent upon changes in the sovereign's creditworthiness. Further deterioration of its asset quality ratios and/or capital levels will trigger a downgrade of its Individual Rating.

Increasing funding costs and a stagnated yield on its loan portfolio resulted in a decrease of Banreservas' net interest margin, while higher operating costs and the pressure of larger loan loss reserves, resulted in a significant contraction of the bank's operating profit to just 1.1%, well below its historic average and banks of similar size in the region; while its return on average assets ratio (ROAA) was benefited by an increase on non recurring income to 1.4%; still below the market average. Weak asset quality on its private sector portfolio, a heavy structure of operating costs and its narrower margin will keep pressuring the bank's operating profits in the short term.

The stagnation of the private sector portfolio and the ramping past due loans on such portfolio increased the past due loan ratio for private sector loans to 11.4% as of December 2009 (FY08: 7.4%); while loan loss coverage was just 92%; metrics that compare unfavorably with the peer average. Public sector exposure (loans and securities) increased to 7.7 times (x) as of December 2009, a level considered high due the relatively low sovereign rating of the Dominican Republic (IDR of 'B').

Banreserva's capital ratios remain challenged. As such, the equity to assets ratio came down to 7.3% as of May 2010 (FY06: 9%), while the Fitch eligible capital to risk weighted assets stood at 17.6% (10.3% if government loans are weighted at 100%), a level considered tight given the current level of profitability and tight loan loss coverage; while fixed assets represent 46% of total equity.

As of May 2010, Banreservas ranked first out of 13 commercial and multiple service banks, with 26% of total system assets. The bank is the main government paying agent and also has an important participation in the consumer and corporate markets.

Additional information is available at 'www.fitchratings.com'

Related Research:

--'Global Financial Institutions Rating Criteria', Aug. 16, 2010;

--'What a Difference a Year Makes: Latin American Banks Review and Outlook 2010', Feb. 8, 2010.

Related Research:

What a Difference a Year Makes: Latin American Banks Review and Outlook 2010

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=499126

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685

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